Fitch: School Board of Osceola County, Florida $84.8MM COPs 'A'

Business Wire, Sept 23, 2004

NEW YORK -- Fitch Ratings has assigned an underlying 'A' rating to The School Board of Osceola County, FL's approximately $65.1 million certificates of participation, series 2004A, $6.2 million certificates of participation, series 2004B, and $13.6 million certificates of participation series 2004C. The 2004 certificates are scheduled price via negotiation with a syndicate led by A.G. Edwards and Sons on or around Oct. 13. The 2004C certificates are subject to a forward delivery certificate purchase agreement and are expected to close in March 2005. Proceeds of the 2004A COPs will be used to finance construction of an elementary school and a high school. Proceeds of the 2004B and 2004C certificates will be used to partially refund outstanding 1995A certificates. In addition, Fitch affirms the following:

--Outstanding 'A' rating on approximately $107 million of outstanding parity COPs, series 1995A, 1999A, and 2002A;

--'A' rating on $42 million outstanding sales tax revenue bonds, series 2001;

--'A+' rating on $10.7 million general obligation bonds series 2002. The Rating Outlook is Stable.

The 'A' rating on the certificates of participation (certificates, or COPs) reflects sound legal provisions as well as the district's underlying credit features including strong tax base growth and a stable financial position with ample reserve levels for a Florida school district. At the same time, sizable capital needs related to rapid enrollment growth are expected to increase debt levels and may pressure operations. In an effort to alleviate some of the district's growth pressures, cooperative relationships have been formed with area charter schools. However, some of the charter schools, which currently house 4,000 district students, are under financial stress.

Series 2004 certificates are secured by payments under a master lease between the district (the lessee) and the Florida School Boards Association, Inc., a non-profit corporation whose members include the 350 qualified members of the state's 67 school boards (the lessor). Lease payments are subject to appropriation, but under the master lease program, the district cannot choose to appropriate for some projects and not others.

After this issue and construction of the two schools being financed, eight of the district's 39 schools and part of another will be under the master lease program. Lease payments are expected to be made from the district's two-mill capital outlay levy, of which 75% can be used for debt service on COPs. Based on fiscal 2003 receipts, the district will use approximately 1.25 mill of its available 1.5-mill capacity for debt service. The district plans to issue additional COPs within the next two fiscal years.

Osceola County's economy experienced substantial growth in recent years as the expanding Orlando metropolitan area pushes into the northern parts of the county. Walt Disney World and related attractions to the north and west drive much of the economy. The county's large hotel/lodging sector accounts for nearly one-third of the hotel rooms in the Orlando area. The decline in tourism following Sept. 11, as well as the recent economic recession had a negative effect on the area economy. Unemployment rates increased dramatically in the past several years but have declined over the past year from 5.1% in July 2003 to 4.1% in July 2004. Income levels are below average, reflecting the significant service industry presence and rural characteristics in other parts of the county.

Financial operations are sound. The general fund derives approximately 65% of its revenue from state sources. Although susceptible to state funding fluctuations, the district has maintained stable financial operations. Fiscal 2003 ended with a $4.7 million general fund surplus leading to an undesignated fund balance of $17.9 million, which represents 7.3% of spending and transfers out. The district's 10-year capital plan identifies $1.1 billion of need, which may be understated given the high enrollment growth. Current funding sources total $765 million of mostly pay-as-you-go sources. The district plans to fill the unfunded gap with the issuance of additional COPs and sales tax revenue bonds.