Fitch Ratings has announced that they have removed the Negative Watch for the Central Florida Tourism Oversight District (formerly known as the Reedy Creek Improvement District). The Negative Watch was placed as uncertainty about the future operations of the District was called into question by Florida Republicans when their first attempt at legislating the District included dismantling the District. If the first bill had been enacted as written, more than $1 billion of debt would’ve been transferred to Orange County and Osceola County residents.
A second attempt by the Legislature removed drastic changes. Instead, it focused on consolidating power to Florida Governor Ron DeSantis by allowing him to select the members of the Board of Supervisors for the District, subject to approval from a rubber stamp Senate. While the new Board of Supervisors hinted at changes in their first meeting, no substantial changes have been brought forward.
Fitch Ratings was pleased by the fact that House Bill 9-B didn’t affect taxing and debt, despite initial claims by DeSantis and others that Disney would somehow be more financially liable for the Reedy Creek Improvement District debts. Fitch was also happy with the decoupling of the RCID board and The Walt Disney Company. The Central Florida Tourism Oversight District has been assessed a Stable Rating Outlook. Here’s the assessment from Fitch Rating about the removal of the Negative Watch:
The removal of the Rating Watch Negative reflects the enactment of legislation (House Bill 9-B) by the state of Florida that clarifies the future operational profile of the district, including the preservation of its existing revenue raising authority and other powers that allow for servicing of its debt obligations. The new law also re-ratifies and approves the district’s charter, confirms its status as a public corporation of the state, and replaces the current board with a new five-member board appointed by the governor and confirmed by the state senate, among other matters.
The ‘A’ rating and ‘a’ SCP reflect the district’s consistently very low financial leverage and very strong operating risk profile highlighted by a consistently very low cost burden. The rating also incorporates the district’s strong revenue defensibility, which is rooted in the provision of monopolistic utility services and autonomous rate setting, but is limited by the significant revenue and customer concentration of its largest customer, the Walt Disney Company (IDR A-/Stable). Disney’s operations consistently account for more than 80% of total utility system revenues.
The legislation’s requirement for a new board of directors free of ties to Disney should reduce governance risk. As such, Fitch is removing the asymmetric additional risk consideration associated with the current Disney-concentrated governance structure on the overall rating. The governor has proposed his nominations for the new board, the state senate is expected to deliberate and approve the new members by the end of the current legislative session. Fitch will monitor the district’s successful transition to the new board as well as ascertain its strategic direction and plans for maintaining consistent utility operations and strong credit quality moving forward.
Fitch has removed the ratings from Negative Watch and assigned a Stable Rating Outlook.
Should the new Board of Supervisors come in and maintain the strong fiscal and operating support previously provided by the District, Fitch would further upgrade the Central Florida Tourism Oversight District’s status.
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