Fitch Affirms Orlando, FL's Republic Drive CRA Tax Increment Rev Bonds at 'A-'; Outlook Stable

Fitch Ratings affirms the 'A-' rating on the following Orlando, Florida Community Redevelopment Agency bonds (CRA or agency):

--$27.6 million tax increment revenue refunding bonds (Republic Drive/Universal Boulevard District), series 2012.

The Rating Outlook is Stable.

SECURITY

Pledged revenues consist principally of tax increment revenue generated from the redevelopment area deposited by the agency into the revenue account held by the trustee. Additional security is provided by a cash funded debt service reserve account (DSRF).

KEY RATING DRIVERS

UNIVERSAL ORLANDO EXPOSURE: Almost all of the tax increment area consists of entertainment and related venues affiliated with Universal Orlando Studios. Universal Orlando's reputation as a world class tourist attraction and substantial ongoing investment in its properties somewhat mitigate concerns about the high level of exposure to a single property owner.

RECENT ATTENDANCE GAINS: Attendance at Universal's Orlando theme park has been growing over the past three fiscal years as a result of an improving economy and the opening of new attractions. Planned new exhibits and hotels are expected to further boost attendance.

STRONG BUT REDUCED DEBT SERVICE COVERAGE: Coverage of maximum annual debt service (MADS) remains solid at 2.0x although below the prior fiscal year MADS coverage of 2.2x. The drop in coverage levels is attributable to a combination of lower fiscal 2014 CRA taxable assessed values (TAV) and the issuance of additional parity debt during fiscal 2013.

NO COLLECTION RISK: The taxing authorities are statutorily required to appropriate 95% of the incremental tax levy, regardless of actual collections.

SOLID STRESS PERFORMANCE: Taxable values within the redevelopment area could decline by 35% and still cover MADS by at least 1.0x.

STRENGTHENED AND DIVERSIFYING LOCAL ECONOMY: The Orlando region has seen an upsurge in tourism and other economic activity over the past two to three years. Significant health science-related development provides diversification away from the volatile tourist sector.

RATING SENSITIVITIES

A significant decline in CRA assessed valuation narrowing coverage could lead to negative rating action.

CREDIT PROFILE

The Republic Drive/Universal Boulevard District was formed in 1994 and encompasses 780 acres in Orlando, Florida (implied general obligations rated 'AAA'; Stable Outlook by Fitch). Universal City Development Partners, Ltd. (Universal Orlando) (IDR 'BBB'; Stable Outlook) is the corporate owner of 680 acres of property within the redevelopment area, with TAV that exceeds the project area's incremental value. Universal Orlando is owned by Comcast Corporation (IDR 'BBB+'; Outlook Positive) through its wholly owned subsidiary, NBC Universal Media, LLC.

Universal Studios properties include the Universal Studios Theme Park, the Islands of Adventure Theme Park, City Walk, and auxiliary components such as the Hard Rock and Portofino Bay hotels, parking garages, and restaurants. Commercial developments in the area are limited and consist primarily of back-office functions for the theme park, and residences for theme park workers.

VERY HIGH CONCENTRATION LEVELS

The CRA is dominated by Universal Orlando, which accounts for 87% of the redevelopment area and 89% of TAV. Concern regarding the CRA's reliance upon Universal Orlando is partly mitigated by Universal's strong and proven brand, Orlando's presence as a worldwide tourist destination and management's sizable and expanding investment in its properties.

Other positive credit factors include the primacy of the property tax pledge, ahead of all other liens and the rigorous Florida tax collection process in which tax certificates are promptly sold on properties of delinquent taxpayers, ensuring adequate cash flow to support debt service. Collection risk is also mitigated by the requirement that the taxing entities, the city and Orange County (implied general obligations rate 'AAA', Stable Outlook) pay the CRA 95% of the tax increment revenues regardless of actual collections.

LOWER BUT STILL SOLID DEBT SERVICE COVERAGE

Coverage of MADS declined by about 10% in fiscal 2014 from the previous year, but remains solid at 2.0x, the requirement for parity bond issuance. Payment of debt service can withstand significant stress as TAV could decline by 35% and the resulting tax increment would still cover MADS by at least 1.0x.

The drop-off in coverage stems from a fiscal 2014 decrease in CRA TAV. Following two years of stout valuation growth, fiscal 2014 TAV fell by over 7% mainly as a result of revaluations of certain portions of Universal Orlando's properties. Valuations for Universal Studios Theme Park and Islands of Adventure valuations were lowered by a combined $88 million or 19% below their fiscal 2013 TAV. The CRA's incremental values declined by 10%, reflecting a midrange ratio of incremental to base year values of 240% which somewhat moderates tax increment volatility.

BANK LOAN ON PARITY WITH OUTSTANDING BONDS

In 2013 the CRA took out a $9 million bank loan on parity with the outstanding series 2012 bonds. Proceeds will finance the construction of a pedestrian walkway and transportation-related stormwater improvements. The bank loan raises overall debt service costs by about $865,000 or 22% annually through 2025. No other debt issues are currently planned.

IMPROVED THEME PARK PERFORMANCE

Park performance has been strong since 2009. Attendance levels at Universal Orlando were up each year from 2010 through 2012 with the upward trend continuing into 2013, according to reports by Themed Entertainment Association/AECOM and Comcast. Attendance gains were propelled by the Wizarding World of Harry Potter, which opened in mid-2010, a new Transformers ride and an improving economy. Comcast continues to make sizable investments in Universal Orlando. These include Diagon Alley, a major expansion of the Harry Potter attraction scheduled to open next summer and the soon-to-open 1,800 room Cabana Bay Beach Resort. These projects are expected to bolster future attendance and TAV growth.

SOLID LEGAL PROVISIONS

Legal provisions are adequate, and include an additional bonds test requirement that prior year's pledged revenues must equal at least 2.0x maximum annual debt service. Pledged revenues flow first to the authority for debt service, reserve fund replenishment and certain incidental costs, with residual revenues transferred to the taxing authorities to be used for any purpose. A debt service reserve fund funded with cash to maximum annual debt service provides additional support.

CENTRAL FLORIDA ECONOMY STRENGTHENS

The local economy continues to expand and diversify. Employment levels have increased steadily since 2011 and were up 2.2% in October 2013 over the prior year. The city's October 2013 unemployment rate of 5.7% was lower than the state and national rates of 6.6% and 7.0%, respectively.

The leisure and hospitality sector is a major component of the local economy, comprising about 21% of total employment. Disney is the dominant player, employing about 58,000 or about 10% of total county employment. Universal Orlando reports 13,000 employees while SeaWorld of Orlando's workforce totals approximately 7,000. Beside growing theme park attendance and TDT collections, expanding occupancy and hotel room rates are indicative of the resiliency of this sector.

Economic diversification continues to take hold, most notably within the education and health services sectors. A growing biotechnology and life sciences cluster is centered in Lake Nona Medical City, a master planned mixed community within Orlando. Lake Nona is anchored by The University of Central Florida's (UCF) Health Sciences Campus, which is home to its College of Medicine and the Burnett College of Biomedical Sciences, M.D. Anderson Cancer Center and Sanford-Burnham Medical Research Institute. Other Lake Nona medical facilities are recently opened Nemours Children's and a partially opened new Veteran's Administration hospital. Significant additional residential and commercial development throughout the city points towards ongoing near term growth.

Additional information is available at 'www.fitchratings.com'.

In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight, National Association of Realtors.

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria' (Aug. 14, 2012);

--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=814824

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