Fitch Affirms Osceola County School District, FL COPs & Revs at 'A'.

NEW YORK -- In the course of routine surveillance, Fitch Ratings affirms the following ratings for Osceola County School District, Florida (the district):

-- $187.9 million in certificates of participation (COPs) at 'A';

-- $85.8 million in infrastructure sales tax revenue bonds at 'A';

-- Implied general obligation (GO) at 'A+'.

The Rating Outlook is Stable.

The 'A+' implied general obligation rating is based on the district's moderate debt levels, strong management, and sound reserve levels. Also factored into the rating are the district's demonstrated ability to manage the recent state funding reductions and moderating capital needs as previous rapid enrollment growth levels off. Fitch believes that the district, like all Florida school districts, will likely face substantial state revenue reductions in the current economic downturn. However, the district's reserve levels provide a degree of flexibility to weather the pressured operating environment. The COPs rating also incorporates its annual appropriation risk which is largely mitigated by the strong legal features of the master lease-purchase agreement requiring the district to surrender the majority of its leased facilities if it fails to appropriate.

The 'A' rating on the sales tax revenue bonds reflects the adequate debt service coverage, sound legals, and general credit characteristics of the district. Fiscal 2008 results show maximum annual debt service (MADS) coverage of 1.41 times (x). Year-to-date revenues are down 3.6% from a year prior which would moderately reduce coverage to 1.35x. Current county projections are conservative, including a 23.2% monthly decline from a year prior for the rest of the fiscal year to reach the district's coverage projection of 1.24x MADS for fiscal 2009. While Fitch does expect further deterioration of pledged revenues due to the present economic downturn, the Stable Rating Outlook reflects Fitch's expectation that coverage levels will remain adequate.

Osceola County, which is coterminous with the school district, is located roughly 14 miles south of Orlando and adjacent to Disney World, leading to the county's historic concentration in tourism. The Walt Disney Co. (rated 'A' with a Stable Outlook by Fitch) employs 61,500 employees in Orange and Osceola counties. The county's economy and population experienced substantial growth in previous years as the expanding Orlando metropolitan area extended into the county. Population has increased almost 50% since 2000 as the inventory of affordable, developable land is reportedly higher here than in neighboring Seminole and Orange Counties. Unemployment has increased with the recent economic downturn to 8.7% in December 2008 from 4.9% a year prior.

Although district revenues are vulnerable to state funding fluctuations, the district has maintained stable operations. Despite $18.6 million in state aid reductions, including $12.6 million in mid-year cuts, fiscal 2008 ended roughly balanced with a minimal $0.3 million drawdown. Fiscal 2009 has already resulted in nearly $20 million in reductions from state revenue. The district has implemented an effective expenditure reduction plan to offset the majority of the cuts and plans to drawdown a moderate $4.5 million to avoid severe service decreases. Unreserved fund balance levels are expected to remain a healthy 13%. Going forward, the district plans to make service reductions as necessary to offset state aid reductions and maintain current fund balance levels.

Debt levels are moderate, especially given recent rapid enrollment growth. Overall debt per capita equals $2,631 per capita and 2.5% of taxable assessed value. The district's five-year capital improvement plan (CIP) totals $475.8 million, excluding debt service, and is fully funded. Renovating new schools, capacity projects, and reoccurring projects each account for roughly a third of the plan. The district plans to issue $50 million in additional COPS over the next five years. Currently, the district uses a low 0.53 mills for COPS debt service payments.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.