Fitch Rates Florida's $216.7MM Lottery Revenue Bonds 'A'.NEW YORK New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of -- Fitch Ratings Fitch Ratings An international rating agency for financial institutions, insurance companies, and corporate, sovereign, and municipal debt. Fitch Ratings has headquarters in New York and London and is wholly owned by FIMALAC of Paris. assigns an 'A' rating to the State of Florida's $216.7 million lottery revenue bonds, series 2006A, to be issued on behalf of the State Board of Education upon 18 hours' notice from as early as March 13th. The new bonds consist of a final $200 million installment from a $600 million authorization to fund class size reduction projects in response to a 2002 constitutional amendment and up to $67 million authorized au·thor·ize tr.v. au·thor·ized, au·thor·iz·ing, au·thor·iz·es 1. To grant authority or power to. 2. To give permission for; sanction: refunding bonds refunding bond A bond that is issued for the purpose of retiring an outstanding bond. Issuers refund bond issues to reduce financing costs, eliminate covenants, and alter maturities. See also crossover refunding bonds, prerefunding. to refund the $58 million outstanding series 1999A bonds due 2011-2019. These bonds, on parity with $2.2 billion outstanding lottery revenue bonds, are solely secured from a first lien on the statutory allocation of gross lottery revenues deposited into the Educational Enhancement Trust Fund (EETF EETF Educational Enhancement Trust Fund (Florida Lottery) EETF Electronic Equipment Test Facility EETF Extended Exact Transfer Function EETF Eth Evc Termination Function ). Beginning in fiscal 2003, the percentage of instant game ticket revenues distributed as prizes was no longer a fixed rate but now varies as a means to stimulate sales and led, at least in part, to the near tripling of instant ticket sales since fiscal 2002, including a 36% increase in fiscal 2005 over fiscal 2004. The state will soon institute a similar change for the on-line games; however, the same rate of return is not expected as it was for the instant games. Previously, the legislature had authorized a $2.5 billion lottery bond Lottery Bond A bond issued in the U.S. and U.K. with a rate of return dependent upon a lottery style payout. Notes: The lottery payout structure involves a method of random draws. program for educational facilities to be supported by $180 million annual appropriations from the EETF. When the expense of the class size reduction amendment, estimated to be a $1.8 billion-$6.1 billion capital cost over an eight-year phase-in period, was added to the state's ongoing and considerable educational needs, the original $2.5 billion program proved insufficient and the state increased the bond program by $600 million. The governor has since proposed an alternative plan, funded by the state's gross receipts tax A gross receipts tax, sometimes referred to as a gross excise tax, is a tax on the total gross revenues of a company, regardless of their source. It is similar to a sales tax, but it is levied on the seller of goods or services rather than the consumer. , which would reduce but likely not eliminate future capital costs supported by lottery bonds. Florida's voter-approved lottery began in 1988 and proceeds are constitutionally dedicated to educational purposes. Total lottery sales approximated $2 billion in each year since inception before nearing and ultimately surpassing $3 billion over the fiscal 2003 to fiscal 2005 period. This afforded over $1 billion annual transfers to the EETF in each of the past three fiscal years. Florida's lottery may be characterized as mature, experiencing slow growth; although, the recent structural adjustments, enhanced by rollovers in fiscal 2003 along with game changes, have stimulated ticket sales. While there are definable weaknesses in lottery profits as a source of bond security, including its discretionary nature as well as the potential for changing tastes or the introduction and availability either within or outside the state of other forms of gaming, there are offsets to the inherent uncertainties. Since 1989, annual coverage of projected maximum debt service for the prior full $2.5 billion capital program and the $600 million increase for class size reduction has ranged from 4.5 times (x) to 8.6x, affording comfort. With this issue, maximum debt service is covered 5.7x by fiscal 2006's pledged $1.2 billion transfer to the EETF. Lottery revenues have only declined three years since inception and gains have been steady since fiscal 1998, up 13% in fiscal 2005. Recent gains largely reflect the higher prizes, changes to Lotto, and the increased prizes for the instant games that served to substantially stimulate sales. Legislation has authorized variable prizes for on-line games and implementation plans are under review. The February 2006 lottery estimating conference upwardly revised the lottery's projected income with anticipated growth of 12.8% in fiscal 2006 and 7.9% in fiscal 2007. Security is additionally supported by a 3x additional bonds test Additional bonds test A test for ensuring that bond issuers can meet the debt service requirements of issuing any new additional bonds. additional bonds test and a non-impairment clause ensuring that the allocation to the EETF not fall below that generated by the prior 38% allocation and requires a minimum of 2x coverage. The debt service reserve requirement, maximum annual debt service, will continue to be met through purchase of a surety bond surety bond An insurance fee required before a duplicate security is issued to replace one that has been lost. The fee is approximately 4% of the market value of the security to be replaced. . The state has also covenanted any other similar state gaming revenues first be applied to debt service on lottery revenue bonds. While the enabling legislation Noun 1. enabling legislation - legislation that gives appropriate officials the authority to implement or enforce the law legislation, statute law - law enacted by a legislative body allows 30-year bonds, issuance of 20-year bonds with level debt service has been legislatively directed and intended, a more appropriate term in light of the long-term uncertainties of the securing revenue stream. The bonds will be due July 1, 2006-2025 and will be optionally callable Callable Applies mainly to convertible securities. Redeemable by the issuer before the scheduled maturity under specific conditions and at a stated price, which usually begins at a premium to par and declines annually. beginning July 1, 2015 at 101% or at par beginning July 1, 2016. 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