Fitch Rates Gulf County, Florida's $10.6MM Limited Ad Valorem Tax Bonds 'BBB'.

NEW YORK -- Fitch Ratings assigns an underlying initial 'BBB' rating to Gulf County, FL's (the county) $10.6 million limited ad valorem tax bonds, series 2006. The bonds, expected to be insured by an 'AAA'-rated bond insurer, are scheduled to sell on Dec. 13, 2006 through negotiation led by Morgan Keegan & Company, Inc. Proceeds from the series 2006 bonds will fund the renourishment and reconstruction of beachfront property at Cape San Blas, Gulf County, Florida. The Rating Outlook is Stable.

The 'BBB' rating on the county's limited ad valorem tax bonds is based on the desirability of the oceanfront location, the short duration of the bonds, and the additional taxing capacity that exists under the maximum tax rate allowed by county ordinance. The rating also considers Cape San Blas' susceptibility to severe storm and hurricane damage given its location, the relatively small number of total taxpayers, and the potential for property values to decline.

The bonds are secured by a limited ad valorem tax pledge within two municipal service taxing units (MSTUs). Pursuant to a 2006 ordinance adopted by the board of county commissioners, the Cape San Blas Gulfside MSTU and the Cape San Blas Interior MSTU were established for the purpose of financing an extensive beach renourishment and reconstruction project. The ordinance allows for a limited property tax levy upon all taxable property not to exceed 6.0 mills in the Gulfside MSTU and 4.0 mills in the Interior MSTU. The tax rates are levied differently within each MSTU according to the derived benefit received by each unit from the proposed project. For fiscal 2007, the board imposed levy of 4.4 mills and 1.6 mills for the Gulfside and Interior MSTUs, respectively, provides ample taxing capacity under the limited tax cap. The fiscal 2007 levy is based on a combined taxable assessed value of $545 million and assumes a 95% property tax collection rate.

The MSTUs are located on Cape San Blas, a barrier peninsula located along the Gulf of Mexico at the southern end of Gulf County. The peninsula, approximately 18 miles long and less than a mile wide, is recognized as one of the premier beaches in Florida. Cape San Blas contains only 1,300 mostly residential parcels owned by approximately 1,234 taxpayers. While the number of taxpayers is small, which presents a risk should the entire peninsula be affected by a severe storm, taxpayers are diverse, with the 10 largest accounting for a low 9.4% and 8.4% of the total.

Although officials report that the peninsula has not been seriously affected to date by any severe storms, several hurricanes occurring over the past two years throughout the Florida Panhandle have eroded the beachfront along Cape San Blas. The proposed project will consist of renourishing approximately 6.75 miles of beachfront along the western end of the peninsula by dredging approximately 3.4 million cubic yards of sand located two miles offshore and returning it to the beach. Permits from the Florida Department of Environmental Protection and the U.S. Army Corps of Engineers have been applied for and are expected by summer of 2007. The bonds have a scheduled maturity of August 2014.

Gulf County is located in northwest Florida along the Gulf of Mexico. With an area of 557 square miles and a 2005 estimated population of 13,975, the county is a small and historically rural county. Population grew by a moderate 16% in the 1990s and by an additional 5% since the 2000 census. With a relatively small labor force, the county's economy is focused on timber and agricultural industries and is anchored by a state prison that employs over 600 people. The county's unemployment rate has moderated in recent years after climbing to 14% in 1999 following the departure of one of its largest employers. The unemployment rate declined in 2005 for the third consecutive year to a low 3.9%, better than the state and the nation. Income levels lag state and national averages, and well below-average per capital retail sales levels illustrate the lack of commercial development within the county.

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