Fitch Rates Northern Palm Beach County Improvement Dist, Florida Water Control & Improvement Refs 'A-'.

TAMPA, Fla. -- Northern Palm Beach County Improvement District, FL's approximately $6.67 million water control and improvement refunding bonds, Unit of Development No. 5B, series 2005, are rated 'A-'by Fitch Ratings. The bonds, expected to be insured, are scheduled to price the week of July 25 via negotiation with Raymond James and Associates, Inc. Proceeds will refund the series 1999 bonds for an estimated savings of 4.4% of the refunded bonds. The series 2005 bonds are repayable from special assessment drainage taxes levied within the project area known as Unit 5B. The Rating Outlook is Stable.

Unit of Development 5B, also known as Baywinds, has been developed as a mixed-use, active adult, planned development located in the City of West Palm Beach (GO rating 'AA-' with a Positive Outlook by Fitch). Baywinds began a period of aggressive development in 1999 and is largely developed. Although a small portion of land is dedicated to commercial uses, the largest portion of Baywinds is developed with high quality, concrete-block constructed single family homes. Credit strengths include a project that is largely developed with little land owner concentration, debt issuance limited to 90% of benefit assessment, the ability to adjust the assessment annually, and debt service collected one year in advance of payment dates. Further assurance to bondholders is provided by the assessment collection process and a rigorous tax lien process; although the drainage taxes are not ad valorem taxes, under Florida law non-ad valorem assessments may be collected in the same manner as ad valorem taxes. Credit risks include the lack of maturity of the Baywinds development; while it is largely developed, it is unclear if current demand for properties within the project will be sustained. The pace of development, however, and the rapid sell-out of a recent condominium conversion in the development, suggests ample demand.

The Northern Palm Beach County Improvement District is a water control district, which is an independent special district of the State of Florida, established in 1959. The district, governed by a five-member board of supervisors and operated by 21 full-time employees, currently encompasses approximately 128 square miles of land in the northeastern portion of Palm Beach County. The act establishing the district allows the portions of the district to be designated as a unit of development for purposes of undertaking improvement projects. The district has created over 65 such units of development, including Unit 5B. In 1998, the board approved Unit 5B's plan of improvements, which included potable water and wastewater distribution and collection improvements. The district issued $6.5 million in bonds, series 1999, to fund the improvements. The improvements are complete and have been conveyed to the City of West Palm Beach.

Baywinds consists of approximately 580 acres, of which 180 are considered assessable. The remaining 399 acres are classified as exempt and include lakes, a wetland preserve, roads, and units owned by governmental entities (such as homeowner's and property owner's associations). The majority of assessable land is residential (156 acres) with the remaining 17 and 7 acres commercial and undesignated, respectively. The residential component consists of approximately 1,300 housing units, including 240 condominium units. The basis of assessments is area (acreage) rather than assessed value; in tax year 2004, each residential unit was subject to a drainage tax of approximately $412 while commercial properties were assessed at approximately $4,186 per acre. The district has levied drainage taxes with respect to Baywinds since 1999. The district levied $497,005 in fiscal 2004. Collection rates are high and have been at least 99.6% since the assessment's inception in 1999.

Land in Baywinds was largely undeveloped at the unit's inception in 1993; the passage by the board of the resolution approving its plan of improvements in 1998 triggered a period of aggressive land development. Assessed valuation (AV) grew at an average annual rate of 61% since 1999 and reached $141 million in fiscal 2004. AV more than doubled each year from fiscal years 2000-2003, reflecting development of the majority of land within the unit. Growth in fiscal 2004 slowed to 37% reflecting fewer newly constructed homes. The district anticipates growth rates similar to fiscal 2004 in 2005, reflecting the final stages of new construction, and expects AV growth to normalize to rates similar to those in the City of West Palm Beach thereafter.

Lennar Homes and Pride homes were the primary residential developers of Baywinds. The district-provided tax roll identified Lennar and Pride Homes as the owners of approximately 102 and 77 properties in Baywinds, respectively in 2004. The 2005 district-provided tax roll indicates that Lennar is the owner of one residential property and Pride the owner of two, suggesting residential buildout. The absence of owner concentration in Baywinds essentially eliminates the risk of default resulting from the departure of one taxpayer. Furthermore, the high value of the property relative to the rate of the drainage assessment, results in very high value-to-lien ratios for the large majority of landowners in Baywinds.

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