Fitch Rates Orlando, Florida's $5MM Special Rev Bonds 'AA'.

TAMPA, Fla. -- Fitch has assigned an 'AA' rating to Orlando, Florida's approximately $5 million capital improvement special revenue bonds, series 2006B, to be sold via negotiation with Jackson Securities on, or after March 14. Bond proceeds will be used to currently refund the City's outstanding capital improvement special revenue bonds, series 2002, maturing on April 1, 2006. Fitch also affirms the 'AA' rating on the City's $147 million in outstanding capital improvement special revenue bonds and the implied 'AA+' rating on the City's general obligations (GO), none of which are outstanding. The Rating Outlook is Stable.

The 'AA' rating on the capital improvement special revenue bonds reflects the City's history of strong financial management, sizable fund balances, innovative financing and investment practices; and an economic base centered on the area's position as a leading tourist destination. Orlando's revenue stream is diverse, balancing stable sources, such as property and utility service taxes with more economically sensitive revenue streams that enable the City to capture tourism activity.

Bonds are payable from covenant revenues, subject to annual appropriation. The covenant revenues include all non-ad valorem revenues in the general fund and revenues of the utilities services tax fund, net of any inter-fund transfers. Legal protections for the bonds under the covenant ordinance are strong and provide for both a debt service reserve and an additional bonds test, as well as for the maintenance of sound reserve levels in the general fund.

The City has a well-established history of good financial management, which has enabled it to grow sizeable fund balances. In recent years, however, largely the result of the downturn in the economy that followed the events of Sept. 11, 2001, and the impacts of three major hurricanes during fiscal year 2004 (FY2004), general fund operations have been pressured. While the City's overall general fund reserve position remains solid at $59.8 million and 20% of spending at the close of FY2005 (unaudited), reserves historically had exceeded 27% of spending prior to FY2002, and have declined as a percentage of spending since FY2003. The FY2006 budget is 8.4% higher than FY2005 and includes a one-time increase in funding from the Orlando Utilities Commission (OUC); (rated 'AA' with a Stable Outlook by Fitch) to the general fund. While the City's general fund historically receives an annual subsidy from the OUC, the payment of $69.8 million for FY2006 includes a one-time payment of about $13.6 million above the historic level. City officials state that the City and the OUC are currently renegotiating the terms of the agreement between the two parties, which could result in an increase in the annual allocation from the OUC to the City's general fund. Failure to adopt a long-term agreement with the OUC, to increase the operational transfer to the general fund or to develop alternative measures to structurally balance the budget without relying on extraordinary transfers from the OUC, or other one-time revenues, could put downward pressure on the rating.

The City's economy has historically been strong, and it is likely that tourism will remain the predominant source of economic activity as the area recovers from the economic downturn. City unemployment rates have declined to 2.7% in December 2005 from 4.2% in December 2004, below the State and national rates for the same period. Unemployment rates, while remaining below state and national rates, are not at the pre-2001 levels, which averaged 3.3%. Although Walt Disney World has a major impact on the City's economy, it is not located within city limits and is not part of the tax base. Universal Studios' property, the City's largest taxpayer, makes up a fairly high 6.9% of FY2004 assessed valuation. Total top-10 taxpayers in the city make up a moderate 11.7% of total assessed valuation in FY2004.

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