Fitch Rates School Board of Seminole County, Florida $52.4MM COPs 'A+'.

NEW YORK -- Fitch assigns an 'A+' rating to the School Board of Seminole County, Florida's (the district) approximately $52.4 million certificates of participation (COPs), series 2007A. The COPs, scheduled to price the week of Feb. 12 via negotiation with a syndicate led by UBS Investment Bank, will be insured by Ambac Assurance Corp., whose insurer financial strength is rated 'AAA' by Fitch. The series 2007A COPs will advance refund the district's series 1997A COPs for an estimated net present value savings of 4.0% of refunded par. At this time, Fitch also affirms the 'A+' rating on approximately $256.4 million in outstanding COPs. Public Financial Management, Inc. serves as the School District's financial advisor. The Rating Outlook is Stable.

The 'A+' rating on the school board's COPs reflects sound lease provisions and the district's underlying credit quality. Credit characteristics include Seminole County School District's above-average demographic indicators, the school district's very low debt levels and a fully funded capital plan, and solid financial operations. The state's overestimation of the district's enrollment in fiscal 2006 and again in fiscal 2007 resulted in reduced state revenue than originally budgeted for and prompted the use of general fund reserves in both fiscal years to cover a portion of the budget shortfall. The reduction in state funding for the current fiscal year is also being mitigated by 85 vacant teaching positions included in the adopted fiscal 2007 budget that will remain unfilled and other budgeted increases that won't be realized due to a decline in enrollment.

The COPs are secured by lease payments made by the district to the trustee as assignee of the Seminole County School Board Leasing Corp., which is a not-for-profit corporation created to assist the district in lease-purchase financing. The obligation of the district to make lease payments is a limited obligation, payable solely from funds appropriated by the district from available revenues. The 2007A COPs are being issued pursuant to a master lease agreement, which provides strong incentives for appropriation. In the event of non-appropriation, the board must surrender all leased facilities to the trustee. Approximately 26% of the district's 61 school facilities are included under the master lease. Following this issuance, the district will leverage approximately .85 mill of the 2.0 mill capital outlay levy available for COPs repayment. Fitch expects the portion of the 2.0 mill capital outlay levy needed for repayment to decline annually as the county's tax base continues to show solid growth. Further, a front-loaded debt service structure and above-average COP amortization rate relative to many Florida school districts will provide additional flexibility.

Situated in central Florida, Seminole County is about 23 miles northeast of Orlando and central Florida's main tourism attractions. Though tourism plays a significant role in the local economy, an increased presence of financial services and high technology firms broadens the economic base. Population growth has been steady, up 10% since the 2000 census to 401,609, after growing 27% in the 1990s. District officials indicate that the county is largely built-out with few large tracts of land available for new residential development. County per-capita incomes are above the state and national average and unemployment levels track below state and national averages.

Financial operations are sound and characterized by healthy reserves, generally in excess of a board-approved policy requiring a general fund reserve equal to 4% of spending. Following three consecutive years of sizeable operating surpluses, the district experienced a $3.4 million reduction in general fund balance in fiscal 2006, a result of overestimating enrollment and incurring higher than budgeted utility costs. The unreserved general fund balance declined to a still solid $26.2 million, equal to a sound 6.3% of spending and transfers out. Despite the continuation of unexpected enrollment declines in the current fiscal year, the district expects general fund reserves to remain in excess of its reserve policy. State revenue sources generated roughly 63% of district general fund revenues in fiscal 2006 making the district somewhat vulnerable to fluctuations in state funding, typical for most Florida school districts. Taxable assessed valuation has grown 15.6% on average annually over the last five years.

The district's five-year, fully-funded capital improvement plan (CIP) equals $478 million and includes $20 million for contingencies. Slightly more than half of the CIP will address renovations and general maintenance, with the remainder dedicated to COP repayment and two new elementary schools. The 2-mill capital outlay levy coupled with sales tax revenue will fund the majority of the CIP. The district continues to enjoy revenue from the 10-year extension of the county's one-cent infrastructure sales tax approved by voters in 2001. One-quarter of the proceeds of the tax are allocated to the school board and are expected to provide roughly $54 million for capital investment through 2010.

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