Fitch Rates South Florida Water Management District's COPs 'AA-'.

TAMPA, Fla. -- Fitch Ratings assigns an 'AA-' rating to the South Florida Water Management District's (SFWMD) approximately $600 million certificates of participation (COPs), series 2006. The bonds are scheduled to sell on or about September 7 via a syndicate managed by Citigroup Global Markets, Inc. The Rating Outlook is Stable.

The 'AA-' rating on the district's COPs reflects the strong legal features of the master lease-purchase agreement related to this issue, the essentiality of the series 2006 projects for the restoration of the Everglades ecosystem, and the underlying credit characteristics of the district. The district comprises 16 counties in south Florida with a total population of more than 7 million, equal to 40% of FL's total population. The member counties, which include Palm Beach, Broward and Miami-Dade, whose GO bonds are rated 'AAA', 'AA+', and 'AA-' by Fitch, respectively, anchor a vast and diverse economy and tax base which provide the majority of district revenues. The sizeable tax base and population should continue to support low debt levels despite planned future issuances under the master lease of about $1.2 billion over the next three fiscal years. District financial management is strong and benefits from state oversight of the budget process. The rating also considers appropriation risk, which is unlikely.

The COPs are secured by lease payments made by the district to the trustee, as assignee of the South Florida Water Management 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 2006 COPs are being issued pursuant to a master lease agreement; in the event of non-appropriation the board must surrender all leased facilities to the trustee. This is the first series of COPS issued under the master lease and, therefore, the series 2006 projects are initially the sole assets under the master lease. The series 2006 projects include the first phase of the Everglades Agricultural Area (EAA) reservoir, the construction of two test cells associated with the C-43 and C-44 reservoirs, EAA stormwater treatment areas expansion and a component of the water preserve areas project, the Acme Basin.

Although not legally pledged for repayment, the district plans to utilize ad valorem revenue generated by three district tax levies for COPs repayment. Florida statute permits the district to levy .8 mills for operations, capital and debt repayment. The district currently levies a total of .697 mills comprising the .413 Okeechobee Basin Levy (which includes a .1 mill levy that can only be used for specific projects, some of which are included in the series 2006 COPs) and the .284 District Wide Levy.

Available revenues generated by these sources in audited fiscal 2005 equaled about $355 million, providing ample coverage of maximum annual debt service (MADS), equal to about $39.4 million, of 9.01 times (x). MADS is expected to reach $121 million after all COPs have been issued under the $1.8 billion authorization. Rapid tax base growth, which has averaged nearly 16% annually since fiscal 2003 and increased 24.5% for fiscal 2007, and the board's capacity to increase the millage rate to the full .8 mills should ensure continued ample coverage of MADs.

The district is one of five regional water management districts created by the state in 1972, covering all or part of 16 counties including the cities of Miami, Fort Lauderdale, West Palm Beach, Fort Myers, and a portion of Orlando. The district partnered with the state and federal governments in the late 1990s and 2000 to pass the Water Resources Development Act which created the Comprehensive Everglades Restoration Plan (CERP). CERP provides a framework to restore, protect and preserve water resources in the district, including the Everglades ecosystem. CERP was originally expected to cost $8 billion and is now expected to ultimately cost over $10 billion and take nearly 40 years to complete. In 2003, recognizing that environmental restoration required immediate action, the state and district established Acceler8 which fast-tracked eight key projects identified in CERP. These projects include reservoirs, stormwater treatment areas, and conveyance canals that will provide expedited progress toward cleaning the water and Everglades ecosystem. The district plans to finance Acceler8 with COPs, and the current offering represents the first issue for the program; additional COPs to complete Acceler8 are planned for fiscal years 2007 and 2008. Although the ultimate success of the larger CERP rests on collaboration among the district, the state, the Army Corps of Engineers, and the DOI, all funding for the Acceler8 projects is the district's responsibility and is not dependent on the receipt of funds from any other source, federal or state.

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