Fitch Rates West Palm Beach, Florida CRA Tax Increment Revs 'A+'.

TAMPA, Fla. -- Fitch Ratings assigns an 'A+' initial rating to the City of West Palm Beach, Florida Community Redevelopment Agency's $75.9 million tax increment revenue bonds (City Center Community Redevelopment Area [CCCRA]), series 2006A. The bonds are scheduled to sell during the week of Oct. 30 through negotiation with Citigroup, Bear, Stearns & Co. Inc., and Estrada Hinojosa & Company, Inc. The Rating Outlook is Stable.

The 'A+' rating reflects the sound debt service coverage provided by pledged tax increment revenue, the CCCRA's diversity and importance to wealthy Palm Beach County (rated 'AAA' by Fitch), strong growth, and potential for continued development, along with solid legal provisions. Credit strengths are balanced by a somewhat concentrated taxpayer base.

The CCCRA encompasses 940 acres and includes most of West Palm Beach's downtown core including intracoastal waterway frontage and CityPlace, a highly successful mixed use project. Encompassing about 3% of total city acreage and 18% of the city's taxable assessed value (TAV), the CCCRA is largely developed and diverse. TAV growth has been strong, increasing 20% on average annually since fiscal year 2000 and growing more than 20% annually between fiscal years 2005 and 2007 to reach $2.1 billion. Projections indicate that $1.65 billion in new construction will be added to the tax rolls between fiscal years 2008 and 2011 and more than half of the projects that make up that value are complete or under construction.

While the tax base is diverse in use with 44% and 56% of TAV representing residential and commercial values respectively, the top 10 taxpayers are concentrated, with this group making up 32% of total assessed value and 38% of incremental value. Palm Beach County and the City of West Palm Beach are the primary taxing entities in the district and levy 4.85 and 7.85 mills, respectively in fiscal 2007. An additional 2 mills is levied on a portion of the project area designated the Downtown Development Authority (DDA) and the agency receives one-half of that levy. Although the city and county may reduce millage rates in the future and slightly reduced rates for fiscal 2007, Fitch does not expect future decreases to be significant.

The bonds are payable from a lien on tax increment revenue generated in the CCCRA, net of prior agency commitments to the CityPlace Community Development District (CDD) and a private developer. Debt service coverage is ample, with total available revenue in fiscal 2006 covering estimated maximum annual debt service (MADS) on the current offering by 1.87 times (x). Coverage of MADS rises to 3.15x in fiscal 2007 given a tremendous 40% growth in TAV as reported in the certified county tax roll. Debt service coverage is protected by the additional bonds test, which requires available tax increment revenue to cover MADS including the proposed issue at least 1.50x. The obligation of the CCCRA to repay the city, and to a lesser extent the county and DDA, for subordinate obligations annually provides a further cushion. The subordinate payments total $9.2 million in fiscal 2007. Annual debt service coverage of series 2006A bonds by pledged revenue in fiscal 2007 is estimated at 6.2x and coverage of all obligations of the CCCRA, including the subordinate obligations by net tax increment revenue is estimated at 1.27x. These coverage figures exclude portions of the tax increment revenue dedicated under a 1998 interlocal agreement to other uses, although a portion of the deduction acts as a reserve that never has been used and thereby could be available for series 2006A bondholders. Coverage holds up well to stress scenarios that assume loss of the largest two taxpayers, a 50% reduction in projected value of new development underway, and annual millage reductions by the contributing taxing authorities. The agency has no current plans to issue additional bonds secured by CCCRA tax increment revenues.

Bond proceeds will finance a new library facility with an onsite parking garage, a photographic centre, a waterfront park and a separate parking garage for downtown public parking.

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