Fitch Ratings on Friday placed the
Credits affected include $766 million of outstanding ad valorem tax bonds, rated AA-minus; the district’s issuer default rating of AA-minus; $79 million of outstanding utilities revenue and refunding bonds, rated A; and the utility standalone credit profile at A.
“The negative watch reflects the passage of a bill by the Florida Senate and House of Representatives that would result in the dissolution of independent special districts created prior to 1968, including RCID, effective June 1, 2023 if signed into law by the governor. Such districts affected by the dissolution bill may be re-ratified on or after the dissolution date,” Fitch said.
On Tuesday, Gov. Ron DeSantis proposed to dissolve the district, expanding a battle with the Walt Disney Co. over sex education in the classroom.
RCID is the special tax and governing taxing district for the land owned by Disney World in Orlando. It has the same authority as a county government and includes 39 square miles of land in Orange and Osceola counties.
Fitch said the watch reflects the lack of clarity regarding the allocation of the RCID's assets and liabilities, including the administration of revenues pledged to about $1 billion in outstanding debt, following the dissolution of RCID or its re-ratification on or after June 1, 2023.
“Fitch expects the title of all property owned by RCID, including its indebtedness, to be transferred to Orange County (and to a lesser extent, Osceola County) or to a successor agency, as prescribed under Florida law,” the rating agency said. “Fitch believes the mechanics of implementation will be complicated, increasing the probability of negative rating action.”
The district's ad valorem tax bonds are backed by its covenant to levy an ad valorem tax annually that doesn't exceed 30 mills on all taxable property within the district sufficient to pay debt service on the bonds.
The utility bonds are secured by a first lien on net revenues of the district's combined utility system, after payment of operations and maintenance costs, and a fully cash-funded debt service reserve fund.
Late Friday, DeSantis signed the bill to abolish all independent special districts created before 1968.
“It is not the understanding or expectation for SB 4-C, abolishing independent special districts, to cause any tax increases for the residents of any area of Florida,” the governor’s office said in a statement. “In the near future, we will propose additional legislation to authorize additional special districts in a manner that ensures transparency and an even playing field under the law.”
In a statement released earlier Friday afternoon, S&P Global Ratings said it was monitoring developments related to the district's dissolution, but that the credit impact remains to be seen.
S&P rates the district's tax-secured debt at AA-minus with a stable outlook and the combined utility system revenue debt at A-minus with a stable outlook. In total, Reedy Creek has about $1 billion in debt outstanding.
“At this time, our ratings on RCID's debt remain unchanged,” S&P said. “We will continue to monitor developments as additional information becomes available. We also continue to evaluate how a transfer of assets and liabilities could affect those recipient local governments, namely Osceola (rated AA with a stable outlook) and Orange (not rated) counties.”
Currently, Disney pays taxes to both counties as well as the Reedy Creek District, Joseph Krist, publisher of Muni Credit News, noted in his weekly report.
“Florida law dictates that special districts created by the legislature can only be dissolved with a majority vote of the district’s landowners. For Reedy Creek, that’s the Walt Disney Company,” he wrote. “It all has the makings of an extended litigation process as the counties, Disney, bondholders, and bond insurers all face uncertainty as the details of the law emerge.”
He noted there was an air of theatricality about the actions.
“The governance issue is pretty clear. Regardless of one’s view of the law, the governor and the Legislature are taking governance down to the level of fourth grade class elections,” Krist wrote. “Disney is the largest employer of Florida residents in the state. It is not expected that Disney would vote to end the current arrangement unless there was a financial benefit to the company. So, in the end, is the legislation just ultimately a piece of performance art?"
