Fitch announces possible in-store downgrade for Reedy Creek bonds after anti-Disney bill passes

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Fitch Ratings Inc. placed bonds held by the Reedy Creek Improvement District (RCID) on “negative watch– which means a downgrade is possible in the future – on Friday. The move comes a day after the Legislature passed a bill to dissolve the Walt Disney Company-controlled enclave in central Florida.

The bonds affected are $79 million in unpaid utility revenue and repayment bonds currently rated “A” and $766 million in property tax-backed bonds rated “AA-”. The District’s Utilities credit profile rating of “A” and its Issuer Default Rating of “AA-” were also placed on Watch Negative.

The law project (SB 4C) that the governor Ron DeSantis has not yet signed, only appeared for the first time on Tuesday. But in a sign of DeSantis’ influence in the Legislative Assembly among his fellow Republicans who lead both chambers, the question was added to the special session already scheduled to deal with redistricting and passed just over 48 hours later. its deposit.

The bill would dissolve RCID and five other special districts established before the last major rewrite of the Florida Constitution in 1968. The measure is squarely aimed at Disney, which drew the ire of DeSantis after the company’s CEO, Bob Chapeckspoke out against a bill that bans teaching about sexual orientation or gender identity in kindergarten through third grade and in an “age-inappropriate” manner in all other grades .

Legislation dissolving the RCID will not take effect until June 1, 2023. But uncertainty over how the district’s $1 billion debt will revert to surrounding municipalities — namely Orange and Osceola counties – which will absorb the district led Fitch to put him on notice of possible demotion.

“The Negative Watch reflects the lack of clarity regarding the distribution of RCID’s assets and liabilities, including the administration of pledged revenues to approximately $1 billion in unpaid debt, following the dissolution of RCID or its re -ratification on or after June 1, 2023,” reads Fitch’s announcement.

“Fitch expects that title to all property owned by RCID, including its debt, will pass to Orange County (and to a lesser extent, Osceola County) or a successor agency, such as Florida law prescribes it. Fitch believes the enforcement mechanisms will be complicated, increasing the likelihood of a negative rating action.

One of the factors for this new negative watch status was the revision of the RCID score on “rule of law, institutional and regulatory quality, control of corruption” from a “5” to a “3”. “.

Passage of the bill “indicates a significantly reduced degree of independence from political pressure,” the notice said. “These actions potentially diminish government effectiveness and could prove detrimental to bondholders, which negatively impacts credit profile and is highly relevant to the Negative Watch action.”


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