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Orange County, Fla., Sees Value in Adding Kroll Rating to Deal

BRADENTON, Fla. — Backed by four ratings, one an upgrade and another Kroll Bond Rating Agency’s first credit review in Florida, Orange County hopes to reap extra savings during Thursday’s competitive pricing of $101.6 million of sales tax refunding bonds.

Kroll, a relatively new agency, and Fitch Ratings gave the bonds AA-plus ratings.

Standard & Poor’s assigned a AA rating, and Moody’s Investors Service rated the debt Aa2, upgrading it from Aa3.

The county sought a rating from Kroll for various reasons, which included strengthening the county’s credit from an investor’s perspective, according to Fred Winterkamp, head of fiscal and business services.

“We went to Kroll because we wanted, in an abundance of transparency, to give investors the maximum amount of information about this credit,” he said. “It’s a strong credit, and the additional rating gives us some consistency and confirmation to the ratings we already had because there’s a new voice in the marketplace.

“We think over time having additional competition in ratings market is good for all issuers.”

The $101.6 million offering will currently refund all of the county’s outstanding 2002A sales tax bonds without extending maturities.

The 11-year deal is structured with noncallable bonds, and is poised to bring home savings that will surpass similar refundings that sold earlier this year, according to Public Financial Management Inc., the county’s financial advisor.

This week’s deal is expected to bring present-value savings of $16.5 million or 13.7% of par amount refunded.

In April, Orange County refunded $27.7 million of taxable sales tax bonds for present-value savings of $2.83 million, or 10.2%.

A second tranche of the earlier transaction refunded $104.5 million of tax-exempt sales tax bonds for $9.1 million in savings, or 8.7% of refunded par.

Winterkamp said the current transaction may achieve better savings because of its 11-year, noncallable structure, serial bonds with some large blocks, and market conditions.

“It turns out the market held up nicely for us,” he said.

Winterkamp said he wasn’t sure if adding Kroll’s rating to the deal would bring additional value at sale time, though he wanted to give investors an informed choice.

“You never know until you price the bonds, but one additional basis point of [savings] at the time of pricing because of improved investor confidence is worth the cost,” he said.

Moody’s upgrade to Aa2 also is a significant improvement in the strength of the credit, Winterkamp said.

“The upgrade to Aa2 is based on the strong debt service coverage which has improved from a number of refundings and relatively stable sales tax revenue trends,” said Moody’s analyst Dora Lee. “The rating also reflects below-average principal payout with no current plans for future parity borrowing, and satisfactory legal protections.”

Known as the theme-park mecca of North America, Orange County has one million residents and is a leading domestic and international tourist destination. It is home to Walt Disney World, Sea World and Universal Studios, among others. The Orlando-Orange County Convention Center is the second largest in the country.

Analysts reviewing this week’s transaction also considered Orange County’s high concentration in the tourism industry, though they also noted that the economy is becoming more diversified. They noted that the refunding bonds have high debt service coverage and the county maintains high levels of reserves.

Nabors, Giblin & Nickerson PA and Ruye H. Hawkins PA are co-bond counsel. Greenberg Traurig PA and Debi V. Rumph are co-disclosure counsel.

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