BRADENTON, Fla. – The Reedy Creek Improvement District, the municipal services and financing arm of the Disney Co., plans to sell $383.56 million of tax exempt, ad valorem tax bonds starting Tuesday amidst a debate about the status of some special districts in Florida.
RCID was created by special act of the Legislature in 1967 to attract Walt Disney World. The district has sovereign powers, including eminent domain and authority to issue bonds. It encompasses 25,000 acres, including the Disney theme parks, and surrounding hotels, entertainment, and shopping venues.
The transaction is structured in two series as $344.15 million of new money bonds and $39.41 million of refunding bonds.
The bonds are expected to price Tuesday for retail and Wednesday for institutional sales.
The new money bond proceeds will be used for transportation projects, including the construction of twin parking garages for Disney Springs, a waterfront shopping, dining, and entertainment complex formerly known as Downtown Disney, according to a MuniBond Roadshow accompanying bond documents on
Funds will also be used to construct an exit ramp from nearby Interstate 4 directly into the parking garages, and to build a new interchange for Epcot.
A Florida trader said Reedy Creek should see good interest in its sale because of the compression of yields, and the fact that investors are seeking more yield on recognizable names.
Though RCID is not a frequent issuer, investors know that the district's name represents Disney, the trader said. "It's a solid trading name in the state."
"I think Reedy Creek is going to be well received," said the trader. "The market has a slim calendar this week and they've got that going for them."
The $344.15 million of bonds are secured by an unconditional gross pledge of the first ad valorem tax collections of the district. The debt is expected to have serial maturities between 2014 and 2033, and a single term maturity in 2038.
A similar tax pledge secures the $39.41 million of refunding bonds, which have serial maturities between 2014 and 2025. Proceeds will advance refund all or a portion of the district’s 2004A and B bonds, and the 2005A bonds if market conditions allow.
Refunding of the 2004 bonds is expected to result in present value savings of $3.36 million or 8.04% of the par amount being refunded, according to roadshow participant Jon Eichelberger, managing director at Raymond James & Associates Inc., the transaction’s book-runner.
The transaction is expected to sell with an estimated true interest cost of 4.5%, according to Bill Warren, the district’s administrator.
The bonds are rated AA-minus by Fitch Ratings, Aa3 by Moody’s Investors Service, and A-plus by Standard & Poor’s.
S&P’s A-plus rating is an upgrade from A, and is “based on the district’s maintenance of strong finances across economic cycles,” according to analyst Andrew Teras.
RCID is an essential purpose district providing power, water, roads and bridges to an established, well recognized tourism and hospitality brand, analysts said.
The district has sound finances and significant taxing flexibility, strong reserves and liquidity, they said, noting that Reedy Creek’s tax base is highly concentrated in Disney and its affiliates.
Disney owns 65% of the land in the district, RCID owns 30%, and the state of Florida owns 3%. The district is governed by a five-member board of supervisors who are elected by the landowners.
Florida’s special district structure has been questioned in recent months following an adverse determination by the Internal Revenue Service on May 9 that the Village Center Community Development District in central Florida is not a political subdivision that can issue tax-exempt bonds.
The IRS said the Village Center developer retained exclusive control of the governing board and by not being accountable to a general electorate did not meet the definition of a political subdivision.
That ruling, though not final or binding on other issuers, has raised questions about the tax-exempt status of other special districts and CDDs in the state.
“While RCID shares similarities with the Village Center CDD, namely a governing body elected by proportional landowner vote, it differs in certain respects,” said Moody’s analyst Moses Kopmar.
The Reedy Creek district was created by enabling legislation to meet the public purpose expressed in the special act.
“This stands in contrast to the Village Center CDD, which was established pursuant to Chapter 190, Florida Statutes,” Kopmar said.
Bond counsel Greenberg Traurig PA is expected to issue an opinion stating that Reedy Creek is a political subdivision with the power to issue the bonds, according to the preliminary official statement.
In addition, the POS contains a page of information on the IRS’s non-binding technical advice memorandum to the Village Center, which suggests that it may lead to an “increased risk” that the IRS will select other landowner-controlled district bonds for examination.
In 2011, the IRS conducted a routine exam into Reedy Creek’s 2003-2 bonds, which closed without change to their tax-exempt status, the POS said, adding, “In this audit, the IRS did not explicitly raise issues related to the district’s status as a political subdivision.”
Warren said the district has not received questions about the IRS ruling, and it is not expected to affect pricing of the bonds.
“We felt that it was necessary to make the disclosure,” he said.
Dunlap & Associates Inc. is financial advisor to RCID.
JPMorgan is co-senior manager on the bond sale. Co-managers are Bank of America Merrill Lynch, Loop Capital Markets, and Morgan Stanley.
Bryant Miller Olive PA is disclosure counsel. Marchena and Graham PA is underwriters’ counsel.
The district was last in the market in May 31 with a $54.9 million refunding.
The deal sold with a true interest cost of 2.90% and resulted in net present value savings of $6.23 million, or 9.97% of refunded par amount, Warren said.
