The South Florida Water Management District plans to refund $470 million in COPs issued in 2006 to protect the Everglades, and species such as these Great Egrets.

BRADENTON, Fla. - The South Florida Water Management District is prepping the largest certificate of participation deal this year to refund COPs sold in 2006 to buy land to protect the Everglades.

The district expects to issue up to $470 million of refunding COPs in the coming weeks.

Citi will be the book-runner.

Proceeds will advance refund up to $467 million of outstanding COPs issued in 2006 as the first of its kind to finance environmental restoration projects under a lease-back structure. The South Florida Water Management District Leasing Corp. will issue the upcoming refunding COPs.

The district governing board will be asked to give final approval to bond documents Thursday.

State officials also must approve the deal as part of new district oversight measures put in place by Gov. Rick Scott and the Legislature in 2011 and 2012. Those measures require Scott and the joint legislative budget commission to approve the districts' budgets.

The COPs are expected to be issued in a single transaction, according to David Moore, the district's financial advisor with Public Financial Management Inc.

"If the market trades off, we will pick off certain maturities and save them for another day," he said.

Moore said he does not anticipate investors will be concerned about the situation in Tallahassee where the Legislature is in a special session through June 20 working on the late adoption of a fiscal 2016 budget.

"I think the perspective from investors and rating agencies is that this is just part of the process in that sometimes states around the country can't get budgets done on time," he said, adding that Florida's budget delay stems from a policy issue over healthcare as opposed to financial problems in other states.

Doug Bergstrom, the district's administrative services director, told the governing board in a memo for Thursday's meeting that near historic low interest rates gives the district an opportunity to materially reduce annual debt service.

"Currently, present value savings is estimated at $37 million or about 8%," he said. "Annual debt service savings is estimated at about $2 million per year."

The refunding will be structured to provide level debt savings over the life of the issuance without extension of current maturities. The district requires a minimum of 5% savings on refundings.

The deal will include a tender offer in order to refinance COPs owned by Citi. Those include $37.29 million of COPs maturing in 2031 and $22.5 million of COPs that mature in 2036. Both maturities were issued with 5% coupons.

The refunding COPs are rated AA-minus by Fitch Ratings, Aa3 by Moody's Investors Service, and AA by Standard & Poor's. All have stable outlooks.

Fitch affirmed the district's implied-general obligation rating of AA, and its A rating on $6.7 million of outstanding special obligation refunding bonds. S&Ps affirmed its AA-plus issuer-credit rating on the district.

Analysts said the water management district's financial position has strengthened since the recession even though state control over the agency is more stringent.

"The major forward-looking challenge to the district's financial position is its plan to spend down substantial total reserves for non-recurring capital purposes," said Moody's analyst Gregory Lipitz. "Additionally, strong state regulatory control over the district's budget limits financial flexibility."

The SFWMD is the largest of five state-created regional water districts that manage the supply and quality of water as well flood-control measures.

The district covers 17,930 square miles in all or part of 16 counties from Orlando to the Florida Keys, with a population of 8.2 million people.

In 2011, legislation was passed that set a maximum amount of ad valorem taxes that could be imposed by water management districts. In 2012, additional legislation authorizes the Legislature to set maximum millage rates or property tax revenue limits for each district.

The governor and joint legislative budget commission have the authority to reject certain land purchases, debt issuance, and certain program expenses.

Moody's said that while the Legislature has not set a maximum millage rate since 2012, "We believe the legislative authority to impose additional tax caps diminishes the predictability of the district's future revenue-raising flexibility."

The district is also subject to additional restrictions on the amount of property taxes that can be raised.

Property taxes account for 76.4% of the SFWMD's operating revenues.

To address declining revenues since 2010, the district has eliminated 400 positions.

"The district's reserve levels are ample for the rating category, as is its liquidity position," Lipitz said. "Over the next five years, through fiscal 2020, the district projects depleting all of its available and unreserved fund balances to approximately $21 million from a projected $375 million as of the end of FY 2015."

The district has a formal policy of maintaining at $60 million reserve for emergency purposes.

"While the $60 million reserve equates to approximately 16.3% of revenues, which would be thin for the rating level, the district's management has a long track record of fiscal conservatism and will likely maintain reserves at higher levels," Lipitz said.

S&P said its AA rating reflects the district's diverse and growing tax base, strong reserves and financial management, and low direct debt levels that are expected to remain low with no immediate future debt issuance plans.

"In our opinion, the potential for further tax caps that could reduce the district's future funding flexibility offset these strengths," said S&P analyst Sussan Corson.

Fitch said its AA-minus rating is also sensitive to the district's ability to maintain sound operations in light of its limited independent control over revenues.

Although there were modest operating deficits in two of the last three fiscal years, Fitch said the district's reserves remained robust in fiscal 2014, along with ample liquidity in cash and investments totaling $172.7 million, equal to nearly eight months of spending.

The district's fiscal 2015 operations budget totaled $720.4 million, an increase of nearly $100 million over 2014 budget due to increased state funding. The fiscal 2016 preliminary budget is slightly less than fiscal 2015.

"A drawdown of $203 million is proposed which would still be in compliance with the district's minimum fund balance policy," according to Fitch.

Other underwriters on the COP refunding with Citi are Bank of America Merrill Lynch, Loop Capital Markets LLC, Raymond James & Associates Inc., RBC Capital Markets LLC, Stifel, Nicolaus & Co., and Suntrust Robinson Humphrey Inc.

Bryant Miller Olive PA is special counsel. Nabors Giblin Nickerson PA is disclosure counsel.

The 2006 deal that is being refunded won The Bond Buyer's 2007 Deal of the Year Award.

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