Standard & Poor's Ratings Services said it raised its underlying rating on Reedy Creek Improvement District (RCID), Fla.'s parity debt outstanding to A from A-minus.
The outlook is stable.
"We base the upgrade on what we view as stable financial metrics across economic cycles, at levels generally seen for an 'A' rating," said Standard & Poor's credit analyst Jeff Panger.
RCID has posted fixed-cost coverage in the 1.08x-1.22x range and liquidity between 54 and 111 days of operating expenses over the 2004-2012 period, with figures for the past two years at the upper ends of both ranges, and supportive of this new rating level.
At the same time, Standard & Poor's assigned its A rating and stable outlook to RCID's series 2013-1 utility system revenue refunding bonds.
Although generally it views customer concentration at the level exhibited by the Walt Disney Co. (A/stable/A-1; 83% of RCID revenue) as a credit concern, it believes that Disney's commitment to the Walt Disney World complex (and by extension to RCID) as a unique mitigating factor. As such, while the RCID rating is influenced by Disney's presence, it is not tied to Standard & Poor's rating on Disney. While Disney has experienced fluctuating financial performance across business cycles, this performance has not affected RCID's credit metrics.
What Standard & Poor's considers the following credit strengths support the A rating: an established tourism and hospitality industry that has become one of the most recognizable entertainment locations throughout the world, and that remains adequate, despite a weak economic recovery; the symbiotic relationship between the district and its primary customer, Walt Disney companies; RCID's adequate coverage of fixed costs and good liquidity levels at the revised rating level.
Offsetting factors include: very high customer concentration, as Disney's major tourist attractions are located in the district and make up about 83% of RCID's enterprise revenues; and potential fluctuations in utility volume that occur because of the tourism nature of the local economic base, and liberal indenture covenants.
A pledge of the district's utility operations' net revenues secures the bonds.
The stable outlook reflects Standard & Poor's expectation that, despite the weak economic recovery, tourism activity drawn by Disney attractions will remain sufficient to support the district's utility sales.
The outlook also reflects expectations that the district's fuel and power cost hedging strategy will result in stable financial margins. The agency could lower the rating if sustained financial metrics deteriorate below current projections. Given projected financial metrics and significant customer concentration, S&P does not believe it will raise the rating in the next two years.