Fitch Rates Orange County FL School Board Leasing Corp.'s Ref COPs 'AA'; Outlook Stable

Fitch Ratings has assigned an 'AA' rating to the following Orange County School Board Leasing Corporation, FL's (the corporation) certificates of participation (COPs):

$137,590,000 million COPs series 2015C.

The COPs are scheduled to price via negotiation during the week of Dec. 1. Proceeds will be used to refund a portion of the corporation's outstanding series 2006A COPs for savings.

In addition, Fitch affirms the following ratings:

--Approximately $1 billion outstanding COPs at 'AA';

--Implied unlimited tax general obligation (ULTGO) for the Orange County FL School District (the district) at 'AA+'.

The Rating Outlook is Stable.

SECURITY

All corporation COPs are payable by lease payments made by the Orange County FL School Board (the board), subject to annual appropriation, to the corporation under a master lease purchase agreement. In the event of less than full appropriation the trustee may force the board to surrender possession of all leased facilities under the master lease to the trustee, for disposition by sale or re-letting of its interest in such facilities.

KEY RATING DRIVERS

STRONG FINANCIAL MANAGEMENT: The district's conservative budgeting practices and policies have contributed to historically sound operations and strong reserves even during a period of volatile levels of state funding and declines in property values. The 'AA+' implied ULTGO rating reflects the district's solid financial performance and expected maintenance of strong reserves.

AMPLE LIQUIDITY: The district benefits from the financial flexibility afforded by the voter-approved one mill levy for operations and a half-cent sales tax which supports capital needs. The property tax levy and sales tax were renewed by voters this November and in August, respectively, helping support continued strong liquidity.

LOW DEBT LEVELS: Annual debt service expenditures consume an affordable share of the district's budget due in part to slow amortization. Key debt ratios are low. The district's sizeable capital plan is fully funded from a variety of existing capital reserves and recurring revenue. No additional new money debt is anticipated at this time.

EXPANDING ECONOMY: Although tourism based, the area has expanded its educational, healthcare and biotechnical presence. Unemployment levels have improved notably and wealth levels are at or slightly below state averages.

COPS SUBJECT TO APPROPRIATION: The 'AA' COPs rating reflects the district's general credit quality, the district's obligation to make annually appropriated lease payments under a master lease structure, and the essentiality of leased assets.

RATING SENSITIVITIES

CONTINUED STRONG FINANCIAL MANAGEMENT: The rating is sensitive to shifts in fundamental credit characteristics including the district's strong financial management practices. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.

CREDIT PROFILE

Orange County (implied ULTGO rated 'AAA' by Fitch), home to Walt Disney World, had a 2013 population of 1.2 million. The boundaries of the school district are coterminous with the county.

HISTORICALLY STRONG FINANCIAL OPERATIONS

The district has been consistent in achieving surplus general fund operations for the ten fiscal year period through fiscal 2013. These results stem primarily from its conservative budgeting practices and effective management of resources. For fiscal 2013, the district posted a $33.3 million general fund operating surplus, after transfers, equivalent to 2.6% of spending. This follows a $42.3 million operating surplus for fiscal 2012. Fiscal 2013 unrestricted fund balance improved to a solid $382.6 million or 30% of spending.

The positive results were achieved due mostly to a combination of utility costs savings as a result of recent school renovations, lower costs derived from unfilled positions and the postponement of certain non-recurring initiatives representing 1% - 2% of spending.

Unaudited results for fiscal 2014 show revenues were up $96 million (+7.4%) compared to fiscal 2013. This was due mostly to increases in state aid due to enrollment growth and categorical aid, and an increase in local revenues due to growth in the tax base. The budget included spending for non-recurring initiatives including technology and safety upgrades although only $5 million of a planned $30 million drawdown of fund balance was used in fiscal 2014 as completion of these initiatives continue to be delayed. Unrestricted fund balance is projected to increase by $14 million to $397 million (or 28% of spending) reflecting the modest drawdown and a reclassification of restricted reserves as unassigned.

ONE MILL OPERATING LEVY PROVIDES ADDITIONAL FLEXIBILITY

The district continues to benefit from a one-mill operating levy which was approved by voters in Nov. 2010 and again in Nov. 2014. This additional operating levy was approved for four more years through fiscal 2019. The additional operating levy provided approximately $86 million in tax revenues in fiscal 2014 (6.2% of total general fund revenues).

Overall tax rates for fiscal 2015 remain moderate at 8.474 mills (including the voted one-mill additional operating levy). State statute limits the total non-voted millage rate that may be levied for operations and capital funds to 10 mills, leaving the district with some flexibility.

The district's fiscal 2015 general fund budget is flat compared to the fiscal 2014 budget but revenues are up 4.8% representing growth again in local revenues from tax base growth and a modest increase in state funding. Enrollment is up approximately 3,000 students (or 1.6%). Employee related costs drive the budget. The district has non-recurring expenditure items, including training initiatives and safety upgrades, which management has indicated are expected to result in a modest reduction in fund balance. Fitch expects district reserves to remain above-average based on its historical conservative budget practices and ample funds available for capital needs.

AFFORDABLE DEBT BURDEN

Overall debt ratios are low at 2% of market value and $2,067 per capita. The district has no current plans for additional debt. Capital improvements are scheduled to be funded from a combination of existing reserves in the district's capital projects fund which total $930 million and revenue from the voter-approved capital outlay sales tax.

The district's annual debt service budget is primarily driven by its $1.1 billion in outstanding COPs. While any legally available revenue can be used for COP debt service, the district has historically made payments from the 1.5 mill capital outlay tax. With the district's taxable assessed value (TAV) for fiscal 2015 of $96.5 billion, a 1.085 mill rate generates sufficient revenues, assuming a 96% tax collection rate, to cover maximum annual COP debt service of $100.4 million (fiscal year 2023).

The district has $194 million in outstanding variable rate COP debt which is hedged with fixed interest rate swaps. Fitch considers the risks associated with these transactions to be moderate considering the debt represents 16% of the district's total direct debt and its current strong liquidity position mitigates market risks.

CAPITAL OUTLAY SALES TAX EXTENDED BY VOTERS

The district benefits from its voter approved half-cent capital outlay sales tax which provides over $190 million in annual revenue. The sales tax, originally approved by voters in 2002, is effective from Jan. 1, 2003 through Dec. 31, 2015. Voters approved an extension of the existing sales tax for an additional 10 year period beginning Jan. 1, 2016. Sales tax revenues are available to service COP debt if necessary. The availability of these sales tax revenues has helped the district manage the growth of its student base and keep up with necessary improvements, expansions and maintenance as necessary to maintain adequate facilities for its students.

AFFORDABLE TOTAL CARRYING COSTS

All district employees participate in the state administered retirement system. Pension and OPEB costs are affordable. Total carrying costs for pension, OPEB pay-go and debt service equated to an affordable 9.1% of total fiscal 2013 governmental spending. Carrying costs are somewhat depressed by slow COP debt amortization of only 40% in 10 years.

EXPANDING ECONOMY

The county's economy anchors the central portion of the state, as professional and business services, education, health care, and biotechnology augment the historically strong tourism sector. Two of the leading employers in the county are health care systems, Adventist Health System and Orlando Health, which together employ 32,000 workers.

Tourism remains a considerable economic force. The top ten taxpayers represent 15% of TAV and nine of the ten are in the hospitality industry. Walt Disney World is the county's largest taxpayer at 7.5% and the largest employer. While Disney and Universal Studios are firm anchors to the historically volatile tourism sector, Fitch believes the increasing diversification of the area economy enhances stability and the prospects of future economic growth.

The district's tax base experienced a cumulative 24% decline between fiscals 2009 and 2012. This trend has reversed with tax values stabilizing in fiscal 2013 and expanding by 4% in fiscal 2014 and 8% in fiscal 2015. New construction and increases in housing prices have helped boost values. Fitch anticipates continued near-term expansion of taxable values as the economic recovery continues.

WEALTH LEVELS ARE AVERAGE; UNEMPLOYMENT RATES IMPROVE

County per capita income levels are slightly below state and national averages, reflecting the substantial employment in the tourism industry. Median household income represented 102% and 91% of state and national averages respectively. County employment trends demonstrate strong gains of 3.6% in 2012 and 2.8% in 2013. Unemployment rates have continued to decline in tandem with the employment growth from a high of over 11% in 2010 to 5.6% as of September; below 6.5% of the prior year and lower than the current state and national averages.

Additional information is available at 'www.fitchratings.com'.

In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight, National Association of Realtors.

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria' (Aug. 14, 2012);

--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=928435

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