Fitch upgrades Orlando, Florida’s tourist development tax bonds to BBB

Bonds

Fitch Ratings upgraded Orlando, Florida’s $166.925 million of Series 2017A senior tourist development tax revenue bonds to BBB from BBB-minus. The outlook on the bonds is stable.

The bonds are a limited obligation of the city backed by a senior lien on 50% of the “6th-cent TDT,” which is a one-cent tax on hotel room charges levied by Orange County and remitted by the county to the city.

The Trolls series perform at the Universal Studios theme park in Orlando, Florida.

Bloomberg News

The county has agreed to deposit the revenues with the bond trustee on a monthly basis until the bonds are either defeased and paid in full or at the final maturity of Nov. 15, 2038. The bonds are also backed by cash-funded reserves with an aggregate funding requirement equal to 100% of maximum annual debt service.

“The upgrade reflects the strong growth in TDT revenue in fiscal 2022 and improvement in the bond structure’s resilience to cyclical declines,” Fitch said. “Favorable occupancy and average daily room rate trends support an expectation for continued TDT growth despite an expected slowdown in economic activity and consumer spending this year.”

Fitch noted TDT revenues improved significantly in fiscal 2022, more than doubling the prior fiscal year total and exceeding the pre-pandemic peak recorded in fiscal 2018.

“Revenue momentum remains strong as TDT collections through the first five months of fiscal 2023 (October through February) are roughly 31% above the same period last year,” Fitch said. “The debt service reserve and liquidity reserve (LR) remain fully funded and equal to MADS in aggregate, providing a cushion against risk to a revenue setback.”

Orlando’s economy is an anchor in the central part of the Sunshine State.

“Professional and business services, education, health care and biotechnology augment the historically strong tourism sector,” Fitch said, adding, “tourism remains a considerable economic presence, led by Disney (A-minus / stable outlook) and Universal Orlando, which is owned by Comcast (A-minus/ stable outlook).”

Continued investments by Disney and Universal in their theme parks are expected to bolster TDT collections, according to Fitch.

While tourism is king, Fitch noted there are other developing economic areas, including technology, healthcare and advanced manufacturing.

Orlando is home to the University of Central Florida, which has more than 68,400 students. The city’s population has risen 29.7% since 2010, hitting 309,154 in 2021.

Florida’s unemployment rate fell 0.1-percentage point to 2.5% in December, the lowest level since 2006, according to the state Department of Economic Opportunity.

The Orlando area jobless rate fell to 2.3% in December, down from 3.2% in December 2021. The area added 49,900 private-sector jobs for the year, an increase of 4.1%. The labor force also grew, by 2.0%, or 40,470 over the year. The industry gaining the most jobs was leisure and hospitality, increasing 27,100 on the year.

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