Relevant Documents:
Fitch Ratings Report
S&P Ratings Report
Legislation
EMMA Filing
Fitch Ratings announced today it has placed on rating watch negative Florida’s Reedy Creek Improvement District, or RCID, which houses the Walt Disney World entertainment resort complex outside of Orlando, as a result of the passage of a bill by the Florida Senate and House of Representatives that would dissolve the independent special districts created prior to 1968, including RCID, effective June 1, 2023. S&P Global Ratings also issued a bulletin today saying it is monitoring legislative developments related to the RCID but did not take ratings action.
Fitch’s RCID issuer default rating is AA-. RCID’s $79 million of outstanding utilities revenue and refunding bonds is rated A, and RCID’s $766 million of outstanding
ad valorem tax bonds are A and AA-. Fitch explains that the negative watch “indicates the ratings could stay at their present levels or potentially be downgraded.” S&P, meanwhile, rates RCID's tax-secured debt AA- and its combined utility system revenue debt A-, with stable outlooks on both bond classes.
Fitch says its action “reflects the lack of clarity regarding the allocation of the RCID's assets and liabilities, including the administration of revenues pledged to approximately $1 billion in outstanding debt, following the dissolution of RCID or its re-ratification on or after June 1, 2023.” Fitch expects the title of RCID property, including its indebtedness, to be transferred to Orange County and Osceola County, or to a successor agency, as prescribed under Florida law. “Fitch believes the mechanics of implementation will be complicated, increasing the probability of negative rating action,” the report adds.
Fitch warns that state actions to dissolve the district have “given rise to risks regarding the administration of revenue pledged to utility bondholders, potentially impinging on creditors' rights.” The action also "points to a substantially reduced degree of independence from political pressure" and could "potentially diminish government effectiveness and could prove harmful to bondholders," Fitch adds.
S&P also highlighted a “lack of clarity in the RCID dissolution or reconstitution planning” that could affect outstanding bond ratings. The bulletin notes that it is unclear whether RCID would reconstitute under the Uniform Accountability Act, saying that the Legislature’s analysis indicates that on dissolution, RCID’s assets and liabilities (including outstanding bonds) would be transferred to the relevant local governments if RCID were not to reconstitute. S&P says it it unclear “[h]ow the utility operations and revenue debt would be transferred to the underlying governments and how recipient local governments would continue to raise the taxes securing RCID’s tax-backed debt outstanding.”
S&P said its continuing analysis of the situation will include an evaluation of “how a transfer of assets and liabilities could affect those recipient local governments,” namely Osceola and Orange counties. The agency also noted that the lack of clarity in the RCID dissolution or reconstitution planning could affect its view of outstanding bond ratings, including any effect on its outstanding ratings under other criteria that relate to the issuer credit rating or general creditworthiness of the respective counties.
RCID utility bonds are secured by a first lien on net revenues of the district's combined utility system, after payment of operations and maintenance costs, and a fully cash-funded debt service reserve fund, according to Fitch. The
ad valorem tax bonds are backed by the district’s covenant to levy each year an
ad valorem tax not to exceed 30 mills on all taxable property within the district sufficient to pay debt service on the bonds, according to the report.
RCID, which covers about 40 square miles in central Florida’s Orange and Osceola counties about 15 miles southwest of Orlando, was created in 1967 by a special act of the state Legislature in anticipation and support of the development of the Walt Disney World Resort. The district was provided with governmental powers to promote recreation-oriented projects, economic development and tourism-objectives the Legislature determined served a valid public purpose, as well as provide all utility services to businesses in the district, according to Fitch. RCID is governed by a five-member board of supervisors elected by the landowners in the district. The Walt Disney Co. is the majority landowner within the district, and RCID’s main source of revenue is generated through the levy of an
ad valorem property tax on Disney-owned properties, including its theme parks, Disney Springs and the ESPN Wide World of Sports complex, according to the report.
In a statement on Thursday, April 21, posted to EMMA, the RCID said that Gov. Ron Desantis is expected to sign the bill after the close of the Florida Legislature’s special session today. It notes that the law, Florida’s Uniform Special District Accountability Act, provides that the “dissolution of a special district government shall transfer title to all of its property to the local general purpose government, which shall also assume all indebtedness of the preexisting special district.”
The filing also notes that the RCID was established as a public corporation through the 1967 Reedy Creek Act. Pursuant to the legislation, the state of Florida pledged to the RCID bondholders: “(1) that it will not limit or alter the rights of the District (a) to own, acquire, construct, reconstruct, improve, maintain, operate or furnish the projects or to levy and collect the taxes, assessments, rentals, rates, fees, tolls, fares and other charges provided for in the Reedy Creek Act, and (b) to fulfill the terms of any agreement made with the holders of any bonds or other obligations of the District; and (2) that it will not in any way impair the rights or remedies of the holders, and that it will not modify in any way the exemption from taxation provided in the Reedy Creek Act, until all such bonds together with interest thereon, and all costs and expenses in connection with any act or proceeding by or on behalf of such holders, are fully met and discharged.”
“In light of the State of Florida’s pledge to the District’s bondholders, Reedy Creek expects to explore its options while continuing its present operations, including levying and collecting its ad valorem taxes and collecting its utility revenues, paying debt service on its ad valorem tax bonds and utility revenue bonds, complying with its bond covenants and operating and maintaining its properties,” the filing concludes.
Desantis
announced on Tuesday, April 19, that the legislation would be included in this week’s special legislative session. The action comes in the midst of a public dispute between Desantis and Disney over the company’s criticism of a
law enacted last month that prohibits classroom instruction on sexual orientation or gender identity in kindergarten through third grade and prohibits instruction that is not “age appropriate” for students.