One of the nation’s leading bond-rating agencies warned Thursday that if the state of Florida does not resolve a dispute over its decision to scrap Walt Disney World’s Reedy Creek Improvement District and its obligation to investors, the move will could hurt the financial situation of other Florida. governments. Fitch Ratings posted the notice late Thursday on the Fitch Wire website, almost a week after Gov. Ron DeSantis signed into law a law dissolving the special tax district that governs Disney until June 1, 2023. The Reedy Creek Improvement District has nearly $ 1 billion in bond debt, and last week Fitch issued a “negative clock” due to uncertainty about how the debt will be paid and by whom. The agency said the situation “reflects a unique and dynamic level of discord” and expects the state to “eventually work with various stakeholders to resolve the uncertainty”. But he also added a warning: “Failure to do so could change our view of Florida’s commitment to upholding bondholders’ rights and weaken our view of the working environment for Florida governments.” A 1967 state law establishing the 39-square-mile Reedy Creek Improvement District owned by Disney gave the district the power to issue bonds and pay taxes for building roads, sewers, and utilities, establishing police and fire departments, and the regulation of its construction. In return, the state pledged “not to restrict or change the rights of the Region … until all these bonds together with their interest … are fulfilled and fulfilled in full”. The law dissolving the district does not consider how the bonds will be paid, but on Friday, when he signed the measure, DeSantis said: “We will take care of all that. Do not worry. We have thought of everything. Do not let anyone tell you that somehow Disney is going to get a tax cut from it. “They will pay more taxes as a result.” The governor’s office later issued a statement saying, “In the near future, we will propose additional legislation to authorize additional special areas in a way that ensures transparency and a level playing field.” The abolition of the Disney special zone was a surprise addition to the special session of the Florida Legislature, which called on DeSantis to approve a congressional redistribution plan. The governor and lawmakers added it in retaliation for Disney’s outspoken opposition to the Parental Education Act, also known as the Do Not Say Homosexual Bill.
Fitch cites ambiguity in positioning bond rating on ‘negative watch’
Fitch acknowledged that it “does not currently view government action as a precursor to similar dismantling or interference in the operations of other local governments.” However, Fitch noted that when bond companies determine how to assess the soundness of US government bonds, it is important that the issue is “respect for property rights and the security of bondholders” by the government. Because Florida ‘s action “creates ambiguity about which entity or entities will ultimately repay bondholders,” Fitch put Reedy Creek’ s bond rating on “negative watch.” The rating is a signal to investors that the region’s debt rating, which ranges from A to AA-, could be downgraded, possibly increasing the region’s capital costs, both for debt and equity, and affecting Disney stock price. Fitch said Thursday it expects the state to “eventually work with a variety of stakeholders to resolve the uncertainty in a way that ensures timely repayment of the RCID debt, by re-establishing the district as an option specifically offered in the bill.” However, municipal lawmakers have warned that getting rid of Disney’s tax district will not be easy, as state law requires that when the district is dissolved, its debt obligations, tax revenue, assets and responsibilities will be transferred to Osceola and Orange counties and the small towns of Buena Vista and Bay Lake. The region has about $ 79 million in outstanding revenue from utilities and refund bonds and about $ 766 million in outstanding tax bonds in value, according to Fitch. “Fitch believes that the implementation mechanisms, including the transfer of revenue committed to bondholders, will be complex, increasing the likelihood of negative ratings for RCID bonds in circulation,” the warning said. “In addition, neither Orange nor Osceola provides the full range of RCID utility and emergency services [Reedy Creek Improvement District.]”
Fitch says dissolving region ‘potentially conflicts with creditors’ rights’
Fitch warned that with the dissolution of the Disney district, the state “could be violating creditors’ rights and could violate the state contract with bondholders.” If the Legislature reverses its course and re-ratifies Reedy Creek by June 1, 2023, or approves a “successor body,” it “is likely to have an effect” on the “potential retention of operational and budgetary powers underpinning its creditworthiness.” of his debt “. “, Said Fitch. “On the contrary, prolonged uncertainty over dismissal proceedings, litigation or other factors … could lead to a downgrade of RCID ratings.” DeSantis spokeswoman Christina Pushaw reiterated her promise on Thursday that more details would be released, but did not answer questions about whether the state would address the uncertainty when lawmakers convened a special meeting on property insurance on May 23. Pushaw wrote on Twitter before Fitch’s warning: “About the Reedy Creek area: Disney will pay its fair share of taxes. Floridians, including residents of Orange and Osceola counties, will not be on the hook. Do not fall for another partisan political lie supported by the media. More to follow… “ You can contact Mary Ellen Klas at [email protected] and @MaryEllenKlas This story was originally published on April 28, 2022 at 8:23 p.m.
