Foreclosures in Orlando Contributed to Bond Downgrades

by Simon Lindsay on Foreclosure Crisis

Foreclosures in Orlando contributed to the downgrading of the city’s tax revenue bonds for tourism development by Fitch Ratings.

According to Fitch, the downgrades reflected the sharp drops in pledged revenue in the past two fiscal years. Tourism development tax revenues fell by 15.5 percent in fiscal 2009 and down by 5.9 percent so far in fiscal 2010. The drop in TDT revenues and the rise in debt service requirements may make it difficult for the city to make its initial principal payment for the series 2008A TDT bonds due on November 1 this year.

The downgraded bonds are the $190.3 million series 2008A TDT revenue bonds and the $33.4 million series 2008B TDT revenue bonds. The first TDT was downgraded from BBB+ to BB+ while the second TDT was downgraded from BBB- to B. According to Fitch, the decline in pledged revenues could cause the city to use its debt reserves to pay its debt service obligations and could increase the risk of default.

Fitch said that Orlando has remained a world-class tourist destination, but its unemployment rate has shot up to 11.6 percent in December from only 7.5 percent in December 2008. Hotel occupancy rates plunged by 8 percent as potential tourists opted to cut down their leisure expenses and canceled their travel plans because of the current economic difficulties.

Fitch also mentioned the continued surge in the rate of foreclosures in Orlando, which is far above the nationwide average. Fitch, however, cited the prospects of Orlando in expanding its businesses and its diversification from its tourism base into business and professional services, health care, education and biotechnology.

The expansion efforts of Universal Studios, the largest taxpayer in the city, were also cited by Fitch. Walt Disney World, although not part of the city’s tax base, also has positive impact on tourism in Orlando.

Meanwhile, the media coverage of record numbers of Florida foreclosed homes has encouraged a surge in foreclosure-related tourism, with out-of-state investors traveling to Florida to enjoy the views and at the same time look for bargains.

In February, while perennial top placers Nevada and Arizona posted drops in their foreclosure rates, Florida posted a 15-percent increase in foreclosure percentage from January and a 17 percent increase from February 2009.

More than 54,000 foreclosures were posted statewide, with foreclosures in Orlando contributing to the high figure. With its increased foreclosure rate, Florida moved up to third place in the foreclosure charts.

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