fitch final release - orange co. (fl) ws - april 2016

FITCH RATES ORANGE COUNTY, FL'S WATERAND SEWER REVS 'AAA'; OUTLOOK STABLE

Fitch Ratings-Austin-05 April 2016: Fitch Ratings has assigned an 'AAA' rating to the following Orange County, Florida (the county) bonds: --Approximately $82.6 million water and wastewater utility system revenue bonds, series 2016. The bonds are expected to sell the week of May 17 via competition. Bond proceeds will be used to finance certain costs relating to the acquisition, construction and equipping of various capital improvements to the county's water and sewer system (the system), fund a debt service reserve and pay costs of issuance. The Rating Outlook is Stable SECURITY The bonds are secured by a first lien on the net revenues of the county's system, excluding connection fees. The bonds will also be secured by a cash-funded debt service reserve funded at the maximum allowable by law. KEY RATING DRIVERS STRONG FINANCIAL METRICS EXPECTED: Forecasts point to strong all-in debt service coverage (DSC) which compares favorably to Fitch's 'AAA' medians. The county has historically generated significant surplus cash from rate revenue, allowing for good levels of capital reinvestment while still holding sufficient cash balances in compliance with county policy. GROWTH-DRIVEN CAPITAL: The system's five-year $685 million capital improvement plan (CIP) is focused on water and sewer treatment expansion. Projects will provide for ample water supply and water and sewer treatment capacity in the county's growing service area. FAVORABLE DEBT PROFILE: The current debt profile is very low, and anticipated debt within the next five years is manageable, keeping debt metrics close to 'AAA' medians. The county plans to finance approximately 25% of its CIP with revenue bonds and low-interest state revolving fund (SRF) loans. AMPLE RATE FLEXIBILITY: System rates are some of the lowest in the region and register comfortably below Fitch's affordability threshold, allowing significant future rate-raising flexibility. STRONG ECONOMIC UNDERPINNINGS: The county is home to world-class tourist draws in central Florida. In addition, the regional economy continues to diversify with employment gains in professional and business services, health care and education, and biotechnology. RATING SENSITIVITIES MAINTENANCE OF FINANCIAL PERFORMANCE: Significant leveraging or swift financial decline could pressure the rating, but given Orange County's strong financial margins and currently very low debt burden such a situation is viewed as highly unlikely. CREDIT PROFILE

Orange County is located in the approximate center of Florida, encompassing an area of about 1,000 square miles. The city of Orlando (Implied general obligation rated 'AAA'/Stable Outlook) is the county seat and principal city. The county's population, estimated at 1.25 million, continues to experience steady growth, averaging over 2% annually. The county is home to several tourist destinations including Disney World (Disney, Issuer Default Rating 'A'/Stable Outlook), Universal Studios and Sea World, which attract visitors year round. The county owns and operates water, sewer and reclaimed water facilities and provides retail service to about 135,000 water, 145,000 sewer, and 18,000 reclaimed-water customers. Most customers are residential in nature, with customers located in unincorporated portions of the county and within various municipal limits. The system also provides a limited amount of wholesale services and emergency interconnections to surrounding entities. Commercial water and sewer demand has generally increased, while residential water use has declined (12.1% since 2011) despite 10% customer account growth over the same period. Customer concentration is moderate with the largest system users making up about 7% of total operating revenues. SYSTEM EXPANSION PLANNED The current offering assists in funding projects related to the system's $685 million CIP for fiscals 2016-2020. The highest priority projects include several expansions to existing treatment facilities and construction of a new water reclamation facility as well as funding for infrastructure renewal and replacements needs. While Disney has its own utilities, growth in the county areas surrounding Disney has necessitated the expansion of the existing treatment facilities and construction of new water supply and water reclamation facilities. Planned expansions are expected to be sufficient to handle future demands through 2035. LOW DEBT BURDEN ANTICIPATED The county's current debt profile consists solely of $95 million in SRF loans, which have a subordinate lien to the current offering. Current debt ratios are very low with debt-to-net plant at just 2% and debt per customer at just $99. Future capital plans include debt financing about 25% of the CIP through the use of revenues bonds and additional SRF loans. Prospective debt ratios are favorable with debt per customer of about $1,200, registering close to Fitch's 'AAA' median of $1,093. HEALTHY FINANCIAL MARGINS Historically, the system has generated strong DSC and financial metrics. The very low debt profile has resulted in remarkable DSC excluding connection fees on the system's limited debt, with the total DSC three-year average at 9.6x. Cash flow metrics are also sound with free cash-to-depreciation averaging 91% from fiscal 2011 - 2014. A management-provided forecast points to total DSC dropping no lower than 3.6x by fiscal 2020, stronger than the 'AAA' median of 3.2x. System cash levels have been on the decline in recent fiscal years due to the county spending cash on capital investments and defeasing previously outstanding bonds. Fiscal 2011 cash totaled over $106 million, including $30 million held in an operating reserve, or the equivalent of a healthy 372 days cash on hand (DCOH). Unaudited cash balances as of fiscal 2015 dropped to $57 million or 182 DCOH. However, bond proceeds will be used to reimburse the county for approximately $76.5 million in prior capital expenditures, which will boost cash reserves. Management anticipates continuing to largely cash-fund capital projects and Fitch expects this practice to keep cash levels around historical norms. AMPLE RATE RAISING FLEXIBILITY Monthly user charges totaling $56 or 1.4% of median household income (MHI) for the average resident consuming about 7,000 gallons of water per month are favorable, comfortably under Fitch's affordability threshold. The last rate increase of around 3% for both water and sewer service was approved in 2013, although the governing body has adopted an automatic 3% yearly escalator,

subject to review, based on actual system needs. Rates are structured to provide a strong 30% fixed rate base for the average residential bill, and volumetric rates, while low at about $1 per 1,000 gallons, are tiered to encourage conservation. Rates, which are forecast to increase 3% annually, are expected to remain affordable and register at about 1.6% in 2020. DIVERSIFYING ECONOMY The county serves as an economic anchor to the central portion of the state. Tourism remains a considerable economic force, with the county seeing 62 million visitors in 2014. While Disney is the largest employer (74,000 employees), the area is seeing diversification in employment with growth in professional and business services, education, health care and biotechnology industry jobs. Florida Hospital, University of Central Florida, and Orlando Health are also among the county's top employers. County employment figures have outpaced the state and nation since 2010. Unemployment rates have come down in tandem with the employment expansion from a high of over 11% in 2010 to 4.6% as of February 2016, on par with the state's 4.7%, and slightly stronger than the nation's 5.2%. Area wealth levels are slightly higher than the state but weaker than the nation. Contact: Primary Analyst Teri Wenck, CPA Director +1-512-215-3742 Fitch Ratings, Inc. 111 Congress Ave. Austin, TX 78701 Secondary Analyst Andrew DeStefano Director +1-212-908-0284 Committee Chairperson Doug Scott Managing Director +1-512-215-3725 Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: elizabeth.fogerty@fitchratings.com. Additional information is available at 'www.fitchratings.com'. In addition to the sources of information identified in Fitch's Revenue-Supported Rating Criteria, this action was additionally informed by information from Carrollo (Consulting Engineer) and Burton and Associates (Financial Feasibility Consultant). Applicable Criteria Revenue-Supported Rating Criteria (pub. 16 Jun 2014) https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750012 U.S. Water and Sewer Revenue Bond Rating Criteria (pub. 03 Sep 2015) https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869223

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONSAND DISCLAIMERS. PLEASE READ THESE LIMITATIONS ANDDISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THETERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'SPUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA ANDMETHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODEOF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL,COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSOAVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVEPROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATEDTHIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEADANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITYSUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.