Bilbao notes that in its latest report, Fitch has yet to issue a full rating, but the district could face a downgrade on its issuer default rating (IDR) bonds and ad valorous tax bonds. The total sum bond debt is estimated to be over $686 million. Much of that debt is ad valorem debt, which is based on the the estimated value of the district’s property. Last week, the district struck a deal with Truist Bank for a reimbursement agreement of $3 million, which would act as a line of credit to ensure that the district’s electrical bill is covered for Duke Energy in May should the dissolution go through in June.
A downgraded bond rating could keep future investors away, which would hinder Reedy Creek’s ability to raise capital, which would be paid off over time. The district manages the land and many municipal services for Walt Disney World, acting with the powers of a local government.
Fitch said in their report, “Our baseline expectation is that legislative action will be introduced during the next general session, which is scheduled to run from March 7, 2023, to May 5, 2023, that will resolve the uncertainty and ensure the timely repayment of RCID debt. Fitch expects to review the IDR and ad valorem tax bond rating again once the uncertainty is resolved, which Fitch expects will be prior to the scheduled dissolution date of June 1, 2023. Prolonged uncertainty with respect to dissolution procedures, litigation or other factors that alter security provisions and/or the capacity for repayment could lead to a downgrade of the RCID ratings.” No successor to Reedy Creek has been officially announced yet, though it’s expected that it will have many of the same responsibilities, like firefighting, garbage collection and contracting law enforcement from nearby counties.
The report adds the negative watch warning would be removed if the district transferred its assets and liabilities or a dissolution plan show could show the district’s credit quality and ability to pay its bonds’ revenue streams is preserved. That being said, the rating also could also be downgraded if the state passes further legislation that alters the capacity of the district in a way that changes its ability to repay the bonds or creates any more uncertainty.
Currently, the Reedy Creek Improvement District is expected to be dissolved in June 2023, with Orange and Osceola Counties being forced to take on the district’s remaining $1 billion debt. A lawsuit has been filed against Governor Ron DeSantis and several state agencies regarding the dissolution.