NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has taken the following rating action on Davie, Florida (the town) during the course of routine surveillance:

--$21.5 million limited tax general obligation (LTGO) bonds, series 2006 downgraded to 'A-' from 'AA-';

--$45.2 million unlimited tax general obligation (ULTGO) bonds affirmed at 'AA-'.

The Rating Outlook is Stable.

SECURITY

The ULTGO bonds are secured by the full faith, credit, and taxing power of the town. The LTGO bonds are payable from the levy of ad valorem taxes not to exceed 0.38 mills per annum. The LTGO bonds do not constitute general obligation debt of the town.

KEY RATING DRIVERS

REDUCED LTGO COVERAGE: The downgrade reflects the significantly reduced coverage of maximum annual debt service (MADS) from the maximum millage rate pledged to bondholders.

SOUND RESERVES: The ULTGO rating reflects the town's continued adherence to its general fund balance reserve policy despite drawdowns over the last several years for capital needs.

CONSISTENTLY LATE AUDITS: The town has had nine consecutive late audits from fiscal years 2001-2010, with its fiscal 2010 audit being released five months late in August 2011.

SOLID ECONOMY: The town's economy is bolstered by its inclusion in the Ft. Lauderdale metropolitan area and its proximity to Miami.

MODERATE DEBT BURDEN: Debt ratios are moderate and future bonding plans are limited.

CREDIT PROFILE

The Town of Davie is a largely developed residential community located in the southern portion of Broward County in southeastern Florida. Considered a suburban alternative to its neighboring cities of Ft. Lauderdale and Miami, Davie's population more than tripled from 1980 to 2000, reaching 91,992 in 2010. Wealth levels are above the state and national averages, and the 7.6% unemployment rate as of September 2011 is below both.

DIVERSE ECONOMIC AREA

The majority of residents commute outside city limits to work in Ft. Lauderdale or Miami, located approximately 10 and 20 miles away, respectively. Davie's economy is anchored by the presence of several universities and colleges, including Nova Southeastern University (rated 'BBB' with a Stable Outlook by Fitch), Broward Community College (part of the Florida Community College System), and Florida Atlantic University. The Andrx Corporation, a subsidiary of Watson Pharmaceuticals, Inc., is Davie's largest private employer with approximately 900 manufacturing jobs.

NARROW, DECLINING LTGO COVERAGE

The maximum levy of 0.38 mills pledged to bondholders would generate a low 1.25 times (x) coverage of MADS based on fiscal 2012 TAV of $6.6 billion assuming a 95% collection rate (actual current collections are slightly above 95%). Coverage from the maximum pledged levy has fallen from 1.73x based on fiscal 2007 TAV. Fitch calculates that current TAV could decline by 19.9% before the maximum pledged millage rate would fail to cover MADS by at least 1.0x. According to zillow.com median, home values within the town have recently been flat to slightly positive, although Fitch believes there is still downside risk to future TAV performance.

In fiscal 2012 the town will levy 0.2993 mills of the maximum pledged 0.38 mills to pay debt service on its LTGO bonds. This levy provides only 0.98x coverage; the town has budgeted $28,500 in general fund reserves for the balance. The decision to use reserves was made by town council in order to keep the millage rate low for taxpayers. Management has said that it expects to do this again in fiscal 2013. Fitch does not view this use of reserves as a credit concern for the ULTGO rating as it is a negligible amount of the town's sound reserve levels. While the use of reserves indicates a reluctance to raise the tax levy to pay debt service, it demonstrates the town's willingness to support this obligation with non-pledged resources.

STRONG BUT DECLINING RESERVES

The town has consistently met its fund balance policy, which requires that the town set aside 25% of general fund reserves in a rainy day fund. The town concluded fiscal 2010 with a general fund net deficit of $206,000 and an unreserved general fund balance of approximately $38.3 million, equal to a healthy 40.1% of spending.

Unaudited results for fiscal 2011 show an additional $3.2 million general fund deficit due the purchase of a golf course and various capital projects. Despite this, the town closed the year with a sound unrestricted general fund balance (pursuant to GASB 54) of approximately $29 million or 31.3% of spending.

The town's 2012 adopted budget is balanced with transfers of $1 million from the vehicle and $1.5 million from the self insurance funds and includes a $2.4 million contribution from reserves for capital. The town's fiscal 2012 operating tax rate of 4.8122 mills affords flexibility under the 10-mill statutory limit.

MODERATE DEBT

The town's overall debt burden remains moderate at $2,050 per capita and 2.6% of TAV. Approximately 68% of the town's outstanding debt is repaid within 10 years. The fiscal 2012-2016 capital investment plan (CIP) totals $93.1 million, which is 28% smaller than the town's previous CIP, and includes limited plans for approximately $21 million in future tax-supported debt. The town does not have exposure to variable rate debt, short-term debt, or derivatives.

Pension and other-post employment benefits (OPEB) represent a manageable burden. The town fully funds the actuarial required contribution (ARC) for its three defined benefit pension plans. The town's pension plans consume approximately 14.3% of the general fund budget and are 70.1% funded on the aggregate level, using the town's 7.75% investment return rate. Adjusting the liability to Fitch's more conservative 7% discount rate, the funded ratio declines to 64.7%, which Fitch considers weak. The town provides a subsidy for OPEB exceeding the requirement of state law. In 2009 the town established an irrevocable trust account and over-funded the liability. As of Sept. 30, 2010, the town has contributed $968,000 in total to its OPEB plan through the Florida League of Cities Municipal Pension Trust Fund to pre-fund OPEB costs.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight, Zillow.com, and National Association of Realtors.

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria', dated Aug. 15, 2011;

--'U.S. Local Government Tax-Supported Rating Criteria', dated Aug. 15, 2011.

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648898

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648842

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