The City of Deerfield Beach's financial standing has recently seen a boost with Fitch Ratings uplifting its Issuer Default Rating (IDR) from 'AA' to 'AA+' and similarly raising the rating on its capital improvement revenue bonds series 2018 from 'AA-' to 'AA+'. The bonds issued on behalf of the city by the Florida Municipal Loan Council's (FMLC), series 2012B-1 and series 2012B-2, were also upgraded to 'AA+' from 'AA-' and 'AA', respectively. As reported directly on the city's website, these upgrades are a result of applying Fitch's newly updated "U.S. Public Finance Local Government Rating Criteria."
The upgrades reflect Deerfield Beach's strong financial resilience, its control over revenues and expenditures, and its prudent practice of maintaining reserves exceeding 10% of its spending—the minimum level standing warranting a 'aaa' assessment by Fitch's standards. The city's creditworthiness is also bolstered by its 'strong' long-term liability metrics, despite being counterbalanced by demographics and economic indicators that Fitch rated as 'weak' to 'midrange.' Factors such as unemployment rates bettering the national average and middling levels of educational attainment have influenced the rating decision. However, these are balanced by moderate population growth and lower median household income levels.
When it comes to the security of the city's borrowing, Deerfield Beach has agreed to a covenant, ensuring enough non-ad valorem (NAV) revenues will be budgeted and appropriated to cover debt services on its bonds, a critical component reassuring bondholders of the city's ability to meet its financial obligations. The same covenant backs the FMLC's 2012B-1 bonds, while the 2012B-2 bonds are further reinforced by the city's full faith and credit, including its unlimited taxing power.
Fitch Ratings has built a Local Government Rating Model that establishes Model Implied Ratings to ascertain the credit quality of an issuer within its local government rating portfolio, with Deerfield Beach scoring 'AA+' on this scale, translating to a numerical value of 9.32. According to the ratings agency, Deerfield Beach's 'financial resilience' is pegged at 'aaa' and is driven by what the city has demonstrated in terms of revenue and expense control, which then feeds into an assessment of budgetary flexibility at a high-midrange level. However, while the city shines in several areas, its revenue volatility and population trend metrics have been tagged as 'Weak,' suggesting these could be areas worth monitoring moving forward, for they have a particular susceptibility to economic downturns that cannot be dismissed.
Deerfield Beach's sustained positive performance and strategic management of liabilities are chief drivers behind its fortified credit position, and both would need to continue trending positively for further upgrades in rating. The city faces potential economic challenges and demographic shifts, which could impact its credit rating negatively, for now, Fitch Ratings has set a 'Stable' outlook, signifying an expectation that Deerfield Beach will maintain its current credit profiles for the near future.
