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LTC 240-2025 RDA Bond Credit Ratings240-2025 MIAMI BEACH OFFICE OF THE CITY MANAGER LTC# LETTER TO COMMISSION TO: Honorable Mayor Steven Meiner and Members of the City Commission FROM: a ,()~· Eric Carpenter, City Manager l,,/4C, \....,.,LV/~ DATE: June 11, 2025 SUBJECT: RDA Bond Credit Ratings The purpose of this Letter to Commission {L TC) is to advise you of the credit ratings assigned by Standard & Poors (S&P) and Moody's to the Miami Beach Redevelopment Agency (RDA) of its Revenue Refunding Bonds, Series 2025 City Center/Historic Convention Village (Series 2025 Refunding Bonds). I would like to underscore that both S&P and Moody's have incorporated risks from climate change, severe weather events, and cyber security into their credit rating analysis. Both credit rating reports are attached for your review and highlights are provided below. Standard and Poors S&P has assigned and affirmed its prior "A" long-term rating with a stable outlook to the RDA's Series 2025 Refunding Bonds . The "A" rating reflects the following: • Generally increasing assessed value (AV) with ongoing economic developments including a new convention center hotel • Strong coverage of debt service that is expected to increase following the proposed refunding • No additional debt plans • Taxpayer concentration that is likely to increase once a new convention center hotel is completed • Reliance on the hotel industry given tourism to the area • Redevelopment area is in a region with elevated exposure to chronic and acute physical risks in the form of hurricanes. Per S&P: ''The stable outlook reflects our view that future AV trends will support debt service coverage of at least 2 .0x and that the sizable incremental AV compared with the base year AV will somewhat insulate incremental revenues from declines in AV. The stable outlook also incorporates our view of the hotel sector concentration that exists within the redevelopment area and the potential for the top ten taxpayer concentration to increase following the completion of the new convention center hotel." Letter to Commission RDA Bond Credit Ratings June 11 , 2025 Page 2 of 3 Moody's Moody's has assigned and affirmed its prior "A 1" long-term rating to the RDA's Series 2025 Refunding Bonds. The "A 1" rating reflects the following: • Nature of the tax increment district • Assessed value remains strong • Management has no plans for additional debt On the next page you will find a bond rating scale with descriptions . If you have any questions or need additional information, please contact Jason D. Greene, Chief Financial Officer. Attachments S&P Ratings Report Moody's Ratings Report JOG /, J , 6. Letter to Commission RDA Bond Credit Ratings June 11 , 2025 Page 3 of 3 S&P AAA AA+ AA AA- A+ A A- BBB+ BBB BBB- BB+ BB BB- B+ B 8- CCC+ CCC CCC- cc C D Bond Rating Scale Moody's Rating Description Aaa Prime Aal Aa2 High grade Aa3 Al Investment-grade A2 Upper medium grade A3 Baal Baa2 Lower medium grade Baa3 Bal Non-investment Ba2 grade speculative Ba3 81 82 Highly speculative 83 Caal Substantial risks Non-investment grade Extremely AKA high-yield bonds Caa2 AKA junk bonds speculative Caa3 Default imminent Ca with little prospect for recovery C I In default S&P Global Ratings RatingsDirect® Miami Beach Redevelopment Agency, FL's Series 2025 Tax Increment Revenue Refunding Bonds Rated 'A'; Outlook Stable June 4, 2025 Overview • S&P Global Ratings assigned its 'A' long-term rati ng to Miam i Beach Redeve l ooment Agency (RDA), Fla.'s proposed $244 million ser ies 2025 tax increment revenue refunding bonds (City Center/Historic Convention Village). • At the same time, S&P affirmed its 'A' rating on the agency's tax i ncrement revenue bonds outstanding. • The outlook is stable. Rationale Security The series 2025 bonds, as well as the agency's tax increment bonds outstand i ng, are secured by a first lien on trust fund revenues, which consist of tax increment revenue derived from the city ce nter/historic convent ion village redevelopment and revital ization area. Series 2025 bond proceeds will be used to refund a portion of the RDA 's series 2015A tax increment revenue bonds. The refunding will achieve level interest-rate savings without changing the final maturity or str ucture of the previous debt . The city of Miami Beach and Miami-Dade County are requ ired to make payments to the trust fund pursuant to separat e ly adopt ed ordinances. Those payments consist of tax increment revenues and are calculated annually by taking 95% of t he incrementa l revenue generat ed from each taxing authority's operating levy. In cremental revenue is the difference between the current year taxable value and 1992 base year value. Each taxing authority is required to make depos its to the trust fund , according to separately adopted amending ordinances , unti l al l debt is retired (but not to exceed March 31 , 204 4). We believe the potential for fluctuating operating mi l lage rates is a credit weakness given t he direct ef fect on tax -inc rement revenues collected; reduct ions in millage absen t an assessed value (AV) increase could weaken pledged r evenue. Both the ci t y and county have maintained re latively cons istent millage ra t es over t he past www .s pglobal.com/ratingsdirect l 'rinwn conlacl Stephen Doyle New York 1-214-765-5886 st ephen.d oyle @s pglobal.com ~CUllllLII'\ Ullll.tCI Timothy W Barrett Was hington DC 1-2 02-942-8711 ti mothy.ba rrett @s pgloba l.com June 4, 2025 Miami Beach Redevelopment Agency, FL's Series 2025 Tax Increment Revenue Refunding Bonds Rated 'A'; Outlook Stable decade , with the city at about 5.7 m ills-5.8 m ills and the county at about 4 .6 mills-4.7 mills during this time. Credit highlights The rating reflects a s iz able incremental tax base compared with t he base AV, generally increasing AV with ongoing econom ic developments including a new convention center hotel, strong coverage of debt service that is expected to increase following the proposed refund ing , and no additional debt plans . Offsetting these strengths are taxpayer concentration that is likely to increase once a new convention center hotel is completed within the redevelopment area and a re lia nce on the hotel industry given tourism to the area. Following the series 2025 bonds, coverage is projected to remain well above 2.0x and increase to over 3.0x in fiscal 2026 due to increas ing trust f u nd revenues .. The rating further r eflects our view of: • A redeve lo pment area that contains a mix of residential and commercial developments with a new hotel being constructed that cou ld increase taxpayer concentration ; • Growing AV outs ide of the pandemic time frame and a sizable incremental AV component t hat represents most of total AV and translates into a low volatility ratio and a low sensitivity of increment revenues to future AV changes; • Maximum annual debt service (MADS) coverage that is projected to consistently increase following the 2025 bond issuance due to projected AV growth and consistent MADS of abo ut $21 million and • A DSR fund and an additional bonds test (ABT) equa l to 1.50x MADS coverage based on the previous year's increment collections Environmental, social, and governance The redevelopment area is in a region with elevated exposure to chron ic and acute physical risks in the form of hurricanes. We note that a natural disaster related to any of the previously mentioned physical risks could negatively affect tax-generating assets within the redevelopment area and disrupt pledged revenues. We view governance and social factors as neutral in our credit analysis. Outlook The stable outlook reflects o u r view that future AV trends will support debt service coverage of at least 2.0x and that the sizable incremental AV compared with the base year AV will somewhat insulate incremental revenues from declines in AV. The stable outlook also incorporates our view of the hotel sector concentration that exists within the redevelopment area and the potential for the top-10 taxpayer concentration to increas e followi ng the completio n of the new convention center hotel. Downside scenario We cou ld lower the rating if debt service coverage weakens, or taxpayer concentration materia lly increases lead ing to greater reliance on a relatively small number of taxpayers . www.spglobal.com/ratingsdirect June 4, 2025 2 Miami Beach Redevelopment Agency, FL's Series 2025 Tax Increment Revenue Refunding Bonds Rated 'A'; Outlook Stable Upside scenario We could raise the rating if debt service coverage increases materia lly to levels more in line with that of higher-rated peers alongside moderation in the top 10 taxpayers. Credit Opinion Local economy and tax base Given its location on a barrier island with access to beaches, Miami Beach's local economy is primarily based on tourism. House ho ld incomes lag the nation though per capita incomes are well above 100% of the nation , with both generally improving over t he past decade. The RDA was created in 1993 and represents a 332-acre area that the city and county deemed in need of rehabilitation, conservation, redevelopment, or a combination of all three. To define the respons i bilities and operations of the agency and implement a redevelopment plan, the city and county entered a redevelopment agency interloca l agreement. Of the 213 acres of land platted for use, 36% is public space and 64% represents priv ate use . The tax base within the redevelopment area is roughly half commercial and half residential and largely built out. AVs have consistently increased over the past decade except for 2020 and 2021, which were affected by the COVID-19 pandemic. Since 2021, values have rebounded and have reached pre- pandemic levels . We expect AV to be stable or increase given historical trends and the addition of t he new convention center hotel that j ust began construction. More important, with a base value of just $292 m i llion compared with tota l AV of nearly $6.2 billion, incremental revenues are fairly insulated from fluctuations in overall AV, though a materia l decline in AV could still lead to credit weakness in the form of coverage deterioration . The redevelopment are a is what we consider moderately concentrated, w ith the top 10 taxpayers accounting for 22% of 2024 incremental AV. The tax base also has some industry concentration among the principal taxpayers, as six of the top 10 are related to hote l properties. Tax increment metrics We believe a low volati lity ratio and current and projected coverage of MADS support the current ra t ing. Using 2024 AV, the volati l ity ratio (or ratio of base AV to total AV) is low at 0.047 on a scale of 'O' to '1'. Proforma MADS coverage following the issuance of the series 2025 bonds is approximately 2.65x, based on f iscal 2024 revenue. Using proforma MADS coverage of 2.65x and a volati lity ratio of 0.047, we calculate the redev elopment area could withstand a loss of about 60% i n AV before coverage falls to 1.0x. Using t he ABT that requires MADS coverage no less than 1.5x for additional bonds to be iss ued, the project area could withstand a loss of over 30%% of AV. These stress tests are li kely to improve based on projecte d fisca l 2025 increme ntal revenues and projections moving forward . Trust fund revenue totaled $55 million in fisca l 2024, hav ing increased 2.4% year over year . However, since 2020, trust fund revenues are down by just over 2% after AV declined due to the pandemic in 2020 and 2021. As well, over the past decade trust f u nd revenues have increased materially. Flow of funds Under the bond resolut ion, the agency w ill deposit trust fund revenue in the city center/historic convention village redevelopment and revitalization trust fund where it will first satisfy interest and then principal requ i rements followed by the DSR account. The re are no payme nt www.spglobal.com/ratingsdirect June 4, 2025 3 Miami Beach Redevelopmen t Agenc y, FL's Se ries 2025 Tax Increment Reve nue Ref unding Bonds Rated 'A '; Outlook St able requ ir ements that are senior to debt service. The trust fund wil l be held by the agency bu t maintained separate from all ot her f unds. The ABT requ i res 1.50x coverage of future MADS based on pledged tax i ncrement revenues received in the immediately preceding f iscal yea r . The calculat io n of MADS for the ABT includes all parit y obligations as we l l as the proposed bonds . A DSR is funded at the lesser of MADS, 1.25x average annu al debt service, or 10% of par . Rat ings List New Issue Ratings USS243.96 mil tax in cre ment rev rfdg bnds ser 2025 dtd 07/10/2025 d ue 02/01/2044 Long Term Ratin g Ratings Affirmed Local Government Miami Beach Redev Agy, FL City Ct r/ Hist Convent ion Ct r Viii Tax Ine r Area Tax Increment Revenues Tr .. it ~ 'JP"-"1' 1:1 b8·'), ,:,"' n"w ::a c r.111 1 (llJC u th , Pd rt·/! 1-e ,t rPj)f •It tr J ") ),,t, F tn '1 CJO 1 r t p 1r"" P.1 t J t .. ;\Si, r' ~ t )! i 1 e tr p-i1r M 1f t • ·,., Jr ,r e·r ut ,1dc'rt or, A/St able A/Stable ll l ~ t I UI "l(ld LI>::, )r ,j 2 1 l p ~~ ( 3 Certain terms used in this repo rt, particularly certain adjectives used to exp re ss our vie w o n rat ing releva nt factors, have specific meanings ascribed to them in our cri ter ia, and should thereforebe readin co njunction with such criteria. Please see Ratings Criteria at https://d isclosure.spglobal.com /ratings /en/regulatory/ratings-criteria for f urther information. A description of each of S&P Global Rat ings' rating ca tegoriesi s containedin "S &P Glo bal Ratings Definitions" at https://disclosu re.spgloba l.com/ratings/en/regulatory/art icle/-/view/so urce ld /504352. Co mp le t e rat ings info rma tion is available to RatingsDirect subscribers at www.ca pitaliq .c om. Al l ratings referenced he re in can be foun don S&P Global Rat ings' public website at www.s pglobal.com /ratings. www .spglobal.com/ratingsdirect June 4, 2025 4 Miami Beach Redevelopment Agency, FL's Series 2025 Tax Increment Revenue Refunding Bonds Rated 'A'; Outlook Stable Copyright© 2025 by Standard & Poor's Financial Services LLC. All rights reserved. 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Maximum annual debt service (MADS) coverage has hovered around 2 .5x for the last five years although post- refunding fiscal 2024 revenues will provide 2.9x coverage to projected MADS. Incremental AV remains strong, although it is just shy of its 2020 peak. The district has some concentration, with the top ten taxpayers accounting for 21 % of revenues . Management has no plans for additional debt. RATING OUTLOOK We do not typically assign outlooks to local government issuers with this amount of debt outstanding. FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS -Significant increase in debt service coverage -Substantial increase in assessed value FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS -Coverage reduced below 2x -Significant declines in incremental AV PROFILE Miami Beach is located entirely on the barrier island across Biscayne Bay from the City of Miami. The Miami Beach RDA area was created in 1993 and consists of 332 acres from 24th Street south to 14th Lane and West Avenue east to the Atlantic Ocean . The Area was created to rehabilitate and redevelopment properties within the area. METHODOLOGY The principal methodology used in these ratings was Tax Increment Debt Methodology published in September 2022 and available at https://ratings.moodys .com/rmc-documents/393335 . Alternatively, please see the Rating Methodologies page on https://ratings .moodys.com for a copy of this methodology. REGULATORY DISCLOSURES For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form . Moody's Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating- definitions. 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