Credit agency places ‘negative rating watch’ on Disney debt
Gov. Ron DeSantis on Friday signed a bill to dissolve a special tax district that has granted Walt Disney World unique self-governing powers for more than five decades, even as a top bond rating agency put in guards investors against the proposed changes.
The bill (SB 4-C) targets the Reedy Creek Improvement District, which encompasses approximately 25,000 acres in Orange and Osceola counties on property in and around ‘the most magical place of the world”. The district has authority over matters such as land use and provides traditional functions of government, including fire protection and sanitation services.
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DeSantis, who is seeking re-election and is widely mentioned as a potential 2024 Republican presidential candidate, spoke out against Disney – one of the state’s largest employers and a major tourist draw – after the company s is committed to fighting a controversial law restricting education about sexual orientation and gender identity in schools.
The governor added two Disney-related measures to a special session this week on congressional redistricting. The Republican-controlled legislature quickly picked up the bills and passed them.
During a Friday bill-signing ceremony at Hialeah Gardens, DeSantis acknowledged the measures were intended to punish Disney for challenging him on the education bill, which was officially titled the “Human Rights Act.” Parenting in Education” but has been dubbed by opponents the “don’t say gay” bill.
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“We signed the bill, and then incredibly they [Disney officials] say we’re going to work to repeal parents’ rights in Florida, and I figure you’re a company based in Burbank, California, and you’re going to harness your economic power to attack parents in my state? We view this as a provocation and we will fight against it,” the governor said at the campaign-style event.
The measure affects the Reedy Creek District and five smaller special districts: the Bradford County Development Authority, the Sunshine Water Control District in Broward County, the Eastpoint Water and Sewer District in Franklin County, the Hamilton County Development Authority and the Marion County Law Library.
The law would dissolve the districts on June 1, 2023, although it would allow the Legislative Assembly to reinstate the districts before that date.
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Disney debt could be moved to Osceola, Orange Counties
If dissolved, the debts, revenues and responsibilities of the District of Reedy Creek would be transferred to Osceola and Orange counties and the small towns of Lake Buena Vista and Bay Lake.
The legislative action prompted credit rating agency Fitch Ratings on Friday to place “negative rating watch” on about $1 billion of outstanding district debt.
According to an alert issued by Fitch, the district has about $79 million in utility revenue and refund bonds outstanding and about $766 million in ad valorem tax bonds outstanding. The district’s various debt ratings range from A to AA-, Fitch said.
“The negative watch indicates that the ratings could remain at their current levels or potentially be downgraded,” Fitch said.
‘Watch negative’ rating on about $1 billion in Reedy Creek debt
The negative watch “reflects the lack of clarity regarding the distribution” of the district’s assets and liabilities, “including the administration of pledged revenues of approximately $1 billion in unpaid debt,” following the district’s dissolution, said Fitch.
Fitch said the debt should be transferred to Orange County and, to a lesser extent, Osceola County.
“Fitch believes the enforcement mechanisms will be complicated, increasing the likelihood of negative rating action,” the agency said.
The Fitch alert, issued before DeSantis signed the bill later in the day, did not downgrade the district’s bond ratings, but warned investors against future action.
READ MORE: Disney World has its own government. How Reedy Creek Works
The post also touched on what are known as ESG principles, or environmental, social and governance principles, which the agency ranks on a scale of one to five. Scores of one or two indicate “no impact on credit score“; a score of three reflects minimal risk; and scores of four and five “indicate that ESG risk is either an emerging risk or a contributing factor in the credit decision,” according to Fitch’s website.
Fitch revised Reedy Creek District’s “general government” score on “rule of law, institutional and regulatory quality, control of corruption” from three to five “to reflect the state’s actions to disband the district, indicating a significantly reduced degree of independence from political pressure,” the agency said.
“These actions potentially diminish government effectiveness and could prove detrimental to bondholders, which negatively impacts credit profile and is highly relevant to the Negative Watch action,” Fitch said.
Meanwhile, ratings agency S&P Global Ratings did not issue a warning on Friday about the Reedy Creek district, but acknowledged the district’s impending disbandment.
The legislation did not provide a specific plan for how the district’s debts would be transferred.
During the debate on the measure this week, Democrats warned that central Florida taxpayers could be required to pay the tab of outstanding debt as well as utilities and other services.
Economic Implications of the Reedy Creek Bill
Representative Andrew Learned, D-Brandon, told the News Service of Florida that Fitch’s warning translates to “real world consequences” for DeSantis and the culture wars of Republican lawmakers. He noted that the credit bureau’s warning came even before the district was disbanded.
“It’s the main takeaway. We’re all going to pay more now, just because of the threat. Nothing should even change. The mere threat of a change will drive up prices and affect bond ratings. And that’s what’s happening,” Learned said.
But DeSantis brushed off those concerns on Friday.
“We’ll take care of all that. Do not worry. We have thought of everything. Don’t let anyone tell you that somehow Disney is going to get a tax cut. They are going to pay more taxes because of this,” he said.
DeSantis also signed a separate bill Friday targeting Disney that will remove an exemption for theme parks that was placed in a 2021 law aimed at punishing social media platforms that take users off the platforms or flag users’ posts. .
Last year, a federal judge issued a preliminary injunction preventing enforcement of the law, saying it was “riddled with vagueness and ambiguity.”
An Atlanta-based appeals court is set to hear arguments in the state’s appeal against U.S. District Judge Robert Hinkle’s ruling on Thursday.
This story was originally published April 22, 2022 6:55 p.m.