Special session of Florida Legislature deals with Disney’s Reedy Creek district

The Florida Legislature meets in a special session beginning Monday afternoon to deal with a host of outstanding issues that include implementing the dissolution of a special district that serves Walt Disney Company properties in central Florida, including its iconic theme parks.

The Legislature approved a bill in April to dissolve all independent special districts created before 1968, notably the Reedy Creek Improvement District.

The bill’s authors and Gov. Ron DeSantis made it clear it was intended to punish the Disney Co., which Reedy Creek was created to serve, for its opposition to the Parental Rights in Education Act, called the “Don’t Say Gay” billion by its critics. The law banned public school instruction for children through the third grade about sexual orientation or gender identity.

In the special session, the state Senate will receive from the House a local bill to revise the governance and powers of the special district, while protecting local taxpayers from its outstanding debts.

Republican Rep. Fred Hawkins will kick off the process by introducing a bill that revises the governance and powers of the Reedy Creek district, while protecting local taxpayers from the district’s debts.

The Reedy Creek district was created in 1967 to help Disney develop the property into a theme park. It is a special tax and governing taxing district for the land owned by Disney World in Orlando. It has the same authority as a county government and includes 39 square miles of land in Orange and Osceola counties.

The district is mostly funded by property taxes, with Disney accounting for 88% of its property tax base. At the close of fiscal 2021, the Reedy Creek district had about $719 million in tax-secured debt and $185 million in utility debt outstanding.

The Legislature will also look at bills concerning two other special districts — legislation to reauthorize the Sunshine Water Control District and a bill to revise and reauthorize the Eastpoint Water and Sewer District.

Many think the Reedy Creek bondholders won’t feel any pain — or even notice much of a change after the Legislature’s actions during the special session.

“In the end, you don’t end up much different than before all this posturing,” Cumberland Advisors President and CEO John Mousseau told The Bond Buyer.

“You know the state isn’t going to stick Orange County with a huge bill. And they do have to defease the debt if they want to make much in the way of changes,” he said.

“Remember that interest rates are much higher than when first discussed. It would make this path much more expensive for the state,” Mousseau said.

“We understand our responsibility to bondholders and investors and take that seriously,” Ben Watkins, director of the state of Florida’s Bond Division, said in an August podcast.

“And whenever we endeavor to change a governance framework potentially, it’s to do so in a manner that does not have any adverse consequences on the bondholders,” he said. “And so that’s exactly what we’ve undertaken to do. We have a seat at the table. We’ve been in conversations with decision makers about what that looks like. “

He said in the end, bondholders wouldn’t notice much difference.

“What I see is a change in the governance framework with protection of bondholders at the end of the day, which means that bondholders are going to be in the same place they were after the dissolution of Reedy Creek as they were before. And that’s what I would advocate for and what I would expect to happen,” he said.

On Friday, Watkins reiterated those sentiments.

“The main point is that this is a change primarily in name only,” he said. “There will be no impact on debt whatsoever. It will be the same entity, same security. There’s going to be no impact on outstanding debt. I think that’ll be reassuring to the existing investor community about their position.”

He said the Bond Division staff is gearing up to provide technical assistance to the Legislature during this special session.

According to the bill, the district could be re-ratified on the June 1 dissolution date.

In October, Fitch Ratings it was maintaining its negative rating watch on Reedy Creek’s million of outstanding ad valorem tax bonds and issuer default ratings.

However, Fitch said at the time that any re-ratification would most likely result in changes to Reedy Creek’s governance and administrative structure while preserving the operating and fiscal powers that underpin the creditworthiness of the outstanding debt. That could lead to rating stabilization and the remove of the credit from negative watch.

Fitch assigns AA-minus ratings to the RCID’s issuer default rating and ad valorem tax bonds and A ratings to the utilities revenue and refunding bonds, which are also on negative watch.

In April, S&P revised the outlook on Reedy Creek to developing from stable due to the uncertainty about the district’s fate. S&P also affirmed the AA-minus long-term and underlying ratings on its outstanding ad valorem bonds.

Moody’s Investors Service also revised its outlook on RCID to developing from stable in May and affirmed the Aa3 issuer and Aa3 limited tax GO ratings. Moody’s also affirmed the A1 rating on RCID’s combined utility enterprise’s utility revenue bonds.

Disney stock had a rough ride in 2022, down more than 44% in a year in which the S&P 500 lost 19.44%, though Disney is up more than 25% since New Year’s Day, trading at $109.10 Monday morning.

Disney replaced CEO Bob Chapek in November with former CEO Bob Iger, 71, who had retired in 2020. The company will release its earnings report on Wednesday.

Separately, Florida lawmakers will take up several other matters likely to appeal to DeSantis’ base amid 2024 presidential campaign speculation, including measures targeting foreign migrants, asserting state control over election fraud prosecutions, and governing college athletes’ financial control of their names, images and likenesses.