Districts in Distress [South Florida]

Stressed community development districts in Florida this month have told bondholders that they continue to rely on reserves to make debt payments. Some have filed notices of default and analysts expect their number to increase.

The state currently has 571 active CDDs, according to state records. Since the early 1980s, the districts issued more than $11 billion of debt. Most are structured with payments due the first of May and November, and using reserves is not considered a “default” in their bond covenants.

However, because of Florida’s prolonged real estate crisis some CDDs have used reserves for as long as 18 months and a growing number of experts who follow the so-called dirt bonds consider them to be in default.

Compared with most other states there have been a disproportionate number of muni payment defaults and filings related to using reserves in Florida because of CDDs, according to Matt Fabian, managing director of Municipal Market Advisors, whose weekly column distinguishes between defaults and other credit impairments.