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���������ֳ�-New York-18 July 2011: ���������ֳ� takes the following rating action on Florida Municipal Loan Council's (FMLC) revenue bonds issued on behalf of the city of North Miami Beach (the city) as obligor:

--Approximately $65 million, series 2002B (City of North Miami Beach Water Project) downgraded to 'A+' from 'AA-'.

The Rating Outlook is Stable.

SECURITY:

The bonds are secured by loan repayments from the city of North Miami Beach (the city) pursuant to a loan agreement, between FMLC and the city, under which the city irrevocably pledges its net water system (the system) revenues. Pursuant to the loan agreement, the city irrevocably pledges the net revenues of the system to make payment in amounts sufficient to make the principal and interest payments on the bonds. As a result, the rating is based on the credit characteristics of the city's water system. The bonds are further secured by a debt service reserve fund surety.

CREDIT SUMMARY:

The rating downgrade reflects the depletion of the water system liquidity despite multiple years of double-digit rate hikes, leaving the system with zero cash as of fiscal 2010. In addition, with the city planning to continue making large annual transfers to the city's general fund (GF), reestablishing solid reserves will be difficult despite the system's strong annual financial margins.

KEY RATING DRIVERS:

Affordable Rates: Despite fairly sizable rate increases over the past four years, the average customer bill remains relatively affordable.
Strong Debt Service Coverage: Strong financial margins allow for annual debt service to be comfortably paid, but the lack of reserves is a significant credit weakness.
Manageable Capital Needs: The service area is built-out and capital needs are expected to be very manageable, which should keep leverage ratios moderate.
Ample System Capacity: System capacity is ample in terms of both treatment and water supply.
Weak Economy: The service area economy and housing market remain weak, which could pressure system finances and rates.
Below-Average Legal Covenants: Legal provisions are somewhat permissive and are considered below average with a rate covenant that requires 110% debt service coverage (DSC) from net revenues. Additional bonds may be issued provided net revenues for 12 of the preceding 24 months equal at least 115% maximum annual debt service on all outstanding bonds and loans.

WHAT COULD TRIGGER A RATING ACTION:
System Liquidity Key: A continued lack of system liquidity over the near term could lead to additional negative rating action.

CREDIT PROFILE:

The city of North Miami Beach (general obligation bonds rated 'AA-' by ���������ֳ�) is located in northeast Miami-Dade County, midway between the cities of Miami and Fort Lauderdale in southeast Florida. The city's population is roughly 41,000, but the system serves a much larger population of about 170,000 that includes nearby communities of Sunny Isles and Golden Beach to the east, Norland and Bunche Park to the west, and Ojus to the northeast. The area is almost fully developed, and customer growth is expected to be limited. City income levels are roughly 80% of the national average, but customers outside the city, where incomes are higher, provide a substantial amount of system revenues, including a 25% rate surcharge.

The local economy, driven by retail commercial activity, leisure, and entertainment, remains weak. The city's May 2011 unemployment rate was 14.1%, which is nearly one percentage point higher than the rate in May 2010. The weakened economy and rising unemployment has led to a rise in account delinquencies and accounts receivable from pre-recession levels. However, the city has been aggressive in shutting service for delinquent accounts. In addition, state law allows the city to attach a lien to any property with a delinquent utility bill, which helps ensure ultimate repayment once the property changes hands.

The system historically has produced strong operating margins, with DSC at high levels. Despite DSC remaining solid for fiscal 2010, system cash balances were completely depleted. While ���������ֳ� notes the city uses a pooled approach to its finances, commingling its cash throughout the year for all funds, the system's excess cash has been subsidizing the general fund for many years. For fiscal 2010 alone, the system, along with the sewer and stormwater utilities, transferred $13 million to the GF, funding most of the GF's operating deficit for the year; the system's contribution was $9.5 million.

City management has taken steps to close the GF budget deficit for fiscal 2012. However, the system is expected to continue making large annual transfers to the GF on an ongoing basis. A change to the funding methodology will lower the annual payment to a still sizable $8 million. Management expects the system to begin building reserves in fiscal 2012, with excess annual earnings in the range of $1 million. Nevertheless, at such a level, it will take the system several years to reestablish a solid financial position in line with other similarly rated credits. If the system is unable to make progress in restoring reserves over the near-term, additional negative rating action could result.

DSC for fiscal 2010 was a hearty 3.8 times (x). However, when factoring in the GF transfer, coverage of total system obligations was much lower, although still sufficient at 1.7x. Similar results are expected for fiscal 2011. Financial projections provided by the city show strong coverage of annual debt service and surplus revenues sufficient to support $1.2 million in annual pay-go capital funding.

The city's raw water supply consists of groundwater from the Floridan and Biscayne aquifers pursuant to a 20-year consumptive use permit (CUP) granted by the South Florida Water Management District (SFWMD) in 2007. Supply is well in excess of average demand, which has been on the decline for the past several years. The city historically purchased a portion of its water from Miami-Dade County. However, reliance on county-supplied water has decreased as a result of the reduced demand, along with the construction of new wells and expansion of the system's water treatment plant (financed with the 2002B bonds). Treatment capacity at the system's plant is also well in excess of current demand.

The debt burden is moderate at 52% of net capital assets and around $1,380 per customer based on 3.3 people per connection. The average residential customer bill for water service for customers living within the city remains reasonable at roughly $24 for 7,000 gallons of use. Even with the surcharge, the average customer pays less than $30 a month for service. The system's reasonable rates provide the system with some financial flexibility.

The FMLC is a public body created under the laws of the state of Florida to finance projects on a cost effective basis and to benefit municipalities through economies of scale. Its board of directors consists of seven elected officials appointed by the president of the Florida League of Cities, which is the program's administrator. The FMLC will stay in existence as long as any obligations of the issuer or of any other participating entities issued under the program remain outstanding.

Contact:

Primary Analyst
Andrew DeStefano
Director
+1-212-908-0284
���������ֳ�, Inc.
One State Street Plaza
New York, NY 10004

Secondary Analyst
Christopher Hessenthaler
Director
+1-212-908-0773

Committee Chairperson
Doug Scott
Managing Director
+1-512-215-3725


Media Relations: Cindy Stoller, New York, Tel: +1 212 908 0526, Email: cindy.stoller@fitchratings.com.

Additional information is available at ''

In addition to the sources of information identified in the 'U.S. Revenue-Supported Rating Criteria', dated June 20, 2011, this action was additionally informed by information from IHS Global Insight.

Applicable Criteria and Related Research:

'U.S. Revenue-Supported Rating Criteria', dated June 20, 2011;
'Water and Sewer Revenue Bond Rating Guidelines', dated Aug. 6, 2008;
'2011 Water and Wastewater Medians', dated Jan. 18, 2011;
'2011 Outlook: Water and Wastewater Sector', dated Jan. 18, 2011.

For information on Build America Bonds, visit .

Applicable Criteria and Related Research: