FITCH UPGRADES CITY OF DEERFIELD BEACH RATING

Fitch Ratings – New York – 08 Aug 2024: Fitch Ratings has upgraded Deerfield Beach, FL’s Issuer Default Rating (IDR) to ‘AA+’from ‘AA’ and its outstanding capital improvement revenue bonds series 2018 to ‘AA+’ from ‘AA-‘. Fitch has also upgraded the ratings on the Florida Municipal Loan Council’s (FMLC) series 2012B-1 and series 2012B-2 to ‘AA+’ from ‘AA-‘ and ‘AA’, respectively, issued on behalf of the city. The Rating Outlook for all ratings is Stable. The ratings have been removed from Under Criteria Observation.

The upgrades to ‘AA+’ reflect implementation of Fitch’s new “U.S. Public Finance Local Government Rating Criteria”. The IDR reflects the city’s ‘aaa’ financial resilience assessment supported by a high-midrange level of revenue and expenditure control and history of maintaining unrestricted general fund reserves above 10% of spending (the minimum level required for the ‘aaa’ assessment).

The rating also reflects the city’s ‘strong’ long-term liability metrics, balanced against demographic and economic trend and level metrics which are assessed at ‘weak’ and ‘midrange’ respectively, relative to Fitch’s local government rated portfolio. Low unemployment rates relative to the national rate and ‘midrange’ educational attainment levels are tempered by moderate population growth trends and low median household income levels.

The new criteria provides for debt backed by an absolute and non-cancellable covenant to appropriate debt service payments to be rated on par with the IDR if the revenues available to make such payment are sufficiently broad and controllable. These features support rating the capital improvement revenue bonds and FMLC’s series 2012B-1 bonds onpar with the ‘AA+’ IDR.

Rating Sensitivities

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

–An approximate 30% increase in long-term liabilities and carrying costs, assuming current levels of personal income and governmental resources and spending;

–Weakened underlying economic and demographic performance including but not limited to rising unemployment, lower educational attainment levels, and/or a significant reversal in population trends;

–A sustained reduction in general fund reserves to a level below 10% of spending which would lead to a change in the financial resilience to below ‘aaa’.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

–Notable improvement in the city’s demographic and economic strength metrics, evidenced by higher resident income, improved population trends, and higher educational attainment levels;

–A sustained and material decrease in long-term liabilities and carrying costs.

SECURITY

The city covenants to budget and appropriate (CB&A) non-ad valorem (NAV) revenues, by amendment if necessary, in an amount sufficient to pay debt service on the outstanding series 2018 capital improvement revenue bonds. Such covenant shall be cumulative to the extent not paid, and shall continue until such NAV or other legally available funds in amounts sufficient to make all such required payments shall have been budgeted, appropriated, and actually paid.

The outstanding FMLC bonds are backed by payments from the city pursuant to two separate loan agreements. The loan agreement relating to the 2012B-1 bonds is backed by the city’s covenant to budget and appropriate NAV revenue, whereas the loan agreement related to the 2012B-2 bonds is backed by the full faith and credit and unlimited taxing power of the city.

Fitch’s Local Government Rating Model

The Local Government Rating Model generates Model Implied Ratings which communicate the issuer’s credit quality relativeto Fitch’s local government rating portfolio (the Model Implied Rating will be the IDR except in certain circumstances explained in the applicable criteria). The Model Implied Rating is expressed via a numerical value calibrated to Fitch’s long-term rating scale that ranges from 10.0 or higher (‘AAA’), 9.0 (‘AA+’), 8.0 (‘AA’), and so forth down to 1.0 (‘BBB-‘ and below).

Model Implied Ratings reflect the combination of issuer-specific metrics and assessments to generate a Metric Profile, and astructured framework to account for Additional Analytical Factors not captured in the Metric Profile that can either mitigateor exacerbate credit risks. Additional Analytical Factors are reflected in notching from the Metric Profile and are capped at+/-3 notches.

Ratings Headroom & Positioning

Deerfield Beach Model Implied Rating: ‘AA+’ (Numerical Value: 9.32)

— Metric Profile: ‘AA+’ (Numerical Value: 9.32)

— Net Additional Analytical Factor Notching: 0.0

Deerfield Beach’s Model Implied Rating is ‘AA+’. The associated numerical value of 9.32 is at the lower end of the 9.0 to 10.0range for its current ‘AA+’ rating.

Key Rating Drivers

Financial Profile

Financial Resilience – ‘aaa’

Deerfield Beach’s financial resilience is driven by the combination of its ‘High’ revenue control assessment and ‘Midrange’expenditure control assessment, culminating in a ‘High Midrange’ budgetary flexibility assessment.

— Revenue control assessment: High

— Expenditure control assessment: Midrange

— Budgetary flexibility assessment: High Midrange

— Minimum fund balance for current financial resilience assessment: >=10.0%

— Current year fund balance to expenditure ratio: 42.2% (2023)

— Five-year low fund balance to expenditure ratio: 24.4% (2023)

Revenue Volatility – ‘Weak’

Deerfield Beach’s weakest historic three-year revenue performance has a modest negative impact on the Model ImpliedRating.

The revenue volatility metric is an estimate of potential revenue volatility based on the issuer’s historical experience relativeto the median for the Fitch-rated local government portfolio. The metric helps to differentiate issuers by the scale of

revenue loss that would have to be addressed through revenue raising, cost controls or utilization of reserves througheconomic cycles.

— Lowest three-year revenue performance (based on revenues dating back to 2005): 10.7% decrease for the three-year period ending fiscal 2010

— Median issuer decline: -4.5% (2023)

Demographic and Economic Strength

Population Trend – ‘Weak’

Based on the median of 10-year annual percentage change in population, Deerfield Beach’s population trend is assessed as’Weak’.

Population trend: 0.7% 2022 median of 10-year annual percentage change in population (39th percentile)

Unemployment, Educational Attainment and MHI Level – ‘Midrange’

The overall strength of Deerfield Beach’s demographic and economic level indicators (unemployment rate, educational attainment, median household income [MHI]) in 2023 are assessed as ‘Midrange’ on a composite basis, performing at the 41st percentile of Fitch’s local government rating portfolio. This is due to low unemployment rate offsetting midrange education attainment levels and very low median-issuer indexed adjusted MHI.

— Unemployment rate as a percentage of national rate: 77.8% 2023 (79th percentile), relative to the national rate of 3.6%

— Percent of population with a bachelor’s degree or higher: 26.9% (2022) (41st percentile)

— MHI as a percent of the portfolio median: 63.4% (2022) (3rd percentile)

Economic Concentration and Population Size – ‘Strongest’

Deerfield Beach’s population in 2022 was of sufficient size and the economy was sufficiently diversified to qualify for Fitch’s highest overall size/diversification category.

The composite metric acts asymmetrically, with most issuers (above the 15th percentile for each metric) sufficiently diversified to minimize risks associated with small population and economic concentration. Downward effects of the metricon the Metric Profile are most pronounced for the least economically diverse issuers (in the 5th percentile for the metric orlower). The economic concentration percentage shown below is defined as the sum of the absolute deviation of the percentage of personal income by major economic sectors relative to the U.S. distribution.

— Population size: 86,750 (2022) (above the 15th percentile)

— Economic concentration: 22.0% (2023) (above the 15th percentile)

Long Term Liability Burden

Long-Term Liability Burden – ‘Strong’

Deerfield Beach’s carrying costs to governmental expenditures has improved while liabilities to personal income and liabilities to governmental revenue remain moderately strong. The long-term liability composite metric in 2023 is at the 75th percentile, indicating a somewhat lower liability burden relative to the Fitch’s local government rating portfolio.

— Liabilities to personal income: 3.7% Analyst Input (67th percentile) (vs. 3.4% 2023 Actual)

— Liabilities to governmental revenue: 109.6% Analyst Input (81st percentile) (vs. 102.2% 2023 Actual)

— Carrying costs to governmental expenditures: 11.0% (2023) (77th percentile)

Analyst Inputs to the Model

Analyst inputs to the model reflect metric adjustments to account for historical data anomalies, forward-looking performance shifts, or non-recurring events that may otherwise skew the time series. Liabilities to personal income and liabilities to governmental revenues were adjusted to reflect amortization of principal through FYE 2024 and to include the city’s newly issued series 2024 special obligation bond in the amount of $14.5 million.

When including 2025 debt service (the first year of principal payments) from the series 2024 bond with existing annual debtservice for 2025, the total is comparable to the audited values for fiscal 2023. Consequently, no adjustments were made to carrying costs in relation to the series 2024 bond.

PROFILE

Deerfield Beach encompasses approximately 16 square miles on the southeastern coast of Florida in Broward County,situated between the cities of Boca Raton and Pompano Beach. The city has a moderately growing year-round census population of approximately 87,000 residents as of 2023, which is a 16% increase since 2010. The city’s local economy isprimarily residential and retail/tourism oriented with broader employment opportunities available in Fort Lauderdale,located about 15 miles to the south via I-95.

The city’s tax base continues to demonstrate solid growth, driven by new construction that reflects ongoing development and redevelopment efforts planned and underway. City wealth levels are below state and national benchmarks.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

ESG Considerations

The highest level of ESG credit relevance is a score of ‘3’, unless otherwise disclosed in this section. A score of ‘3’ means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in whichthey are being managed by the entity. Fitch’s ESG Relevance Scores are not inputs in the rating process; they are anobservation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch’s ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.