NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns an 'A+' rating to the City of Laredo, Texas' approximately $6.9 million international toll bridge system (the system) revenue bonds, series 2012. Fitch also affirms the 'A+' rating on the City of Laredo, Texas' outstanding $55 million system revenue bonds. The Rating Outlook is Stable.
KEY RATING DRIVERS:
STRATEGIC LOCATION: The bridge system serves as a major North American Free Trade Agreement (NAFTA) gateway, providing a direct land route from Monterrey and Mexico City to major cities in Texas and along Interstate 35, the NAFTA route that traverses the U.S. north to Minnesota and the Canadian border. Traffic and revenues are inherently susceptible to economic cycles on both sides of the border and the exposure of cross-border shopping trips to the Mexican economic and political conditions. While overall crossings have been affected by heightened border violence and economic downturn, with continued declines in fiscal year 2011 (fiscal year ends Sept. 30) down 7% to 9.3 million total crossings, commercial traffic (at about 58% of toll revenues) has remained resilient, and the maquiladora industry has stabilized.
STRONG ECONOMIC RATE-MAKING FLEXIBILITY: The system's economic and political rate-making flexibility is demonstrated by its historical track record of raising toll rates, its relatively competitive tolls and a moderate degree of demand inelasticity.
CONSERVATIVE DEBT STRUCTURE: All outstanding debt is in a fixed rate mode with a 16-year maturity profile and a declining debt service schedule.
LOW LEVERAGE AND ROBUST COVERAGE LEVELS: The system's low leverage (at 1.21 times (x) net debt/cash flow available for debt service) and healthy debt service coverage ratio (with 3.98x coverage on all debt in fiscal 2011) provide significant cushion against volatility in traffic. While the system makes deeply subordinated toll revenue transfers to the city's general fund (equivalent to about 50% of toll revenues) ensuring high coverage of senior debt, it also results in low levels of liquidity being maintained (at about 261 days cash on hand) within the system.
MODERATE CAPITAL PROGRAM: The bridges are mostly in good condition and funding of any future enhancements are expected to be predominantly grant based. No new borrowing is anticipated to fund the system's four-year $58 million capital plan.
WHAT COULD TRIGGER A RATING ACTION:
--Negative rating action would be triggered by significant declines in crossings and revenue levels driven by considerable declines in manufacturing industry and cross-border trade activity and/or security concerns which could further restrict/slow border crossings;
--Changes in key financial metrics such as coverage and liquidity;
--Management's reluctance to raise tolls if necessary and inability to control operating and maintenance expenses;
--Meaningful additional leverage.
SECURITY: The outstanding revenue bonds are secured by a senior lien on and pledge of net revenues of the toll bridge system.
CREDIT UPDATE:
The current transaction consists of the issuance of an estimated $6.9 million in international toll bridge system revenue bonds, series 2012. Proceeds will be used to partially advance refund the system's outstanding series 2002 toll bridge system revenue bonds. Net present value savings for the refunding is currently estimated at approximately $561,548 through the life of the bonds or 7.714% of the refunded principal. There will be no change in the final maturity of the refunded bonds; series 2012 bonds will mature in 2022.
For more information on the toll bridge system and its recent performance, please refer to Fitch's press release dated Feb. 3, 2012.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Rating Criteria for Infrastructure and Project Finance,' (Aug. 16, 2011);
--'Rating Criteria for Toll Roads, Bridges, and Tunnels,' (Aug. 5, 2011).
Applicable Criteria and Related Research:
Rating Criteria for Infrastructure and Project Finance
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648832
Rating Criteria for Toll Roads, Bridges, and Tunnels
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=646421
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