CHICAGO--(BUSINESS WIRE)--Fitch Ratings has affirmed the 'A+' rating for Fort Bend County, Texas' approximately $30.8 million senior lien toll road revenue bonds issued on behalf of the Fort Bend County Toll Road Authority (FBCTRA or the authority). The Rating Outlook is Stable.
KEY RATING DRIVERS
DEVELOPING NETWORK WITH LIMITED OPERATING HISTORY: The system's two toll roads opened in 2004 and 2005 and experienced some volatility in recent years as a result of the recession and toll increases. Traffic performance on the system has been slightly negative over the past five years, exhibiting a five-year compound annual growth rate (CAGR) of -0.4%. The traffic base is nearly 100% commuter oriented and the facilities are on the western edge of the strong and growing Houston MSA. While the Westpark and Fort Bend Parkway do provide direct access to the Harris County Toll Road Authority's loop around Houston, there is some level of competition from alternative routes.
DEMONSTRATED RATE-MAKING FLEXIBILITY: Management has raised tolls twice since the system's opening in 2004; first in 2009 in response to the recession and, more recently, in 2011. Further, the authority followed Harris County in approving a toll policy providing for automatic annual increases effective September 27, 2011. The average toll rate remains on the moderate side at $0.18 per mile and all-electronic tolling makes implementing rate increases easier.
CONSERVATIVE DEBT STRUCTURE: All presently outstanding senior lien debt is fixed-rate with conservative amortization. A cash-funded debt service reserve fund equal to maximum annual debt service (MADS) provides additional credit strength.
MODERATE LEVERAGE, STRONG COVERAGE, AND COUNTY SUPPORT: FBCTRA had more liquidity than senior lien debt in fiscal 2012. Projected senior leverage (including two currently contemplated additional issuances) is forecast to grow to a still moderate 5x-6x on a net debt-to-CFADS basis by 2019. Total leverage, including subordinate debt backed by Fort Bend County's general obligation pledge (rated 'AA+' by Fitch), is higher at 6.6x for fiscal 2012 and forecast to grow to over 11x with the additional issuances. Assuming all projected senior bonds are issued, Fitch's rating case reflects pro forma senior debt service coverage (on a net basis) at a relatively strong 2.0x or greater through the medium-term. In addition, as long as there are any senior or subordinate bonds outstanding the system benefits from an O&M tax pledge.
MANAGEABLE NEAR-TERM CAPITAL PROGRAM: The two system roadways consist of only 52 lane miles with minimal maintenance needed given the relatively young age of the assets. The current project (Segment B) consists of a relatively small 2.2 mile extension of the existing Fort Bend Parkway. Fitch views there to be minimal completion risk associated with this project given the favorable history of scheduled delivery and budget. Additional parity senior bond issuances for the proposed SH-6 underpass and Westpark extension projects are anticipated later in 2013 and thereafter; however, FBCTRA indicates flexibility to shift the timing of future projects to coincide with an adequate cash flow generation profile.
RATING SENSITIVITIES
--Additional leverage used to fund future projects that materially dilutes projected coverage ratios would pressure the rating;
--Increased operating expenses or delays in implementing adequate toll adjustments that materially affect the financial profile could be inconsistent with the current rating;
--Material underperformance of new system segments could impact credit quality.
SECURITY
The bonds are secured by a senior lien on the revenues derived from the ownership or operation of the toll road system and certain funds under the indenture. Only the authority's subordinated obligations have the additional security of the county's unlimited general obligation tax pledge.
CREDIT UPDATE
The system provides attractive commuter access into the greater roadway network leading into downtown Houston for a growing county economy and population. While the nearly 100% commuter based traffic is still somewhat susceptible to macroeconomic factors, the system has been fairly resilient in its limited operating history. Overall system traffic has declined slightly, exhibiting a five-year CAGR of -0.4% as a result of volatile fuel costs, the economic recession, and two toll increases. However, transactions grew by 7.5% in fiscal 2012 to nearly 24.1 million and are up another 8.6% through the first three months of fiscal 2013. Fitch forecasts more modest transaction growth of 4% in its base case, in line with the growth prospects of the county for fiscal 2013.
Over the same five-year period, toll revenues grew at a more robust CAGR of 4.5% as a result of the authority's proactive toll increase in fiscal 2009 to counteract the recessionary traffic loss. Management raised rates again in 2011 and adopted an automatic annual toll increase, the greater of 2% or CPI-U (Houston) rounded to the nearest nickel, following Harris County's lead. Further, FBCTRA's all-electronic tolling system makes implementing these increases easier. Fitch views the authority's demonstrated willingness to raise rates favorably and believes that management will take the necessary actions to preserve strong coverage levels with adequate toll rates.
The outstanding series 2012 senior lien bonds are fixed-rate, fully amortizing bonds with a relatively level debt service profile. Future senior lien issuances are anticipated to follow a similar structure. Fitch views this conservative structure as a credit strength. Further, assuming all three senior lien issuances, Fitch's rating case projects senior MADS coverage (net of expenses) to be strong at 2.07x using fiscal 2025 CFADS.
Factoring in future bond issuances, senior lien leverage is projected to remain moderate at 5.3x net debt-to-CFADS, but total leverage is higher at 11.3x, including the subordinate lien bonds. Further, senior DSCR in Fitch's rating case (including all expected issuances) is projected to remain high at 2.0x or greater on a net revenue basis, and total net coverage, including the subordinate lien, is projected to never drop below 1.0x.
Adding additional financial flexibility and serving as a credit strength is the FBCTRA's robust unrestricted cash of $25.5 million which, when combined with O&M reserves, equates to over 2,300 days cash on hand. Fitch also notes that the county's O&M tax pledge, as well as the unlimited GO tax pledge for the outstanding subordinate bonds, provides additional support in a downside scenario.
The existing system is relatively new, being built in 2004 and 2005, and remains in excellent condition. FBCTRA does not anticipate any major capital expenditure until 2020, when actions will be taken to ensure the system's 40-year useful life. The current expansion is small at 2.2 miles and FBCTRA has a history of delivering its projects under budget and ahead of schedule. Further mitigating any construction risk is the strength of the existing system's revenues, which could sustain the additional project debt service and operating costs at its present level should these new projects not generate sufficient incremental toll revenues. Additionally, Fitch notes that FBCTRA does appear to have flexibility with regard to the timing of future projects.
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 & Related Research:
--'Rating Criteria for Infrastructure and Project Finance'(July 11, 2012);
--'Rating Criteria for Toll Roads, Bridges, and Tunnels'(Aug. 2, 2012).
Applicable Criteria and Related Research
Rating Criteria for Infrastructure and Project Finance
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682867
Rating Criteria for Toll Roads, Bridges, and Tunnels
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684146
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.