NEW YORK--()--Fitch Ratings assigns an 'A' rating to Alameda Corridor Transportation Authority, CA's (ACTA, or the authority) $260 million in senior lien revenue refunding bonds, series 2013A. Proceeds of the series 2013A bonds will refund certain callable maturities of ACTA's 1999A senior lien bonds. Fitch also affirms its 'A' rating on the authority's $1 billion in outstanding senior revenue bonds, and affirms its 'BBB+' rating on $998 million in subordinate revenue bonds. The Rating Outlook on all bonds is Stable.
ACTA also has $83.7 million in unrated series 2012 bonds, issued in connection with the Federal Rail Rehabilitation and Improvement Financing (RRIF) program, which are on parity with the rated senior revenue bonds.
KEY RATING DRIVERS:
ECONOMIC ESSENTIALITY: The corridor provides an important intermodal transportation link, handling approximately 35% of all container throughput for the two busiest container ports in North America (the ports of Los Angeles and Long Beach, both rated 'AA' by Fitch). ACTA is a vital component of the ports' core business. In fiscal 2012, ACTA handled 4.9 million 20-foot equivalent units (TEUs) of the ports 14.1 million TEU throughput.
STRONG COUNTERPARTIES PROVIDING FINANCIAL SUPPORT: In addition to ACTA's own operating revenues, the ports of Los Angeles and Long Beach provide ACTA with financial support in case of projected shortfalls to cover debt service obligations. In both 2011 and 2012, each port paid $2.95 million in such shortfall advance payments. Savings from refunding certain callable maturities of ACTA's 1999A senior lien bonds could minimize the need for additional shortfall advance payments. The two ports have strong financial capacity to meet their commitments to collectively cover up to 40% of any required annual debt service payments of both senior and subordinate bonds. BNSF and Union Pacific railroads cover operating costs through separate assessment charges.
HIGH DEBT BURDEN WITH ESCALATING ANNUAL DEBT OBLIGATIONS: ACTA currently has relatively high all-in leverage of 20x net debt-to-cash flow available for debt service (CFADS). When including contingent port obligations, the leverage metric is 14x. Under Fitch base and rating cases, leverage is expected to decrease to 16x (11x including port obligations) over the next five years. Annual debt service obligations grow by 3% per year over the next five years, placing some pressure on revenue growth.
MINIMAL CAPITAL NEEDS: The corridor has no capital program beyond closeout of the original project and on-going maintenance. No additional borrowing for capital projects is anticipated.
WHAT COULD TRIGGER A RATING ACTION
Underperformance in container-related trade volumes may adversely affect ACTA's operating revenue generation and credit quality. Similarly, CPI adjustments may constrain ACTA's rates (lower limit of 1.5%) and impact revenue growth.
Any material change in the credit quality of ACTA's key counterparties, including the ports of Los Angeles and Long Beach for debt service as well as BNSF and Union Pacific railroads to cover operating and maintenance expenses, will likely affect the rating.
Bondholder security includes the pledged revenue stream and all other monies held by the trustee except for the Maintenance and Operations (M&O) Fund and the Reserve Account, both of which are for purposes of operating and capital maintenance of the corridor. Pledged revenues consist primarily of the volume assessment charges payable by the railroads and debt service shortfall advances payable by the ports. A Use and Operating Agreement among ACTA, the ports and the railroads governs the volume assessment of charges.
The series 2013A bonds are being issued to reduce debt service costs by refunding all or a portion of $289 million in outstanding series 1999A bonds. Proceeds will also be used to cover required deposits to the debt service reserve account, or to purchase a surety policy covering this requirement. The proposed refunding is expected to substantially reduce annual debt service requirements, alleviating the need for additional shortfall advance payments in the future. Present value savings are estimated to be 11.3%, or $33 million, over the life of the bonds. Annual cash flow savings are projected to be $1.3 million for fiscal years 2014 through 2019, and $3.3 million for fiscal years 2020 through 2030. The refunding is not expected to extend the original maturity of the refunded bonds.
The Los Angeles and Long Beach ports (both rated 'AA' with a Stable Outlook by Fitch) are legally and individually committed under the operating agreement to cover shortfalls up to 20% each of ACTA's annual debt service payment. Their obligations were properly implemented in 2011 and 2012, with $11.8 million in shortfall advances made collectively. In conjunction with these payments, ACTA's rates for loaded containers were also increased by $1.12/TEU, an increase that will remain in effect until the ports are fully repaid for their shortfall contributions.
Based on the ports' projections of TEUs, no additional advances were requested for 2013 and no additional advances are likely to be needed in the near term. The 2013 refunding will further reduce annual debt service requirements, reducing the likelihood or magnitude of future shortfall advances. However, should port volumes underperform relative to forecasts or if annual CPI-based rate escalations are limited to the lower end of the 1.5% to 4.5% allowable range, additional shortfall advances from the ports may become necessary.
The backstop provided by the shortfall advance structure improves ACTA's standalone credit profile by virtue of the ports' superior financial resources and near-term contractually obligated revenue streams. This backstop is particularly important for the subordinate lien credit, which has lower coverage levels from operating revenues, is more vulnerable to volume fluctuations, and is more likely to depend upon shortfall advance funds in periods of slowing TEU volumes. Approximately 60% of both ports' operating revenue comes from minimum annual guarantees (MAGs) payable by tenants regardless of cargo volume. Both ports have an adequate amount of unrestricted cash to meet any near-term shortfall payments without having to adjust their rates or tariffs. However, should there be a material adverse change in overall port throughput levels, or should either port express an unwillingness to honor its obligations under the shortfall advance structure, ACTA's credit quality may be affected.
For more information on ACTA's operational and financial performance, please refer to Fitch's press release dated Nov. 30, 2012, available at www.fitchratings.com.
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' (July 12, 2012).
Applicable Criteria and Related Research:
Rating Criteria for Infrastructure and Project Finance