NEW YORK--()--Fitch Ratings assigns an 'A-' rating to Miami-Dade County Expressway Authority, FL's (MDX) approximately $310 million refunding toll system revenue bonds, series 2013A. In addition, Fitch affirms the 'A-' rating on MDX's $1.24 billion outstanding revenue bonds. The Rating Outlook on all bonds is Stable.
KEY RATING DRIVERS:
Stable Commuter Base With Strategic Importance: The MDX system has a mature traffic profile of over 237 million annual toll transactions and is a critical link to the Miami-Dade transportation network. Limited alternative routes enhance the importance of the system to the region.
Moderate Price Flexibility: MDX currently has moderate toll rates with the last toll increase implemented in 2006 providing solid economic rate-making ability. The system focuses on the future tolling of untolled traffic to provide additional revenue. MDX expects to adopt a toll policy similar to the Florida Turnpike Enterprise's policy whereby tolls will be indexed to the consumer price index (CPI). Nevertheless, there are inherent political risks associated with toll increases especially if economic conditions deteriorate.
Some Exposure to Variable-Rate Debt: MDX's debt portfolio is 81% fixed rate, with the remainder in variable-rate mode with moderately escalating debt service profile. The debt service reserve is cash funded at maximum annual debt service (MADS).
Moderate Leverage and Healthy Financial Metrics: Fiscal year (FY) 2012 net debt to cash flow available for debt service (CFADS) was 10.2 times (x) and is consistent with peer facilities. Debt service coverage has historically been above 1.5x. FY 2012 debt service coverage declined to 1.37x from 1.70x in FY 2011 due to lower than anticipated net toll revenues, higher operating and maintenance (O&M) growth attributable to increased SUNPASS costs associated with open road tolling (ORT) and increased debt service requirements.
Good Physical Condition of Assets: MDX has maintained the system and its facilities in excellent condition. MDX's FY 2013-FY2017 work program is moderate at $360 million with no long-term debt issuance planned to fund the program. The plan contains $29.9 million for renewal and replacement to continue system preservation.
--Limited future financial flexibility upon completion of ORT system wide and tolling previously untolled movements that materially erodes debt service coverage levels below 1.4x for a three to five year period.
--Management's ability to prudently contain operating and maintenance expense growth and pass-thru costs (indirect expenses) associated with ORT while proactively maintaining service levels and successful delivery of MDX's large-scale capital program. Furthermore, timely toll increases that enhance financial flexibility and demonstrate and project consistent debt service coverage ratios above 1.60x may improve credit quality.
The bonds are secured by a pledge of and lien on the net revenues of the authority.
MDX is issuing $269 million in refunding revenue bonds, series 2013. The bonds will be used to refund all of the outstanding 2001A, 2002, and 2004B bonds. There will be no change to the maturity profile, with the 2013 bonds maturing in 2033. The net present value savings is $29.5 million or approximately 10% (as of Feb. 1, 2013).
FY 2012 transactions grew to 232.7 million, a 5.7% increase over FY 2011. For the first four months of FY 2013 (through Oct. 31st) transactions are up 3.2% while net toll and fee revenues are tracking approximately 4.9% higher than the same period in FY 2012. MDX currently estimates FY 2013 net toll revenues to increase to $126.3 million from $122.5 million, or 3.1%.
O&M expenses for FY 2012 increased 10.9%, mainly attributable to higher SUNPASS pass-thru charges associated with ORT initiatives. FY 2013 O&M expenses through Nov. 30 are tracking approximately 4.5% under budget. Fitch expects MDX management will continue to carefully manage costs after finalizing the ORT initiatives. MDX management has a proven ability to manage expenses and cut costs during non-expansionary years as demonstrated by significant expense reductions in FY 2010.
FY 2012 debt service coverage declined to 1.37x due to lower than expected net toll revenues, O&M growth and higher debt service obligations. Furthermore, given that no toll increases are planned for FY 2013, MDX management currently projects debt service coverage to remain relatively flat at 1.41x. Fitch notes that MDX has prudently incorporated a number of conservative assumptions by forecasting limited traffic growth. While the projected coverage levels are lower than peers, Fitch anticipates the planned final implementation of the remaining two segments of MDX and a toll increase in 2015 will bolster net revenues and return debt service coverage ratios to historical rates above 1.50x. To the extent that economic conditions worsen impacting traffic growth or expense growth is not contained financial flexibility may become more constrained.
Fitch notes that MDX expects to adopt a toll policy similar to the Florida Turnpike Enterprise's policy whereby tolls will be indexed to the consumer price index (CPI). Florida's policy stipulates inflationary toll increases may not be made more frequently than once a year and must be made a minimum of once every five years. Additionally, rates may be increased higher to meet bond covenants. Fitch views indexed tolls favorably as it partially limits political risks associated with toll rate increases. Furthermore, additional near-term revenue growth is projected to be generated by the new toll collection points. Although this is a risk to MDX's financial profile, revenues from the toll collection points are to be generated from an existing traffic base and reflect conservative traffic diversion assumptions once tolls are in place.
MDX's 2013 - 2017 $360.3 million work program includes 48 projects related to the design and construction of transportation improvements including the reconstruction of various lanes and interchange improvements as well as infrastructure modifications for ORT on the two remaining sections (SR 112 and SR 836) currently not under an all ORT regime. Additionally, the work program includes $27.1 million for 17 renewal and replacement projects aimed at system preservation. While the authority expects no additional debt to finance its work program, the possibility exists that further leveraging may be required over near-to-medium term if excess cash flow to fund a portion of the projects is insufficient and/or the authority faces additional transportation projects and needs.
MDX was formed in 1994 and is a public instrumentality and agency of the State of Florida. MDX is responsible for operating, maintaining and improving an expressway system that currently includes the Airport Expressway (SR-112), the East-West (Dolphin) Expressway (SR-836), the South Dade (Don Shula) Expressway (SR-874), the Gratigny Parkway (SR-924), and the Snapper Creek Expressway (SR-878).
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);
--'Rating Criteria for Toll Roads, Bridges, and Tunnels' (Aug. 2, 2012).
Applicable Criteria and Related Research
Rating Criteria for Infrastructure and Project Finance
Rating Criteria for Toll Roads, Bridges, and Tunnels