NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the unenhanced long-term rating on approximately $33.5 million of outstanding Buffalo and Fort Erie Public Bridge Authority, NY's, (the authority) toll bridge system revenue refunding bonds, series 2005, at 'A'. The Rating Outlook is Stable.
The affirmation of the 2005 bonds at 'A' reflects the authority's strong financial performance to date despite sluggish traffic trends over the last decade. The authority's demonstrated ability to increase toll rates, manage its operating cost profile and adhere to its board policies that are more restrictive than the series 2005 bond covenants are key rating factors. The authority faces a mandatory tender of the 2005 bonds in July 2014, and Fitch understands that it has plans to tackle this tender with an issuance under a new resolution, although Fitch has not been briefed on these plans to date. Fitch expects to meet the authority in the next few weeks and discuss these plans in detail and also expects to receive new information, notably including a traffic and revenue study and legal documents.
KEY RATING DRIVERS
IMPORTANT BORDER CROSSING WITH LARGE COMMERCIAL COMPONENT: The facility (the Peace Bridge) connects interstates in northern New York to the Queen Elizabeth Way in Ontario through to Toronto. It holds a leading market position in the region for both passenger and truck crossings and depends on commercial activity for a significant 70% of its toll revenues. Largely mirroring trends on other crossings in the region, the Peace Bridge has posted significant declines in passenger vehicle traffic since 2000 for various reasons, including increased inspection requirements following September 11, currency fluctuation, and the Great Recession. Nevertheless, it continues to account for 65% of commercial cross-border traffic in the region. Traffic and revenue performance remains exposed to currency fluctuation, and furthermore to economic activity given the importance of commercial traffic. However, Fitch views the asset as playing an important role in trade between Canada and the U.S., supporting its midrange assessment of volume risk. Revenue Risk -- Volume: Midrange
MODERATE PRICE FLEXIBILITY: Toll rate increases on the Peace Bridge have not materially impacted its traffic profile. The last toll increase occurred in 2007, and the previously contemplated 2012 toll increase has been indefinitely deferred as it is not needed for the foreseeable future because of the flexibility afforded by the authority's high liquidity position. Revenue Risk -- Price: Midrange
DEVELOPING CAPITAL IMPROVEMENT PLAN (CIP): The authority's five-year capital plan is designed to address capacity constraints on both sides of the bridge and the aging useful life of the bridge deck. Fitch understands the authority plans to employ liquidity and ongoing cash flows after payment of debt service to manage the majority of the costs of the plan and will review the plan in full when it receives more details in the coming weeks. Infrastructure Renewal & Replacement: Midrange
STRONG DEBT STRUCTURE SUBJECT TO MANDATORY TENDER: The series 2005 bonds mature in 2025 but are subject to a mandatory tender in July 2014. While the authority covenants to remarket the bonds at least 30 days in advance of the tender date, an unsuccessful remarketing could lead to utilization of available fund balances, potentially weakening the authority's significant liquidity position. Nevertheless, Fitch views an unsuccessful remarketing as an unlikely scenario and will analyze the authority's plans to tackle the tender when it receives more details in the coming weeks. The covenant package on the current debt is strong with a 1.25x historical MADS text, and the structure is fully amortizing with a short-dated maturity. Debt Structure: Stronger
HEALTHY FINANCIAL METRICS: The authority's financial performance has been strong with debt service coverage of at least 2.84x since 2000. The authority has also actively managed its expenditures, signified by a 1.0% compound annual growth rate from 2003 to 2013 (excluding a one-time impairment loss of $1.2 million in fiscal 2013). Fitch notes that the authority currently maintains in excess of $100 million in unrestricted liquidity as of fiscal year end 2013, with over 2,000 days of cash on hand. The authority's current capital plans, though still developing, should not materially alter coverage or financial leverage.
RATING SENSITIVITIES
--Should the authority's capital projects result in significantly increased leverage beyond current expectations and/or lower coverage of debt service, the rating would experience downward movement.
--Declines in traffic and toll revenues for a sustained period could also pressure the rating.
SECURITY:
The bonds are secured by a net pledge of toll revenues from the operation of the Peace Bridge.
CREDIT UPDATE:
Following two years of marginal growth after the 2007-2009 recession, traffic has declined two straight years -- by 0.2% in 2012 and by another 1.9% in 2013. Toll revenue is still above the 2011 level, however, as commercial vehicle traffic from the U.S. to Canada -- the tolled direction -- has been relatively stable to increasing. Debt service coverage on a net revenue basis equaled 4.6x, slightly ahead of the authority's forecast in 2010 for 2013 of 4.4x.
Fitch expects to publish a more detailed report in the coming weeks in conjunction with the authority's upcoming financing.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Rating Criteria for Infrastructure and Project Finance,' (July 11, 2012);
--'Rating Criteria for Toll Roads, Bridges, and Tunnels,' (Oct. 16, 2013).
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 --- Effective Aug. 2, 2012-Oct. 15, 2013
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684146
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=826761
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