Fitch Affirms Bay Area Toll Authority, CA's Senior Toll Bridge Rev Bonds at 'AA-'; Outlook Stable

NEW YORK--()--Fitch Ratings has affirmed the 'AA-' rating on approximately $5.32 billion of outstanding Bay Area Toll Authority (BATA) senior toll bridge revenue bonds. The Rating Outlook is Stable. BATA also has $3.29 billion in outstanding subordinate toll bridge revenue bonds which Fitch does not rate.

RATIONALE

The rating affirmation reflects BATA's continued significant progress associated with their seismic retrofit capital investment program, which is now largely complete. It also reflects stable traffic and revenue performance on the authority's asset base following a period of significant toll increases, with no more planned in the foreseeable future.

KEY RATING DRIVERS

CRITICAL ASSETS IN STRONG SERVICE AREA: BATA's seven bridge system's long operating history and diverse and mature traffic base in the urbanized, wealthy and growing service area around San Francisco Bay provides a critical transportation link and has demonstrated a resilient traffic base. Revenue - Volume: Stronger.

MONOPOLISTIC POSITION SUPPORTS RATEMAKING FLEXIBILITY: BATA's near-monopoly position, and the economic strength of the San Franscisco Bay service area, provide management the ability to adjust rates to maintain a stable financial profile. The current $5.00 peak hour two-axle toll rate is currently viewed as moderate for this type of facility, leaving room for further increases if needed. Revenue Price: Stronger.

WELL-MANAGED CAPITAL PROGRAM: BATA is now approaching the completion of its seismic retrofit projects and, notably, the east span of the San Francisco-Oakland Bay Bridge opened to traffic on time in September 2013. Remaining projects within the program are limited in terms of scope although a number of items have been added to the punch list following routine checks of various structures post-completion. Infrastructure & Renewal: Stronger.

VARIABLE RATE AND MULTI-LAYERED SWAP EXPOSURES: The authority maintains a comparatively complicated debt structure, featuring over $1.5 billion in variable rate debt partly hedged via traditional fixed-floating interest rate swaps, albeit that some of these swaps are effectively negated by offsetting floating-fixed swap overlays. Put risk and financial counterparty risk associated with variable rate bank letters of credit (LOC) has now largely been managed, with the exception of a $407 million LOC maturing in October 2014 that BATA is currently working on replacing. Overall, Fitch views BATA as having the capability to manage its relatively complicated financial structure, supported by its currently strong cash position. Debt Structure: Midrange.

SOUND FINANCIAL METRICS, ALBEIT RELATIVELY LEVERAGED: The senior debt service coverage ratio (DSCR), calculated net of operating costs, is expected to remain above 1.8x, even in Fitch's rating case in which senior leverage, defined as net debt to cash flow available for debt service (CFADS) is expected to fall from its current level of over 7.0x to around 6.3x over 10 years. However, total leverage including subordinate debt is high at 13.0x with increasing debt service obligations through 2036. Management has a policy to maintain $1 billion in cash and investments, providing significant liquidity to the authority.

RATING SENSITIVITIES

-- Changes in BATA's traffic levels that results in a significantly improved or worsened financial performance could cause Fitch to reconsider the rating;

-- An increase in total leverage without corresponding toll increase that has a detrimental effect on BATA's financial metrics could put pressure on the rating;

-- Material deleveraging of the project could result in positive rating action.

SECURITY:

The senior bonds are secured by a statutory lien on bridge toll revenues.

CREDIT UPDATE:

BATA's seismic retrofit program is now almost finished. Outstanding projects include the construction of a pedestrian/bike path on the east span of the San Francisco-Oakland Bay Bridge, as well as tackling a number of items added to the punch list following routine inspections. Remaining work relating to this program are expected to cost around $700 million, with the program expected to be completed by fiscal year (FY) 2016. Other capital works planned total around $1 billion-$1.2 billion over the period 2014-2017.

Traffic in FY 2013 was up 1.3% on the prior year, itself up 1.1% on FY 2011. This moderate traffic growth occurred in the context of several toll increases over the last few years, as reflected in revenue growth of 4.3% for FY 2013 and 4.8% for FY 2012 respectively, demonstrating limited price elasticity of demand for BATA's bridges.

FY 2014 year-to-date traffic over the first eight months is 2.9% up on the equivalent period in FY 2013, while revenue in the period is up 2.8%, reflecting no toll increases in the period. Toll rates are currently $5 per crossing for 2-axle vehicles, up to $35 for 7-axle vehicles, and Fitch understands that the authority does not have plans to implement further increases in the foreseeable future.

Operating costs experienced a substantial 30% increase in FY 2013 to $96.7 million, largely reflecting additional processing costs of electronic toll collections made on behalf of Golden Gate Bridge. Following this expected one-off upward shift, operating costs are expected to remain broadly flat at this new higher level, forecast to increase at a CAGR of 1.9% over the 10-year period to FY 2023. Embedded in the 1.9% CAGR is an increase relating to the expected obligation of BATA to cover costs relating to the maintenance of San Francisco-Oakland Bay Bridge once the seismic retrofit program is completed.

Most debt in recent years has been raised on its subordinate lien. BATA has authorization to raise up to $500 million subordinate bonds prior to December 2014 and Fitch has reflected the authority's debt raising plans into its projected base and rating cases.

Fitch calculates DSCR, net of operating costs, in FY 2013 to have been 2.02x for senior debt and 1.28x for subordinate debt after taking into account planned transfers to the Metropolitan Transportation Commission (MTC), and treating BABS debt service subsidies as revenue items rather than debt service offsets. In Fitch's rating case, which combines relatively flat traffic and revenue on the bridges with moderately increasing operating costs, senior DSCR is expected to remain above 1.80x. In the Fitch's rating case, leverage - defined as net debt to CFADS - falls from its current level above 7.0x to around 6.3x over a 10-year horizon, reflecting the authority's expected reduced debt needs going forward as capital investment slows.

BATA is a public agency created by California law in 1997 to manage seven of the eight major bridge crossings in the Bay Area - the eighth being the Golden Gate Bridge which is managed by a separate entity. These bridges provide the only viable vehicular links within the Bay Area. The governing body consists of 18 voting members and three non-voting members appointed for a term of four years. BATA has the same governing board members as the Metropolitan Transportation Commission that was created in 1970 to provide regional transportation planning and organization in the Bay Area.

Additional information is available at 'www.fitchratings.com'.

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

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=720736

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=826795

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Contacts

Fitch Ratings
Primary Analyst:
Saavan Gatfield, +1-212-908-0542
Senior Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst:
Daniel Adelman, +1-312-368-2082
Analyst
or
Committee Chairperson:
Chad Lewis, +1-212-908-0886
Senior Director
or
Media Relations:
Elizabeth Fogerty, New York, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

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Contacts

Fitch Ratings
Primary Analyst:
Saavan Gatfield, +1-212-908-0542
Senior Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst:
Daniel Adelman, +1-312-368-2082
Analyst
or
Committee Chairperson:
Chad Lewis, +1-212-908-0886
Senior Director
or
Media Relations:
Elizabeth Fogerty, New York, +1 212-908-0526
elizabeth.fogerty@fitchratings.com