NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an initial public rating of 'AA-' to the following bonds to be issued by the Jacksonville Transportation Authority, Florida (JTA):
--$100,170,000 senior lien local option gas tax revenue bonds, series 2015.
The bonds are tentatively scheduled for sale via negotiation on or about Jan. 15. Proceeds will finance certain capital improvement projects, fund capitalized interest through Dec. 1, 2016, and fund a deposit to the debt service reserve fund (DSRF).
The Rating Outlook is Stable.
SECURITY
The bonds are payable from a pledge of and first lien on five cents of the six cent local option gas tax (LOGT) levied by the city of Jacksonville (the city) and received by the JTA pursuant to an interlocal agreement effective Sept. 1, 2016. Interest payable on the bonds through Dec. 1, 2016 will be capitalized with proceeds of the bond sale. The bonds are also secured by a cash funded DSRF equal to $8 million or maximum annual debt service (MADS).
KEY RATING DRIVERS
HIGH DEBT SERVICE COVERAGE: Debt service coverage (DSC) is estimated at nearly 2.9x MADS based on fiscal 2014 LOGT revenue. Fitch estimates coverage remains above 1.0x assuming the loss of nearly 65% of current revenue. The JTA has established an internal DSC target of 2.0x and the bond indenture requires the maintenance of at least 1.75x as a precedent to the issuance of additional debt.
LIMITED DEBT DEMANDS: The JTA's 2015-2019 capital plan totals a manageable $196 million and is predominantly funded by a combination of the current bond issuance and already awarded or anticipated grant funds. There are no plans at this time to issue additional debt.
SLUGGISH REVENUE PERFORMANCE: Fiscal 2014 LOGT revenues remain more than 11% below their pre-recession peak and revenue declines have been recorded in six of the prior eight years. Declining gas prices could boost consumption and revenue collection in the near term.
SATISFACTORY OPERATIONS WITH GOOD LIQUIDITY: JTA transit operations are characterized by adequate net coverage of operating expenses and debt, healthy liquidity with more than 340 days cash on hand (DCOH), and low leverage. However, Fitch's view of the JTA's operating framework is weak, with low fare box recovery and a high dependence on sales and gas tax revenue to maintain operations.
STABLE ECONOMIC CONDITIONS: The Jacksonville economy is expected to remain fairly stable reflecting expectations for continued population and job growth, adequate income metrics, and good employment diversity.
RATING SENSITIVITIES
DEBT SERVICE COVERAGE: The rating is sensitive to changes in debt service coverage resulting from the issuance of additional parity indebtedness and/or deterioration in gas tax receipts. The Stable Outlook reflects Fitch's expectation of fairly level to moderately declining LOGT over the near term and absence of additional leverage. Furthermore a downturn in JTA's operating performance and financial position would be viewed unfavorably.
CREDIT PROFILE
The Jacksonville Transportation Authority was established by the Florida legislature in 1955. The JTA is fiscally dependent on the city of Jacksonville (GO bonds rated 'AA' with a Stable Outlook), as it is subject to annual budget submission and approval by the city council. The authority is authorized to acquire, construct, and operate a mass transit system, among other functions. The authority's governing body has seven members -- three appointed by the governor and confirmed by the senate, three appointed by the city's mayor and confirmed by the city council, and the District 2 Secretary of the Florida Department of Transportation (FDOT) (ex officio). Day to day activities are managed by a seasoned team with executive experience at other large national transit agencies, including but not limited to San Francisco Municipal Transportation Agency and Metropolitan Atlanta Rapid Transit Authority.
INITIAL DEBT OFFERING FOR JTA
In May 2014 the city enacted an ordinance extending for a period of 20 years the levy and collection of the existing six cent LOGT set to expire Aug. 31, 2016. The city and JTA subsequently executed an interlocal agreement pursuant to which the city has agreed, commencing Sept. 1, 2016, to dedicate five cents of the six cent LOGT to the JTA. Under the agreement the JTA is authorized to pledge any portion of the five cent LOGT for the payment of debt service on JTA issued bonds. The interlocal agreement dedicates the five cent LOGT, in part, to the development and construction of $100.6 million of roadway construction and maintenance projects outlined in the interlocal agreement (the JTA project list). The series 2015 bonds represent JTA's first direct debt issuance, the proceeds of which will finance these projects. Interest due during the period between the sale of the bonds and Dec. 1, 2016 will be capitalized with bond proceeds. The bonds have a final maturity date of Aug. 1, 2036, or 30 days prior to the expiration of the LOGT.
STAGNANT REVENUE PERFORMANCE TEMPERED BY STRONG COVERAGE
The city levies a LOGT of six cents on every gallon of motor and diesel fuel sold in Duval County (the city is a consolidated government that extends throughout Duval County). The LOGT is collected by vendors and remitted to the Florida Department of Revenue for deposit in the state's local option fuel tax trust fund. The state distributes revenue from the trust fund on a monthly basis to each eligible county and the eligible municipalities therein according to a population-based distribution formula. The city of Jacksonville receives 95.1% of the LOGT distribution, with the remainder shared between the municipalities of Atlantic Beach, Baldwin, Jacksonville Beach, and Neptune Beach. No additional municipalities have been incorporated in Duval County since 1968.
LOGT revenues have not performed particularly well in recent years reflecting the pace of economic recovery, a period of prolonged high gas prices, and more fuel-efficient vehicles. LOGT revenues fell 9.4% from fiscal 2007-2009 and an additional 2.9% since to a total of $27.45 million in fiscal 2014. Collections showed modest growth in fiscal 2014 (0.6%) following three straight years of decline. The LOGT is collected on a per-gallon basis, which provides protection against falling gas prices. Despite the contraction in revenue, the five cent portion of fiscal 2014 LOGT that would be pledged to bondholders, $22.9 million, would still provide a very strong 2.85x coverage of MADS. LOGT revenues would need to decline 64.9% before coverage of MADS would fall below 1.0x. Alternatively, LOGT revenues could decline by 4.7% per year through final maturity before coverage would be less than 1.0x.
LIMITED CAPITAL AND DEBT DEMANDS
The JTA's 2015-2019 capital improvement plan (CIP) is a modest $195.5 million. The CIP includes $78.3 million for bus transit and $15.3 million for the Skyway (automated people mover) funded by already awarded or anticipated grants. The remainder of the CIP includes the $100.6 million in roadway projects financed with proceeds of the current issuance. No additional debt is anticipated. The trust indenture establishes a satisfactory 1.75x MADS coverage threshold from historical revenue as a prerequisite for the issuance of additional parity indebtedness. The authority has adopted a debt management policy that targets a minimum debt service coverage ratio of 2.0x.
STABLE ECONOMIC EXPECTATIONS
Fitch believes the city's economic base should support fairly stable LOGT collections over the long term. Jacksonville anchors a reasonably sized economic base, ranking fourth largest in the state as measured by non-farm jobs (nearly 690,000) and gross metro product ($64.9 billion) according to IHS. IHS forecasts non-farm employment and gross metro product for Jacksonville to increase at a compound annual growth rate of 1.6% and 5.1%, respectively through 2019 - both measures compare favorably to other large metros areas across the U.S. Job growth has been good, increasing between 1.3% and 2.4% the past three years, while September's monthly employment figure was 4.7% ahead of the prior year. Income indicators are on par with the state, but a slightly above-average poverty rate remains a concern shared by many large cities. At 842,583 in 2013 the city's population has increased 14.5% from the 2000 Census and 2.5% from the 2010 Census - growth rates that are on par with the national standard but lag the state. The state estimates the population of Duval County will increase 14.8% through 2030, or about 1% per year.
SATISFACTORY FINANCIAL POSITION
Fitch views JTA's financial profile as satisfactory. Liquidity is solid with unrestricted cash and investments in fiscal 2013 equal to $87.6 million or 341 DCOH. Surplus results from operation have steadily improved the authority's liquidity position from $68.5 million or 308 DCOH in fiscal 2009.
Transit operations are heavily subsidized from sales and gas tax revenues received from the city after the payment of debt service on city bonds issued on behalf of the JTA (the transportation sales tax revenue bonds, rated 'AA-' by Fitch). Although not anticipated the issuance of additional transportation revenue bonds by the city would be viewed negatively by Fitch given the likely adverse impact on tax revenues available for JTA operations. Sales and gas tax revenues account for roughly 55% and 26%, respectively, of total revenues in fiscal 2013. The JTA is forecasting sales tax revenues to grow at a rate of 3.7% for fiscal 2015, 4.5% for fiscal 2016, and 6.7% for fiscal 2017 reflecting expectations for continued improvement in the area economy and very modest growth in gas tax collections.
Revenues from passenger fares account for only 26% of the funds needed to cover operating expense. Passenger revenues increased 11.7% in fiscal 2012 following an increase in the base fare to $1.50 from $1.00 effective Jan. 1, 2012. Passenger revenues were up a modest 1.4% for fiscal 2013. System ridership has slowed in recent years; totaling 12.7 million in fiscal 2013 with substantial growth seen in passengers migrated from busses to the Skyway. JTA has introduced a series of strategic initiatives to be implemented over the next five years aimed in part at improving system utilization. Among the improvements planned are an overhaul of JTA's bus routes and expansion of bus rapid transit service.
Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, S&P/Case-Shiller Home Price Index, and IHS Global Insight
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 14, 2012);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015
U.S. Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=953156
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