Fitch Affirms Rhode Island Turnpike & Bridge Auth's Rev Bonds at 'A'; Outlook Remains Negative

NEW YORK--()--Fitch Ratings has affirmed the 'A' rating on approximately $59 million of Rhode Island Turnpike and Bridge Authority's (the authority) revenue bonds. The Rating Outlook remains Negative.

The Negative Outlook reflects uncertainty surrounding the authority's plan of finance for the 10-year capital improvement program (CIP). While the state's decision in June 2014 to allocation gasoline tax to the authority in lieu of tolling the Sakonnet River Bridge will greatly reduce the need to issue additional toll revenue bonds for the CIP, future debt plans remain unclear. The authority is currently considering additional debt secured by gas tax revenues under a separate indenture but details of the plan have yet to be finalized - Fitch expects to resolve the outlook once it has received more information regarding future plans, expected to be provided later in the year.

KEY RATING DRIVERS

Revenue Risk- Volume: Midrange

Stable Traffic But Limited Growth: The Pell Bridge provides the primary link between the City of Newport and Town of Jamestown, serving both regular commuter traffic as well as seasonal leisure traffic coming to Newport during the summer months. Traffic volatility has historically proven relatively low, having remained broadly stable at approximately 10 million annual transactions since 2002 although prospects for growth are limited.

Revenue Risk- Price: Midrange

Evolving Toll Rates: Current tolls of $0.83 for Rhode Island residents with transponders and $4.00 for cash and out of state users are reasonable. The last toll increase in 2009 was the first time tolls were increased after 40 years of operations. The next toll increase is currently scheduled for 2018 and management plans to implement inflationary toll increases every few years thereafter to offset the impact of raising costs and to maintain a predictable schedule of toll increases.

Infrastructure Development and Renewal: Midrange

Considerable Capital Investment Required: The 10-year capital plan totals $229.4 million for the four-bridge system and is designed to maintain the bridges in current condition. The Newport Pell Bridge will require the most to maintain at $134.7 million. The plan of finance to fund the capital plan is not finalized.

Debt Structure: Stronger

Conservative Debt Structure: All bonds outstanding are fixed-rate and mature in 2040. Current debt service schedule is flat at $5.6 million per year through fiscal 2018 then drops to $3.7 million in 2019.

Adequate Coverage and Moderate Leverage: The debt service coverage ratio (DSCR) in fiscal 2014 is adequate at 1.74x. The authority's board policy is to maintain DSCR above 1.5x. Leverage is moderate with net debt to cash flow available for debt service (CFADS) at 4.2x. The authority has $9.4 million of unrestricted cash and investments, equivalent to 307 days cash on hand.

Peer Analysis: Peer facilities with seasonal traffic base include Chesapeake Bay Bridge and Tunnel (rated 'A-') and South Jersey Transportation Authority (rated 'BBB+' senior/'BBB-' subordinate lien) which is also exposed to leisure traffic going into Atlantic City.

RATING SENSITIVITIES

Negative: Significant leverage diluting DSCRs.

Negative: Traffic volatility or high expense growth reducing projected rating case DSCR below 1.7x.

Positive: Given the scope of the capital plan, upward rating migration is unlikely at this point.

CREDIT UPDATE

In June 2014, the General Assembly passed Article 21 of the fiscal year (FY) 2015 state budget to allocate $0.035 per gallon gas tax to the authority. The allocation is projected to bring in nearly $15 million per year to support the operations of the Sakonnet River Bridge and Jamestown Verrazano Bridge and also to support capital expenditures of the authority. The additional revenue stream is expected to significantly reduce the authority's need to issue additional toll revenue bonds to fund the 10-year $229.4 million CIP. While details regarding the authority's future plans are unavailable, management has indicated that the plan will be structured to maintain DSCRs of the existing toll revenue bonds at current levels. Fitch will reevaluate the new financing plan once it is available later in the calendar year.

Operating performance of the authority remains stable. Toll revenues (including violation fees) increased by 6.5% in fiscal 2014 to $19.6 million as a result of slight traffic increase on the Pell Bridge and toll collections on the Sakonnet River Bridge which collected a $0.10 toll beginning Aug. 19, 2013 and discontinued June 20, 2014. Operating expense increased by 11% to $11.1 million due to few additional hires and higher contractual service costs. Performance in 2014 produced solid DSCR of 1.74x. Fitch expects continued stable traffic and revenue performance on the Pell Bridge; however, future coverage ratios are difficult to assess at this time in absence of a detailed financing plan for the capital program - Fitch will undertake a more detailed financial analysis once it is presented with plans relating to gas tax-supported debt, expected later this year.

The authority is a quasi-state agency created by the Rhode Island general assembly to operate and maintain the Claiborne Pell Bridge and Mount Hope Bridge. Control of the Sakonnet River Bridge and Jamestown Verrazano Bridge was transferred to the authority from the Rhode Island Department of Transportation in 2013 but ownership remains with the state.

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. 20, 2014).

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=758708

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=983260

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Contacts

Fitch Ratings
Primary Analyst
Raymond Wu
Associate Director
+1-212-908-0845
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Emma Griffith
Director
+1-212-908-9124
or
Committee Chairperson
Saavan Gatfield
Senior Director
+1-212-908-0542
or
Media Relations:
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Raymond Wu
Associate Director
+1-212-908-0845
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Emma Griffith
Director
+1-212-908-9124
or
Committee Chairperson
Saavan Gatfield
Senior Director
+1-212-908-0542
or
Media Relations:
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com