Fitch Upgrades Miami-Dade Expressway Auth, Florida's Revs to 'A'; Outlook Stable

CHICAGO--()--Fitch Ratings has upgraded the ratings for Miami-Dade County Expressway Authority, FL's (MDX) approximately $1.51 billion of outstanding toll revenue bonds to 'A' from 'A-'. The Rating Outlook is Stable.

KEY RATING DRIVERS

The rating upgrade is driven by a significant increase to MDX's revenue base resulting from the implementation of open road tolling (ORT) initiatives much faster than Fitch had previously anticipated. Revenue in fiscal year 2015 (FY; ended June 30) is estimated to come in very near the sponsor's prior expectation, leading to a materially higher coverage profile and faster deleveraging than previously reflected in Fitch's analytical cases, which had reflected the effect of some traffic diversion. The rating better reflects the essentiality of the MDX system to commuters in the Miami area. Fitch expects coverage to remain resilient over the medium term.

Revenue Risk - Volume: Stronger

Stable Commuter Base With Strategic Importance: The MDX system has a mature traffic profile of over 244 million annual toll transactions in FY 2014 and provides critical links within the Miami-Dade transportation network. The availability of limited alternative routes ensures the importance of the system to the region. The number of transactions is expected to increase substantially with the implementation of ORT on all expressways, and FY 2015 transactions are estimated to surpass 350 million.

Revenue Risk - Price: Midrange

Moderate Price Flexibility: MDX currently has moderate toll rates with solid economic rate-making ability. Growth in the system has been driven by the tolling of previously untolled traffic, providing additional revenue. MDX adopted a toll policy in which tolls can be indexed to the consumer price index (CPI) beginning in FY 2020. Nevertheless, there are inherent political risks associated with toll increases especially if economic conditions deteriorate.

Infrastructure & Renewal Risk: Stronger

Good Physical Condition of Assets: MDX has maintained the system and its facilities in excellent condition. MDX's FY 2016-FY 2020 work program is moderate at $706.8 million with no additional debt planned.

Debt Structure: Stronger

Some Exposure to Variable-Rate Debt: MDX's debt portfolio is mostly fixed rate with the 5% in variable-rate mode fully hedged. The overall debt service profile is moderately escalating and the debt service reserve is cash funded at maximum annual debt service (MADS).

Moderate Leverage and Healthy Financial Metrics: FY 2014 net debt to cash flow available for debt service (CFADS) was 12.4x, an increase from 8.7x in the prior year due to the new money issuances to complete the capital program in FY 2014. As the revenue base increases with the roll-out of ORT, leverage is estimated to fall under 10x in FY 2015 and under 7x in five years. Debt service coverage has historically been above 1.5x, with FY 2014 coverage increasing to 1.58x from 1.56x in FY 2013.

Peer Group: In comparison to peers in Fitch's portfolio, MDX functions closest to Central Florida Expressway Authority (CFX, 'A', Outlook Stable) with a politically sensitive pricing environment but a strong volume profile. Debt service coverage ratios and leverage are comparable over the medium term.

RATING SENSITIVITIES

Negative: Erosion of the debt service coverage ratio in the medium term significantly below 1.6x for a sustained period.

Negative: The addition of obligations that increase leverage or divert excess revenues will weaken the credit.

Positive: Revenue growth outpacing the sponsor's projections in an environment reflecting stable operations and limited additional capital expansion, leading to higher coverage and faster deleveraging.

CREDIT UPDATE

FY 2015 traffic through 10 months is up 43.5% and revenue up 30.9% due to the changeover to ORT tolling points. MDX estimates FY 2015 traffic to end the year up 45.1% and revenue up 38.1%. Compared to the sponsor's predictions last year, the estimates are 1.3% lower on traffic and 0.6% lower on revenue, but well above the Fitch Base (9.6% on traffic, 10.5% on revenue) and Fitch Rating (23.3% on traffic, 24.3% on revenue) cases. Due to the timing of mainline tolling points opening in late November of 2014, MDX expects further revenue growth in FY 2016 of 17.9% realizing significant revenue gains in the first part of the year that were not included in FY 2015.

FY 2015 expenses are estimated to come in up 35.5% to $49.7 million due to ORT costs ramping up with the large increase in transactions. This is 0.3% higher than the sponsor forecasted last year. FY 2016 costs are expected to increase another 17.9% due to approximately $9 million of one-time expenses. Without these expenses, MDX expects growth to be relatively flat. With the completion of ORT, the system is now closed, capturing all movements that were previously untolled. Fitch expects performance will accurately reflect the underlying commuter base and economic area going forward.

FY 2015 DSCR is estimated to be 2.18x, well above the sponsor's forecast of 1.88x and Fitch's 2014 base case of 1.62x. Even as debt service obligations increase to MADS of $122.2 million in FY 2026, coverage is expected to remain above 1.8x in the sponsor's case and 1.7x in Fitch's base case. Fitch's rating case assumes more traffic diversion from tolling and higher operating expenses, leading to an average net revenue growth of 3.8% and coverages above 1.6x.

MDX's 2016 - 2020 $706.8 million work program primarily includes improvements to various interchanges, reconstruction of certain portions of the system, and ongoing renewal and replacement projects aimed at system preservation. The authority expects to fund the program through existing bond proceeds, cash funded general reserves, and excess cash flow derived from net revenue after debt service payments. No additional debt is needed. Approximately 70% of the program is already under contract.

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'.

Applicable Criteria

Rating Criteria for Infrastructure and Project Finance (pub. 12 Jul 2012)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682867

Rating Criteria for Toll Roads, Bridges and Tunnels (pub. 20 Aug 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=758708

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

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Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=986734

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https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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Contacts

Fitch Ratings
Primary Analyst:
Daniel Adelman, +1-312-368-2082
Associate Director
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst:
Chad Lewis, +1-212-908-0886
Senior Director
or
Committee Chairperson:
Saavan Gatfield, +1-212-908-0542
Senior Director
or
Media Relations:
Sandro Scenga, New York, +1 212-908-0278
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst:
Daniel Adelman, +1-312-368-2082
Associate Director
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst:
Chad Lewis, +1-212-908-0886
Senior Director
or
Committee Chairperson:
Saavan Gatfield, +1-212-908-0542
Senior Director
or
Media Relations:
Sandro Scenga, New York, +1 212-908-0278
sandro.scenga@fitchratings.com