Fitch Affirms Triborough Bridge & Tunnel Authority's (NY) Revs 'AA-'

NEW YORK--()--Fitch Ratings has affirmed the Triborough Bridge and Tunnel Authority, NY's (TBTA) $7.1 billion outstanding general revenue bonds at 'AA-' and $1.66 billion outstanding subordinate revenue bonds at 'A+'. The Rating Outlook is Stable for all long-term ratings.

Fitch has also affirmed the following short-term ratings:

--$43.8 million outstanding general revenue variable rate refunding bonds subseries 2005B-4d at 'F1+';

--$36.6 million outstanding subordinate revenue variable-rate refunding bonds subseries 2000ABCD-3 at 'F1+'.

--$27 million senior general revenue variable-rate refunding bonds subseries 2005B-4a at 'F1+';

--$37.5 million senior general revenue variable-rate refunding bonds subseries 2005B-4b at 'F1+';

--$45.2 million senior general revenue variable-rate refunding bonds subseries 2005B-4e at 'F1+'.

Fitch expects TBTA to remarket and consolidate senior general revenue variable-rate refunding bonds subseries 2005B-4a, subseries 2005B-4b, and subseries 2005B-4e as subseries 2005B-4abe floating rate tender notes.

The 'AA-' senior and 'A+' subordinate long-term ratings reflect the bridge and tunnel system's essentiality, performance, as well as a mature and stable traffic base with historically strong ratemaking flexibility. Offsetting concerns include the system's dependence on continued revenue growth to support annual transfers to the MTA for transit and commuter rail services. These transfers have left TBTA with lower liquidity and a dependence on future borrowing to fund a large part of its sizable capital plan. Supportive of the ratings, in the Fitch rating case, coverages through 2026 remain healthy averaging 2.20x debt service coverage ratio (DSCR) on senior bonds and 1.80x on a combined basis. TBTA holds a favorable total leverage position at 6x relative to its closest peer, Bay Area Toll Authority (BATA); however, total leverage could climb to the 7.5x range in the mid-term in connection with TBTA's forecasted borrowing to support its five-year capital plan.

The 'F1+' Short-Term Ratings reflect the underlying rating for the TBTA's senior and subordinate revenue bonds coupled with Metropolitan Transportation Authority's (MTA)/ TBTA's historical demonstrated market access and ample available liquidity to cover short-term debt requirements.

KEY RATING DRIVERS

Revenue Risk - Volume: Stronger

CRITICAL ASSETS: The bridge and tunnel system provides vital transportation links in the New York metropolitan area and is important to the regional economy, evidenced by its relatively stable historical traffic growth. As of 2015, traffic has grown at a 0.45% annual rate since 1970. While toll rates are elevated, traffic has remained relatively inelastic to TBTA's frequent increases.

Revenue Risk - Price: Stronger

DEMONSTRATED TOLL INCREASES: The system has a mature and stable traffic base with historically strong ratemaking flexibility. Between 2002 and 2015, TBTA has raised rates seven times resulting in just a 0.1% annual decline in traffic with a 5.2% CAGR in toll revenues. Fitch expects rates to increase again in Spring 2017 and biannually thereafter.

Infrastructure Development/Renewal Risk: Midrange

LARGE DEBT-FUNDED CAPITAL PROGRAM: TBTA has a large, mostly debt-funded 2016 - 2020 capital reinvestment program totalling $2.85 billion, slightly lower than the previous year due to efficiency savings. Approximately 80% of funding will be paid by debt, TBTA's current projections include nearly $1.78 billion in new money issuance, and 20% pay-go funding, a relatively larger share than in previous funding plans. The capital plan will primarily focus on RFK, Verrazano-Narrows and Throgs Neck suspension bridge upgrades and state of good repair.

Debt Structure Risk: Midrange (senior); Midrange (subordinate)

TRANSFER SUBORDINATION PROTECTS BONDHOLDERS: Structural subordination of net transfers (forecast ranging from $560 million - $700 million between 2016 - 2020) to MTA for operations ensure high senior and combined debt service coverage ratios (DSCRs). However, these transfers leave the authority short on liquidity support and reliant on additional debt to fund capital expenditures. The absence of cash-funded debt service reserves is a risk, partially mitigated by nearly $600 million of cash reserves, including the reconstruction reserve, in place as of August 2016. Some variable-rate risk is present with TBTA's aggregate revenue bonds at 81.7% fixed, 9.7% synthetically fixed, and 8.6% unhedged variable rate.

Financial Metrics: TBTA has strong financial flexibility as demonstrated by its robust DSCRs of 2.90x on the senior lien and 2.36x on a combined basis in 2015, as compared with 2.70x and 2.17x in 2014, respectively. Senior leverage is relatively low at around 4.8x net debt-to-cash flow available for debt service (CFADS), increasing to over 6x by 2020 under rating case conditions and assuming additional senior lien debt is issued. Current total leverage of 6.0x is moderate and could rise to the 7.5x range with future issuances.

Peers: Bay Area Toll Authority (BATA; rated 'AA'/Stable Outlook) is TBTA's closest peer. BATA has higher consolidated leverage at over 12x compared to 6x for TBTA. However, BATA has a policy to maintain $1 billion in cash and investments, providing significant liquidity to the authority, while TBTA provides annual surplus transfers to MTA limiting its ability to build up reserves and making it more reliant on future toll increases.

RATING SENSITIVITIES

Negative: Lower than anticipated revenue yields from biennial planned toll increases or higher than anticipated expense growth. DSCRs on the general revenue bonds (senior lien) meaningfully below 2.0x or below 1.8x on a consolidated basis for a sustained period. In addition to DSCR declines, significant reduction in reserve levels with no expectation of replenishment.

Negative: Higher leverage than projected or an indication of maintenance being deferred to sustain continued MTA transfers.

Positive: Given the size of the issuer's capital program and its constrained liquidity, upward rating movement is not likely in the near term.

CREDIT UPDATE

The bridge and tunnel system has a mature and stable traffic base with a 0.42% 5-year CAGR through 2015, in line with historical growth rates going back to 1970. Traffic volume for the first seven months of 2016 is up 4.8% over the same period in 2015, exceeding budget and base case expectations. Traffic the remainder of the year is projected to grow modestly yielding 305 million annual transactions. The growth in 2016 follows strong 2015 traffic with year over year growth of 4%. Recent strong performance is attributed to relatively mild seasonal factors, lower gas prices, and a strengthening regional economy. Bridge and tunnel toll revenue increased by 7.9% to $1.8 billion in 2015, following a toll increase in March 2015. Tolls are expected to increase again by 4% in March 2017 and biannually thereafter, subject to TBTA board approval. Traffic has remained relatively inelastic to TBTA's past toll increases.

Total operating expenses growth was flat in 2015 at a five-year CAGR of just 2.98%. TBTA is budgeting 15.75% growth in 2016 due to an increase in labor costs and major maintenance and bridge painting projects not eligible for capital funding. Thereafter, total operating expenses is forecasted to grow by 3% - 4% based on the independent consultant's report and July TBTA budget. In connection with the newly announced New York Crossing Project, which accelerates the initiative to implement cashless all-electronic open road tolling (ORT) across the entire TBTA system by the end of 2017, additional operating costs beyond projections and revenue collection losses are anticipated.

Fitch's base case analysis assumes 4% biannual toll increases in 2017 through 2025, $1.7 billion in additional debt to support the capital plan, and expense growth averaging 4.2% per annum, higher than 3% historical CAGR. Under this scenario, over a 10-year period DSCR is projected to average 2.41x on a senior basis and 1.97x on a combined basis. Forward looking leverage is conservatively projected at 5.7x net debt to CFADS on the senior lien and 6.9x combined.

Fitch's rating case scenario assumes base case additional debt assumptions, some decline in volume, mirroring historical recessionary performance, and higher elasticity to the assumed biannual increases as well as higher operating cost growth, averaging 4.8% per annum. Under this scenario, over a 10-year period DSCR averages nearly 2.20x on a senior basis and 1.80x on a combined basis. Forward looking leverage is conservatively projected at over 6x net debt to CFADS on the senior lien and 7.5x range combined.

Financial metrics under either scenario fall comfortably within the rating category for urban bridge systems. Base and rating case breakeven analysis for TBTA demonstrate the ability to tolerate nearly flat annual toll revenue growth without affecting ability to service debt.

TBTA operates nine tolled facilities within NYC, consisting of seven bridges and two tunnels. They include the following: Verrazano-Narrows (Staten Island-Brooklyn), RFK (formerly Triborough, Bronx-Queens-Manhattan), Bronx-Whitestone and Throgs Neck (both Bronx-Queens), Henry Hudson (Bronx-Manhattan), Marine-Parkway-Gil Hodges Memorial and Cross Bay Veterans Memorial Bridges (both Brooklyn-Queens); and the Queens Midtown (Queens-Manhattan) & Brooklyn-Battery Tunnels (Brooklyn-Manhattan). The Verrazano bridge is the only facility on which tolls are collected in one direction only, while the cash tolls for passenger cars on Marine Parkway & Cross Bay are half the level of those on the major facilities.

SECURITY

The general revenue and subordinate revenue bonds are secured by the net revenues collected on the bridges and tunnels operated by TBTA.

Additional information is available on www.fitchratings.com.

Applicable Criteria

Rating Criteria for Infrastructure and Project Finance (pub. 08 Jul 2016)

https://www.fitchratings.com/site/re/882594

Rating Criteria for Toll Roads, Bridges and Tunnels (pub. 11 Aug 2016)

https://www.fitchratings.com/site/re/886038

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Contacts

Fitch Ratings
Primary Analyst
Tanya Langman, +1-212-908-0716
Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Chad Lewis, +1-212-908-0886
Senior Director
or
Committee Chairperson
Scott Zuchorski, +1-212-908-0659
Senior Director
or
Media Relations, New York
Sandro Scenga, +1-212-908-0278
sandro.scenga@fitchratings.com