Fitch Affirms Cameron County, TX's International Toll Bridge System Revs at 'A'; Outlook Stable
CHICAGO--(BUSINESS WIRE)--Fitch Ratings affirms the 'A' rating on Cameron County, Texas' (the county) approximately $5.5 million international toll bridge system revenue bonds. The Rating Outlook remains Stable.
In addition, the bridge system has an outstanding obligation of approximately $12.9 million to the county relating to the bridge system's pro rata share of the county's series 2005, series 2008 and series 2011 limited tax certificates of obligations. This obligation is on parity with the bridge system's revenue bonds.
KEY RATING DRIVERS
HIGH EXPOSURE TO VOLATILITY AND COMPETITION: The bridge system serves the sizable Brownsville-Harlingen service area with an extensive transportation network but faces some exposure to competition from neighboring international bridge facilities. Traffic and revenue are inherently susceptible to economic cycles on both sides of the border and the exposure of cross-border shopping trips to the Mexican economic and political conditions, particularly since passenger cars constitute 57% of total traffic. Total crossings have declined for a seventh consecutive year, down 0.9% in fiscal 2013 (fiscal year ends Sept. 30) to 5.0 million total crossings.
Revenue Risk - Volume: Weaker
MODERATE ECONOMIC RATE-MAKING FLEXIBILITY: Toll rates charged are consistent with nearby bridge crossings. However, the proximity of a competing facility limits economic ratemaking flexibility of the system. Management has historically demonstrated a proactive position toward raising toll rates during periods of continued traffic declines to stabilize revenue.
Revenue Risk - Price: Midrange
CONSERVATIVE DEBT STRUCTURE: All outstanding debt is fixed rate, with a declining debt service schedule, and sufficient legal protections. Limited tax obligation bonds have backup pledges from Cameron County and participating cities to meet debt service.
Debt Structure: Stronger
MANAGEABLE CAPITAL EXPENDITURE NEEDS: The bridges are generally expressed to be in good condition. The Cameron County Regional Mobility Authority and the county are responsible for the planning of capital projects. Funding for the projects is primarily provided by the county.
Infrastructure Development/Renewal: Midrange
STRONG COVERAGE AND LOW LEVERAGE: The bridge system has a strong debt service coverage ratio of 4.11x, providing significant cushion against traffic volatility. The bridge system also has low leverage with net debt to cash flow available for debt service at 0.74x. Unrestricted cash has also improved to $7.5 million from $4.8 million, equivalent to 725 days of cash on hand.
--The return of sizeable declines in passenger traffic or toll revenue levels driven by either violence related to drug cartels or considerable contraction of the manufacturing industry or cross-border trade;
--Changes in key financial metrics, such as coverage or liquidity, resulting from management's reluctance to raise tolls as planned/needed, or its inability to control operating and maintenance (O&M) expenses;
--Meaningful additional leverage.
SECURITY: The outstanding revenue bonds are secured by a net revenue pledge of the Cameron County International Bridge System and by a back-up pledge of a direct and continuing ad valorem tax, within the limits prescribed by law, on all taxable property located within the county.
Total crossings on the bridge system have decreased year over year since 2006 as a result of the economic downturn, security issues and toll increases. Total crossings in fiscal 2013 decreased slightly by 0.9% to 4.9 million from 5.0 million. Passenger and commercial traffic decreased by 3.1% and 3.3%, respectively, while pedestrian crossing increased by 2.5%. Additionally, total revenue declined 2.4% in fiscal 2013 to 15.2 million from 15.6 million.
Toll rates are reviewed for adjustments by the county each year. Toll rates for passenger cars were increased to $3.25 from $3.00 in the beginning of fiscal 2014. Total crossings for the first 4 months fiscal year-to-date have decreased 1.2% while revenue has increased by 2.7%.
The county is anticipating commercial traffic, which represents approximately a quarter of toll revenue, to improve as a result of network improvements in Mexico. A new road has been completed over the mountains and is expected to shift commercial traffic carrying produce from Mazatlan to Nogales, Arizona to the Pharr/Brownsville route due to greater time efficiency. However, commercial traffic is susceptible to the health of the maquiladora industry, which can be volatile especially given Mexico's recent tax reform that may potentially hinder the recovery of the maquiladora industry.
The rating is supported by the bridge system's high coverage and liquidity metrics and low leverage. Debt service coverage increased to 4.1x in 2013 from 3.5x in fiscal 2012 due to the bridge system's declining debt service schedule. Fitch views this level of protection as necessary given the volatility of the traffic base that is tied to the performance of the maquiladora industry as well as border security threats. Accordingly, Fitch conducted several sensitivity analyses. Within Fitch's rating case, which assumes a 20% reduction in traffic, coverage is expected to remain north of 3.0x.
The Veterans Bridge lane expansion project has been completed on the U.S. side while the Mexican side is expected to be completed in the upcoming months. The new lanes separate commercial vehicles from passenger vehicles and thereby greatly reduce waiting times at the border. There are currently no other major projects in the bridge system's capital plan.
The system supports subordinated transfers to the Cameron County general fund, which equaled approximately $5.7 million in fiscal 2013 (38% of toll revenue). Although these transfers may prevent liquidity from accumulating within the system, they pose little risk to the system as the need for transfers help drive toll increases and are subordinated to payment of operating expenses, debt service and required fund deposits.
The system comprises three bridges located in the greater Brownsville-Harlingen area: the Gateway Bridge that was acquired in 1960, the Free Trade Bridge that opened in 1992 and the Veterans Bridge that opened in 1999. While Cameron County is the sole owner of the U.S. half of all three bridges, other local municipalities participated in the two newer bridges by sharing in initial operating deficits with the benefit of also sharing in any surpluses as specified in the inter-local agreements. The inter-local agreement between the cities of San Benito and Harlingen and the county calls for surpluses, after the payment of operations and maintenance as well as 1.4x debt service on the bridge, to be split 25% each for the cities and 50% for the county. The Veterans Bridge shares surpluses evenly between the City of Brownsville and the county.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Rating Criteria for Infrastructure and Project Finance,' (July 11, 2012);
--'Rating Criteria for Toll Roads, Bridges, and Tunnels,' (Oct. 16, 2013).
Applicable Criteria and Related Research:
Rating Criteria for Infrastructure and Project Finance
Rating Criteria for Toll Roads, Bridges and Tunnels