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Fitch Expects to Rate Rickenbacker Causeway Revenue Bonds 'BBB'

NEW YORK--(BUSINESS WIRE)--Fitch Ratings expects to assign a 'BBB' rating to approximately $33 million of Miami-Dade County (the county) Rickenbacker Causeway Revenue Bonds series 2014 (the bonds). The bonds are being issued to reimburse the county for costs previously spent for repair and rehabilitation to the West and Bear Cut Bridges of the Rickenbacker Causeway (the causeway), a crossing from southern downtown Miami east to Virginia Key and Key Biscayne.

The Rating Outlook is Stable.

Final ratings are contingent upon the receipt by Fitch of both executed documents and legal opinions conforming to information already received and reviewed as well as the final pricing of the bonds. The bonds are expected to price in mid-August 2014.

RATIONALE

The 'BBB' expected rating reflects the narrow franchise strength of the asset, which depends on leisure traffic for an extremely high portion of its revenue. This risk is partially offset by the long operating history within Miami, solid projected coverage, and flat debt service profile. Leverage on senior debt is manageable, but the ability for cash to leave the entity for other county obligations after debt service and renewal and replacement (R&R) deposits could hinder extraordinary reserving for future year capital expenditures.

KEY RATING DRIVERS

Historic Bridge Dependent on Leisure: The causeway demonstrates a long operating history but depends on leisure traffic for a large 90% of its revenue. While the only crossing to the Virginia Key and Key Biscayne, the causeway serves a narrow catchment area and competes with other tourist destinations within Miami. Revenue Risk -- Volume: Weaker

Moderate Pricing Flexibility: The county has shown willingness to raise rates, though still low, within the last 10 years. The leisure orientation of the bridge could limit future pricing power, and tolls on such leisure trips must be sized to recover most costs because commuting traffic pays only for annual plans, not for each crossing. Though annual commuter plan cost is low, political risk exists with raising rates on these plans should discretionary trips decline given the lack of demonstrated history. Revenue Risk -- Price: Midrange

Adequate Approach to Lifecycle Maintenance: Projections for capital maintenance are acceptable, and the requirement for an engineer to recommend capital costs on a five-year forward basis is a credit positive given the age of the facility. The ability to use Rickenbacker surplus cash for other county purposes could inhibit bolstering of capital reserves and lead to deferred maintenance in years of down performance. Infrastructure Development & Renewal: Midrange

Conservative Debt Structure: Contemplated debt is fixed rate and fully amortizing with maximum annual debt service (MADS) payable in the first year of the debt. Security provisions are standard for toll road assets and additional debt restrictions are stringent. Debt Structure: Stronger

Financial Metrics Reasonable for Revenue Risk: Leverage and projected coverage of senior debt service and R&R deposits are satisfactory for the rating category and leisure nature of the asset, though leverage could migrate higher into the future under a down scenario assuming no toll rate increases. Payment of subordinate debt service, legally county debt, and other obligations could constrain extraordinary maintenance funding and cash build-up.

RATING SENSITIVITIES

Unrealized Cost Savings: Failure to implement planned cost saving measures could place near-term pressure on debt service coverage with MADS in 2015.

Strained Metrics: Additional debt for unforeseen capital needs and/or declines in traffic without toll rate adjustments that would cause coverage of senior debt service and R&R deposits to remain below 2.0x and in the range of 1.3x, respectively, for a sustained period.

Lack of Forward Cash Retention: A practice of transferring surplus cash for other County uses instead of to the Rickenbacker's R&R fund would be viewed negatively.

Positive Rating Action Unlikely: Given the limited service area and discretionary dependence of toll revenue, Fitch views positive rating movement in the near to medium term as unlikely.

SECURITY

The bonds are secured by revenues, primarily toll revenues, generated on the Rickenbacker Causeway after the payment of operating expenses.

TRANSACTION SUMMARY

The bonds are being issued to reimburse the county for funds previously expended to replace the superstructure and repair and rehabilitate the substructure of the West Bridge and Bear Cut Bridges.

The Rickenbacker Causeway is owned and operated as an enterprise fund of the county. The causeway crosses the Miami South and Deering Channels via State Road 913 and serves as the sole connection to the Virginia Key and the Village of Key Biscayne, islands off the mainland of downtown Miami. The causeway on its western end connects with I-95 near its southern terminus and U.S. Route 1.

The causeway opened in 1947 and, as of the late 1980's when the facility was expanded, operates as a six-lane facility with 2.4 miles of roadway and 1.2 miles of bridge structures with adjacent shoulders and bicycle and pedestrian lanes and pathways. The West Bridge is just over 0.1 miles in length and connects downtown Miami with the small Hobie Island. The Bear Cut is the easternmost bridge structure and, at 0.4 miles, connects the Virginia Key to the more southerly Key Biscayne.

Vehicles pay tolls only upon entering the islands traveling south and east. Roughly half of the causeway's vehicular traffic consists of discretionary and transient trips for leisure activities at the various parks and beaches located along the islands while the other half is primarily commuter based, serving the islands' over four thousand jobs, twelve thousand residents, and small student base.

Fitch considered cash flows through 2024 in its base and rating cases. The sponsor's traffic assumption for SunPass transactions over that timeframe of a 0.4% compounded annual growth rate (CAGR) appears reasonable when viewed in the context of the historical CAGR for aggregate traffic over the last twenty years of 0.7%. However, that growth includes plan-paying traffic which is completely unaffected by tolls. Reviewing county-provided information and using the sponsor-provided estimate for non-plan transactions in 2014, Fitch estimates that cash-paying traffic has remained flat to slightly declining since 1993. As such, Fitch's base case assumes flat traffic and the rating case projects a near-term negative shock consistent with the bridge's sensitivity to leisure and the broader economy.

Fitch's base and rating cases also assume the county is able to increase tolls in 2020 as projected. The passenger toll is assumed to go up an additional $0.25, an adjustment which would be consistent with the causeway's toll rate increases since 2006.

Fitch's base case assumes that the county is able to achieve the expected workforce rationalization in 2016, a year later than planned, and the rating case projects conservatively that it takes five years to adjust the workforce to planned levels.

Resulting coverage in both the base and rating cases is subject to near-term pressure due to the combination lower than expected layoffs and MADS in 2015. However, average debt service coverage equals 2.0x in the base case and 1.7x in the rating case, which Fitch views as adequate for the assigned expected rating of 'BBB.' Leverage remains elevated above 6.0x in the base case until 2020 when the county implements its planned toll increase, after which leverage decreases to an acceptable level below 5.0x. Should the rating case traffic and expense assumptions come to fruition in the next five years, Fitch would expect the county to implement a toll increase to preserve financial flexibility and avoid deferring maintenance. Failure to do so would likely lead to negative rating action. In a sensitivity case which assumes the county fails to implement a toll increase by 2020, senior debt service coverage averages 1.5x, and the causeway covers its R&R requirements modestly above 1.0x on average.

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' (Oct. 16, 2013).

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=720736

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=840274

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Contacts

Fitch Ratings
Primary Analyst
Charles Askew, +1 212-908-0644
Associate Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Daniel Adelman, +1 312-368-2082
Analyst
or
Committee Chairperson
Chad Lewis, +1 212-908-0886
Senior Director
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com