Fitch Rates Fort Bend County, TX's Series 2014 Sr. Lien Toll Road Revs 'A+'; Outlook Stable

CHICAGO--()--Fitch Ratings has assigned an 'A+' rating to Fort Bend County, Texas' approximately $45 million series 2014 senior lien toll road revenue bonds issued on behalf of the Fort Bend County Toll Road Authority (FBCTRA). In addition, Fitch has affirmed its 'A+' rating on approximately $30.8 million in outstanding parity senior lien toll revenue bonds issued by the county on behalf of the authority. The Rating Outlook is Stable.

RATING RATIONALE

The rating reflects continued strong and growing traffic and revenue performance on the authority's two toll road system, while also taking into account the limited catchment area that it serves that exposes it to adverse fluctuations in a narrow segment of the Houston, TX economy. It also reflects the authority's successful recent expense containment, which is also expected to support robust coverage through the medium term. Anticipated issuance of approximately $130 million in senior lien bonds (including the series 2014 bonds) over the next five years is embedded in the rating. The system's low senior leverage (currently negative, but expected to grow to around 4.5x) and strong liquidity with nearly 4,000 days cash on hand (DCOH) provide further rating stability.

KEY RATING DRIVERS

Revenue Risk: Volume - Midrange

DEVELOPING NETWORK WITH LIMITED OPERATING HISTORY: The system's two toll roads opened in 2004 and 2005 and have experienced some volatility in recent years as a result of the recession and toll increases. Still, traffic growth across the system has remained positive over the past five years, exhibiting a compounded annual growth rate (CAGR) of greater than 4% for the period, including the project B expansion. The traffic base is nearly 100% commuter oriented and the facilities are on the western edge of the strong and growing Houston MSA. The Westpark Tollway and Fort Bend Parkway both provide direct access to the Sam Houston Tollway loop around Houston; however, there is some level of competition from alternative routes.

Revenue Risk: Price - Stronger

DEMONSTRATED RATE-MAKING FLEXIBILITY: Since fiscal 2012 the authority has followed a toll policy providing for automatic annual increases the greater of 2% or CPI-U. The average toll rate remains on the moderate side at $0.22 per mile and all-electronic tolling makes implementing rate increases easier.

Infrastructure Development/Renewal - Stronger

MANAGEABLE NEAR-TERM CAPITAL PROGRAM: The two system roadways comprise only 60 lane miles with minimal maintenance needed given the relatively young age of the assets. Following the series 2014 issuance for the SH-6 connector, additional parity senior lien bond issuances for the proposed Westpark extension projects are anticipated in fiscal 2016 and 2019; however, there should be sufficient flexibility to shift the timing of future projects to coincide with an adequate cash flow-generation profile. Fitch views there to be minimal completion risk associated with these projects given the relatively small and routine nature of the construction and the authority's favorable history of scheduled delivery and budget.

Debt Structure - Stronger

CONSERVATIVE DEBT STRUCTURE: Outstanding senior lien debt is fixed-rate with conservative amortization. A cash-funded debt service reserve fund equal to maximum annual debt service (MADS) provides additional credit support.

Financial Metrics

MODERATE LEVERAGE, STRONG COVERAGE, AND COUNTY SUPPORT: FBCTRA continued to maintain liquidity in excess of senior lien debt for fiscal 2014. Projected senior leverage (including the series 2014 bonds and two contemplated additional issuances) is forecast to grow to a still moderate 4.4x on a net debt-to-CFADS basis by 2019. Total leverage, including subordinate debt backed by Fort Bend County's general obligation pledge (rated 'AA+' by Fitch), is higher at an estimated 5.2x for fiscal 2014 and forecast to grow to 8.4x with the additional issuances. Assuming all projected senior bonds are issued, Fitch's rating case results in senior debt service coverage ratio (DSCR) - calculated on a net basis - remaining at or above 2.1x through the medium-term.

Peer Group

Closest Fitch-rated small expressway network peers include Richmond Metropolitan Authority (RMA)('A'/Stable Outlook) and Texas Turnpike Authority (TTA)('BBB+'/Stable Outlook). FBCTRA is a smaller system, generating fewer transactions and lower revenues, but demonstrating greater pricing power and more robust coverage levels than RMA and much lower leverage and a stronger debt structure than TTA, largely explaining its rating relative to these peers.

RATING SENSITIVITIES

Negative:

--Additional leverage used to fund future projects that materially dilutes projected coverage ratios;

--Increased operating expenses or delays in implementing adequate toll adjustments that materially affect the financial profile;

--Material underperformance of new system segments.

Positive:

Given the system's small size and limited catchment area coupled with its current capital program, upward migration is not likely at this time.

TRANSACTION SUMMARY

The authority is issuing $45 million of new money bonds, the proceeds of which will be used primarily to finance the construction of an interchange between the Fort Bend Parkway and State Highway 6. The remainder will be used to purchase right-of-way for the Westpark expansion and to upgrade the authority's toll collection facilities, allowing it to collect its own tolls. In addition, cash on hand will be used to cash-fund the debt service reserve fund. The bonds are fixed-rate with a final maturity of fiscal 2042 and are expected to price the week of Nov. 17, 2014.

Traffic and revenue across the system continue to show strong growth with fiscal year-to-date (FYTD) traffic up 7.2% through 11 months (ending August) and corresponding FYTD toll revenues up a 7.3%. Annualized toll revenues appear in-line with Fitch's base case, yet annualized expenses (using 10 months FYTD through July) indicate annual expenses well below Fitch's base case assumption for the year. The result is a senior DSCR that should remain above 15x for fiscal 2014.

As a result, Fitch's view on the credit remains unchanged from its April review. Factoring in the series 2014 bonds and two additional future issuances, senior DSCR in Fitch's rating case is projected to remain high at 2.1x or greater on a net revenue basis and total net coverage, including the subordinate lien, is projected never to drop below 1.1x.

SECURITY

The bonds are secured by a senior lien on the revenues derived from the ownership and operation of the toll road system and certain funds under the indenture. In addition, as long as there are any senior or subordinate bonds outstanding the system benefits from an O&M tax pledge. Only the authority's subordinated obligations have the additional security of the county's unlimited general obligation tax pledge.

See also 'Fitch Affirms Fort Bend County, TX's $30.8MM Senior Lien Toll Road Revs; Outlook Stable', dated April 7, 2014, available on the Fitch website, for additional information.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria & Related Research:

--'Rating Criteria for Infrastructure and Project Finance', dated July 12, 2012;

--'Rating Criteria for Toll Roads, Bridges, and Tunnels', dated 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=917075

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Contacts

Fitch Ratings
Primary Analyst
Jeffrey Lack
Associate Director
+1 312-368-3171
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst
Casey Cathcart
Associate Director
+1 312-368-3214
or
Committee Chairperson
Scott Zuchorski
Senior Director
+1 212-908-0659
or
Media Relations
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Jeffrey Lack
Associate Director
+1 312-368-3171
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst
Casey Cathcart
Associate Director
+1 312-368-3214
or
Committee Chairperson
Scott Zuchorski
Senior Director
+1 212-908-0659
or
Media Relations
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com