CHICAGO--(BUSINESS WIRE)--Fitch Ratings affirms the underlying 'A+' rating on the Golden Gate Bridge Highway & Transportation District's (the District) $61 million of Commercial Paper (CP) Notes issued on behalf of the District. The Rating Outlook is Stable.
Fitch's 'F1+' short-term rating on the CP notes reflects the District's own financial resources and market access as well as a liquidity facility provided by JPMorgan Chase Bank, N.A. (rated 'A+/F1' by Fitch) in the form of a line of credit.
The District provides vital transportation services for the Bay Area. While revenues mostly come from bridge tolls and operating grants, the affirmation reflects superior liquidity, continued seismic improvements, and management's proactive ability to raise tolls to cover expenses. Tolls are more than double bridge expenses which allow the District to provide the heavily used bus and ferry public transit services. Ferry and bus revenues alone would be insufficient to cover transit operations.
KEY RATING DRIVERS
REVENUE RISK - VOLUME: MIDRANGE
Mature Monopolistic Vehicular Bridge: Unique historic single structure provides the only northern bridge crossing from San Francisco and has a stable traffic base with little declines through recent economic cycles. Significant vehicular traffic allows the District to run transit operations, and federal, state, while local government operating grants are needed to completely cover overall operating costs.
REVENUE RISK - PRICE: STRONGER
Powerful Rate Making Flexibility: The Bridge serves critical regional transportation needs, and the mature traffic base provides significant rate-making flexibility as toll increases have not negatively affected traffic levels. Proactive management has increased ferry and bus fares to address projected deficits, switched to All Electronic Tolling (AET) in March 2013, and received approval for a four-year toll increase plan February 2014 with the most recent toll increase occurring in April 2014.
INFRASTRUCTURE/RENEWAL - MIDRANGE
Constant Maintenance Required: The Bridge requires continual rehabilitation with most of the District's updated $1.6 billion capital plan to maintain the facility. The District is required to contribute $428 million, and the remainder (approximately 80%) is expected to come from government grants consistent with past practice and poses some renewal risk. Management states that non-urgent projects would be postponed if grant funding decreased.
DEBT STRUCTURE - MIDRANGE
Non-Amortizing CP Note Debt: Only interest (no principal) has been paid since issuance. Additionally, the debt will begin to amortize after the seismic retrofit project is completed. As per the District's Capital Plan, hypothetical CP amortization starting fiscal 2020 was included in the Fitch base and rating cases.
Low Leverage High Liquidity Strengthen Metrics.
Fitch considers the District's economic rate-making flexibility in conjunction with formidable reserves a credit strength. Low debt relative to available resources posts a net debt to cash flow available for debt service (CFADS) ratio of -7.9x. Fiscal 2014 CFADS included an operating surplus of $0.53 million, $18.6 million of operating grants, and $3 million of interest income. Interest Coverage Ratio (ICR) was 475.4 with both grants and operating reserve and 353.4 without the operating reserve. $221 million of Unrestricted Cash and Investments slightly increased from $195 million fiscal 2013 posting 502.4 days cash on hand.
Peers: Like other bridges in Fitch's portfolio, the Golden Gate Bridge provides a key regional transportation crossing. However, the District uses toll revenues to support public transit services. High levels of unrestricted cash and low levels of debt service due to the non-amortizing nature of the commercial paper debt provide negative leverage and high coverage. The Bridge has medium traffic figures when compared to Triborough Bridge, Cameron County, and McAllen.
Negative: Significant reduction in operating/capital grants and/or cash balances;
Negative: Failure to adjust tolls and control expenses to maintain healthy financial ratios consistent with past performance;
Negative: Significant traffic loss from economic factors or a one-time event such as an earthquake or terrorist attack.
Positive: The District's reliance on a single historic asset for the majority of operating revenue coupled with the vulnerability from an attack and/or earthquake restrict the likelihood of a higher rating at this time;
Positive: The funding uncertainty of the final phase of the seismic retrofit restricts the likelihood of a higher rating at this time.
Bridge traffic is resilient to toll increases having grown 3.29% fiscal 2014 and has continued to increase 0.48% fiscal 2015 year to date alongside the $1 toll rise effective April 2014. Fitch believes that traffic levels will continue to grow alongside future toll increases as tolls are raised $0.25 in July 2016, $0.25 in 2017, and $0.50 in 2018 due to the Bridge's vital regional connection. Fiscal 2014 ferry traffic increased 6%, and bus regional patronage increased 2.1% (3.7 million passengers from 3.6 million passengers) while bus Marin Local patronage decreased -10.6% (2.7 million passengers from 3 million passengers), for a net total decrease of 3.7%. Fiscal 2015 year to date bus traffic has decreased 4.60%, and ferry traffic has decreased 1.08% through November 2014.
Fiscal 2014 revenues increased 7% to $160.1 million mainly due to increases in traffic and tolls. Total vehicle revenues increased 10.13% followed by increases in bus fare revenues (7.18%), and ferry ride revenues (12.7%). Toll revenues are double bridge operational costs and were 70% of total operating revenues. The remaining 30% of operating revenues came from the transit system. Surplus revenues are used to fill the District Reserve Fund for operations and maintenance if toll revenues fall short. Fiscal 2015 year to date revenues through November 2014 have increased 20% from bridge tolls, 5.8% from bus fares, and 2.1% from ferry rides. Fitch believes revenues to continue to increase from stable traffic levels and scheduled toll increases.
As expected, the transit system produces nearly two thirds of overall expenses, but bus expenses decreased -2% and ferry expenses increased 12% in fiscal 2014. The District is looking at fuel alternatives for buses and is pushing clean diesel use. Hybrids are being used on some local routes, but CNGs perform poorly on hills, and trips are too long for electronic buses. The District has added ferry trips to meet increased demand but ferries require more fuel than buses and the ferry industry is slower to innovate due to the smaller market which drives up costs. While total fiscal 2014 OpEx increased 4% from inflationary increases in salaries, benefits, and fuel as well as AET processing costs, fiscal 2015 year-to-date expenses have only increased 1%, which is 2% less than budgeted.
The District relies heavily on operating grant assistance which has averaged $18.1 million over six years and should continue at historic levels. The District's 10-year capital program has grown from $1.4 billion in fiscal 2013 to $1.6 billion in fiscal 2014. Of that amount, $1 billion will go to the bridge itself for maintenance and upkeep but no new debt is anticipated to be issued. Fiscal 2014 non-operating revenues increased $3.5 million to $19.3 million due to increased income from market investment, and a smooth transition to AET implemented March 27, 2013 has posted no major issues so far. Seismic improvements are in process to retrofit the Bridge to withstand an eight on the Richter Scale, and the bridge roadway itself will be rehabbed in 2020. A weekday paid parking program introduced at the Larkspur Ferry terminal in February 2014 is expected to bring $400,000 of annual revenue to offset general ferry OpEx.
Per the fiscal 2014 capital plan, Fitch assumed a hypothetical CP note amortization in the Fitch Base and Rating Cases beginning fiscal 2020 after seismic retrofit project is completed. Projected payments are based on $1.4 million in the first year with increases of $100,000/year for remaining four year period of the projection per the indenture. Even alongside scheduled toll increases and traffic shock in the Fitch Rating Case, significant liquidity allows ICR to average 12.26x with a minimum of 2.13x in fiscal 2024.
The CP notes are secured by District payments and a J.P. Morgan Chase Bank letter of credit which was renewed May 30, 2014 and is effective through June 30, 2016.. Both series are remarketed at maturity by the CP Program's two dealers: Morgan Stanley (Series A), and Goldman (Series B), and the notes program expires on July 12, 2030. The District plans to begin to amortize the CP notes after completing seismic retrofit program which is anticipated to be 2021.
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' (Aug. 20, 2014).
Applicable Criteria and Related Research:
Rating Criteria for Toll Roads, Bridges and Tunnels
Rating Criteria for Infrastructure and Project Finance