NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the 'BBB' rating on approximately $31.09 million of Miami-Dade County's (the county) Rickenbacker Causeway (the causeway) series 2014 revenue bonds. The Rating Outlook is Stable.
The rating reflects the narrow franchise strength of the asset, which depends on leisure traffic for the majority of its revenue. This volume risk is partially offset by a long operating history, solid projected coverage, and manageable leverage with a flat debt service profile. However, the ability for remaining cash flow after debt service to transfer out for other county obligations and renewal and replacement (R&R) deposits could limit the flexibility to allocate funds for capital expenditures in future years. Relative to its peers in the rating category with similar exposure to seasonal leisure traffic, Rickenbacker maintains more favourable total leverage than Mid-Bay, but weaker debt service coverage than Chesapeake Bay Bridge and Tunnel District (CBBT).
KEY RATING DRIVERS
BRIDGE HISTORICALLY DEPENDENT ON LEISURE: Revenue Risk: Volume - Weaker
The causeway has a long operating history, but depends on leisure traffic for approximately 90% of revenue. The causeway, the only crossing to Virginia Key and Key Biscayne, serves a narrow catchment area and competes with other regional tourist destinations.
MODERATE PRICING FLEXIBILITY: Revenue Risk: Price - Midrange
The county has shown willingness to raise rates on discretionary trips over the last 10 years, but the leisure orientation of the bridge could limit future pricing power. Tolls on leisure trips must be sized to cover the majority of costs as commuters pay only for annual plans, rather than 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.
ADEQUATE APPROACH TO LIFECYCLE MAINTENANCE: Infrastructure Development and Renewal - Midrange
Projections for capital maintenance are reasonable, and Fitch views positively the requirement for an engineer to recommend capital costs on a five-year forward basis given the age of the facility. The current five-year capital improvement plan (CIP) totals $23.3 million, entirely funded with causeway toll revenues and includes $5.8 million of R&R funding through fiscal year (FY) 2020, as highlighted in the current engineer's report. As Rickenbacker surplus cash can be used for other county purposes, capital reserve build-up could be limited and deferred maintenance could result.
CONSERVATIVE DEBT STRUCTURE: Debt Structure - Stronger
The revenue bonds are fixed rate and fully amortizing with a flat profile. Security provisions are standard for toll road assets while additional debt restrictions are stringent.
METRICS REASONABLE FOR REVENUE RISK: Financial Metrics
Moderate asset leverage and generally high coverage of senior debt service and R&R deposits are consistent for the rating category and leisure nature of the asset. Senior leverage is moderate at 5.31x for FY 2015 and is projected to fall to about 2.5x by 2018. Payment of subordinate debt service (legally county debt) and other obligations could constrain extraordinary maintenance funding and cash build-up. Senior DSCR is 2.59x in FY 2015 and is projected to increase to 4.43x by 2023. Fitch's rating case results in senior DSCR remaining at or above 3x through the medium term.
Like Rickenbacker, Mid-Bay Bridge Authority (rated 'BBB+'/'BBB'/ Outlook Stable) near Fort Walton Beach, FL, exhibits high exposure to leisure traffic. The higher rating on Mid-Bay Bridge's senior lien is driven by the Florida Department of Transportation's obligation to cover extraordinary maintenance cost. Mid-Bay has high overall leverage near 9x in FY 2015, while Rickenbacker has more moderate leverage at 5x. While CBBT (subordinate lien rated 'A'/ Outlook Stable) also has high exposure to leisure activity, CBBT's higher rating reflects extremely low leverage at 0.2x in FY 2015 and higher levels of financial flexibility.
Lower Coverage: Sustained coverage of senior debt service below 2x and/or of R&R deposits in the range of 1.3x driven by additional debt or underperformance could trigger negative rating action.
Transfers of Funds: The practice of transferring meaningful surplus cash for county uses not associated with the Rickenbacker Causeway such that the causeway is consistently deferring capital expenditures resulting in increased operating expenses could also trigger negative action.
Positive rating action is unlikely given the narrow demand profile and discretionary dependence on toll revenue.
The Rickenbacker Causeway is owned and operated as an enterprise fund of the county. On Jan. 20, 2016, the Board of County Commissioners transferred Causeways to the Parks, Recreation, and Open Spaces Department, though Road and Bridge engineering and maintenance remains under the Road, Bridge, and Canal Maintenance Division of the Department of Transportation and Public Works. 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.
On Sept. 23, 2014, Rickenbacker completed the conversion of its tolling operations from toll booth lanes to all-electronic tolling through SunPass and toll-by-plate tolling. 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. Though only about half of the traffic base is leisure-based, the leisure traffic accounts for 90% of toll revenues.
Despite Rickenbacker's dependence on discretionary traffic, traffic is up modestly at 2.3% through the first eleven months of FY 2016, and lane revenues are up 11.2% from the same period in FY 2015. This growth builds upon the FY 2015 traffic increase of 5.1% and revenue increase of 5% after the toll conversion in 2014. The revenue growth is due not only to increased traffic but also to the new restriction on annual plan eligibility that was implemented with the toll system conversion. The change converted many annual plan customers to regular SunPass customers who now pay per trip charges.
Previously, anyone could purchase an unlimited pass, but now, a person must reside, work or attend school on one of the islands that the Causeway serves in order to qualify. As a result of the conversion to electronic tolling and the reduction of staff to accommodate the change, operating expenses decreased 20% in FY 2015 to $3.4 million, down from $4.3 million in FY 2014. Driving the expense decrease were personnel costs, which decreased 42.5% from FY 2014.
The causeway's five-year CIP totals approximately $23.3 million through 2022, with all projects on schedule from the previous year. The largest component of the plans is dedicated to repair and replacement, and a bicycle pedestrian safety and pavement markings project that is planned to commence in FY 2018. Currently, there are no plans for funds to be used for county obligations, but the flow funds indicate the right to do so.
Given the causeway's volatile traffic history dependent on leisure traffic, Fitch considers cash flows through 2027 in its base case with no traffic growth and no price elasticity on toll increases. Fitch's base case assumes flat traffic and a projected $0.25 toll increase in 2018, which is lower than the sponsor projected $0.50 toll increase but consistent with the causeway's toll rate increases of $0.25 since 2003. Long-term operating expenses were unchanged in the base case from the adopted sponsor's projection of 4% growth. Average debt service coverage equals 3.7x in the base case, which Fitch views as adequate for the rating of 'BBB.' Leverage remains elevated at around 5.0x in the base case, but falls to 3.3x in 2018 when the county implements its planned toll increase.
Meanwhile, the rating case projects a 5% traffic diversion in years of projected toll increases in light of the significant leisure component of the traffic base. The rating case stressed operating expenses a further 50 basis points higher to 4.5%, resulting in average senior debt coverage of 3.4x, with a low of 3.1x. Should the rating case traffic and expense assumptions be realized in the next five years, Fitch would expect the county to implement a further toll increase or defer capital projects not part of the R&R fund to preserve financial flexibility.
The bonds are secured by revenues, primarily toll revenues, generated on the Rickenbacker Causeway after the payment of operating expenses. The bonds were 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.
Additional information is available on www.fitchratings.com.
Rating Criteria for Infrastructure and Project Finance (pub. 08 Jul 2016)
Rating Criteria for Toll Roads, Bridges and Tunnels (pub. 11 Aug 2016)
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