Fitch Affirms Miami Parking System, FL's Revenue Rfdg Bonds at 'A'; Outlook Positive

CHICAGO--()--Fitch Ratings has affirmed the City of Miami, FL Department of Off-Street Parking's (DOSP, the department or the authority) approximately $65.04 million of outstanding series 2009 A & B parking system revenue bonds at 'A'.

The Rating Outlook is revised to Positive from Stable.

The Positive Outlook reflects a favorable trend in financial strength demonstrated by increasing debt service coverage due to sustained revenue growth and DOSP's effective cost management. Given the lack of additional borrowings planned under the capital program, the parking enterprise is also expected to have progressive deleveraging.

KEY RATING DRIVERS

Summary: The rating reflects the authority's monopoly over key off-street and on-street parking in Miami's thriving central business district. Though parking revenues tend to be correlated with the economy and could be volatile, this is partially offset by DOSP's diverse system of assets and a history of strong revenue generation. The rating is further supported by the authority's flexible annual rate-setting ability and its level debt service profile, which together have generated an increasing debt service coverage ratio (DSCR) profile that should continue to grow above the 3.4x achieved in 2015 even in a scenario of very modest growth. The practice to transfer surplus cashflow to the city may restrict the system's ability to build and maintain liquidity; however, leverage of 2.79x on a net debt-to-cash flow available for debt service (CFADS) basis is moderate and continues to evolve downward.

Dominant Position with High Demand: The DOSP holds a monopolistic position over essential on-street parking spaces in the Miami central business district, which account for 56% of operating revenues. The department's operation of parking garages, surface lots, and on-street parking spaces provides revenue diversity and minimizes reliance on any single system component.

Flexible Rate-Making Ability: The DOSP's authority to increase rates at an average annual rate of 3% per year without city council approval has helped the department maintain a solid operating profile and generate debt service coverage levels above 2x historically. The DOSP makes substantial transfers to the city after payment of debt service each year; however, transfers are made entirely at their discretion and there is no minimum required amount.

Manageable, Expanding Capital Plan: The three-year capital plan (2016-2018) totals $31 million and is largely dedicated to construction of three new parking garages, as well as various IT upgrades and basic repairs. Funding is provided by accumulated deposits in the capital fund, developer contributions and the sale of an existing asset.

Level Debt Structure: The DOSP's debt profile consists of all fixed-rate debt and level annual debt service, with over 25% of debt maturing in 10 years. Debt covenants are sound with an additional bonds test (ABT) of 1.5x and a cash-funded debt service reserve fund (DSRF).

High Coverage, Declining Leverage: Net debt-to-cash flow available for debt service (CFADS) has progressively stepped down each year, at an estimated 2.79x for FY2016, compared to 3.16x the prior year. The DOSP's debt service coverage ratio (DSCR) has also increased, growing to 3.87x in 2016 (unaudited). The authority's coverage has averaged 2.92x since 2009. DOSP also holds ample liquidity of 231 days cash on hand (DCOH), which provides additional cushion against short-term declines and expected lifecycle costs associated with older parking garages.

PEER GROUP

The DOSP's peers include Philadelphia Parking ('A-'/Stable Outlook), Baltimore Washington Airport ('A-'/Stable Outlook), and Pennsylvania Economic Development Authority Harrisburg Parking ('BBB-'/Stable Outlook). The Philadelphia Parking system and Baltimore Washington Airport are viewed as peers even though their exposure is linked to airport operations, as their narrower revenue stream constrains their ratings to similar levels. The Harrisburg parking system is modestly sized but has relatively high leverage above 10x compared to peers. Miami itself has the highest coverage among peers at 3.42x (FY2015), and the second highest leverage, but at just 3.16x (FY2015).

RATING SENSITIVITIES

Positive: Maintenance of coverage levels above 3x on a sustained basis could lead to upward rating migration.

Negative: Expense growth or inadequate rate increases resulting in reduced net revenues and a sustained decline in DSCR below 2.25x-2.50x could lead to a lower rating.

CREDIT UPDATE

Preliminary unaudited results for fiscal 2016 show a continuation of the system's longstanding trend of operating revenue growth. There were no rate increases in FY2016, but the DOSP has the authority to increase rates up to 3% annually or cumulatively without city council approval. Rates are typically adjusted every five years, with the last increase in FY2015.

The strong FY2016 unaudited revenue performance is favorable, with revenues growing 7.9% to $34.2 million from increased parking demand and utilization. DSCR is estimated at 3.87x, compared to 3.42x in FY2015. Through various other funds and excess revenues well above expectations in FY2016, DOSP increased the transfer to the city to $11.3 million from the budgeted $7.2 million. The transfer is not determined per a prescribed formula, but rather at the authority's complete discretion. Fitch expects future satisfactory DSCR, assuming that the DOSP implements future rate increases in accordance with the 2009 parking ordinance and continues to manage operating expenses. Growing income combined with timely debt service has also led to progressive deleveraging each year, with net-debt-to-CFADS dropping from 3.16x in FY2015 to 2.79x in FY2016.

There are currently no near-term borrowing plans; approximately 25% of debt matures in 10 years. The three-year capital improvement plan totals $31 million and includes the construction of three new garages, IT developments, and basic maintenance. Funding is primarily from developer contributions, capital funds, as well as the sale of an existing property.

FITCH CASES

Fitch's base case, which spans 2017-2026, assumes no underlying volume growth, but a rate increase in 2021 consistent with historical increase trends, and 1% annual expenditure growth. In this scenario, DSCR reaches a 10-year average of 3.44x (minimum 2.85x in 2026) and leverage declining annually to 1.74x by 2026.

Fitch's rating case projections forecast no rate increases and stressed expenditure growth of 3% per year. Under these stresses, DSCR reaches a 10-year average of 2.42x (minimum 1.86x in 2026), and leverage climbs to 3.33x in 2026. Despite these stresses, metrics are still robust, reflecting the DOSP's historical success and resilience.

Additional information is available on www.fitchratings.com

Applicable Criteria

Rating Criteria for Infrastructure and Project Finance (pub. 08 Jul 2016)

https://www.fitchratings.com/site/re/882594

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Fitch Ratings
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Mark Lazarus
Associate Director
+1-312-368-3219
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
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Director
+1-312-368-3171
or
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or
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Contacts

Fitch Ratings
Primary Analyst
Mark Lazarus
Associate Director
+1-312-368-3219
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst
Jeffrey Lack
Director
+1-312-368-3171
or
Committee Chairperson
Seth Lehman
Senior Director
+1-212-908-0755
or
Media Relations
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com