Fitch Rates Texas Transportation Commission Rev Rfg Bnds 'BBB+'; Stable Outlook
Fitch Ratings has assigned a 'BBB+' rating to the following Texas Transportation Commission (TTC), Central Texas Turnpike System (CTTS) bonds:
--$687.23 million first tier revenue refunding bonds, series 2012-A;
--$151.145 million first tier revenue refunding put bonds, series 2012-B.
In addition, Fitch has affirmed the TTC's outstanding bonds at 'BBB+' as follows:
--$1.147 billion first tier revenue bonds, series 2002;
--$149.275 million Series 2009 Revenue Refunding Put Bonds.
The Rating Outlook is Stable for all bonds.
KEY RATING DRIVERS
--Strength of Service Area and Increasing Congestion: The CTTS has a relatively short demand history but congestion is rapidly increasing in the Austin, TX service area. The city unemployment rate did not exceed 7% during the recent economic recession which is a testament to the strength of the local economy with a state government and seven colleges and universities.
--Annual Increases Approved but Uncertain Price Sensitivity: In addition to an approved toll increase and the conversion to all electronic tolling (AET) in Jan. 2013, annual CPI-U-based toll rate increases have been approved. While current toll rates are low-to-moderate relative to peers, elasticity is uncertain given the system's short operating history.
--Strong Structural Enhancements and Counterparties: The Texas Turnpike Commission (TTC) pledges to cover the CTTS's operating, maintenance, and rehabilitation expenses, if needed, and provisions exist to limit the ability of the Transportation Infrastructure Finance and Innovation Act (TIFIA) loan to spring to senior status.
--Dependence on Growth with a Back-Loaded Structure: While the system's first lien debt service coverage ratio (DSCR) has been high since 2009 of at least 1.68 times (x), CTTS is dependent on continued growth to meet escalating debt service. First tier leverage - as measured by net debt to cash flow available for debt service (CFADS) - is moderate at 9.9x with fiscal 2012 CFADS. Maximum annual debt service (MADS) occurs at maturity in 2042 resulting in a weak MADS coverage of 0.36x (fiscal 2012 CFADS). No near-term borrowing is expected.
--Infrastructure Renewal and Replacement: The project has been fully open since 2008 and an existing operating segment was added to the system's traffic and revenue in Sept. 2012.
WHAT COULD TRIGGER A RATING ACTION
--Projected first lien and all-in DSCRs in Fitch's base case as well as traffic and customer service revenues at or near sponsor projections that demonstrate an increasing ability to support operating and lifecycle costs with toll revenues.
--Inability to support TIFIA scheduled debt service due to lower than expected traffic and revenue performance.
The first tier bonds are secured by a gross lien on revenues of the system. The covenant by the TTC, which governs the Texas Department of Transportation (TxDOT), to budget for operational costs that cannot be supported by toll revenues and pay for ordinary and capital maintenance on the project provides a meaningful gross lien on revenues.
The series 2012-B bonds will be issued in a multi-annual mode with a mandatory tender date of Feb. 15, 2015. The TTC plans to remarket the bonds prior to the put date. The term of the multi-annual mode is 24 months. Pursuant to the sixth supplemental indenture, if the TTC does not have sufficient funds and does not convert the bonds to another mode by the end of the term, there will be no default but the bonds would bear interest at 10% until converted to another mode or paid in full. The proceeds of the 2012 bonds will refund a portion of the 2002 bonds and all of the 2009 bonds.
Fitch recognizes the potential for growing financial flexibility in the near term from the authority's recently approved and amended tolling regime, conversion to AET, and the addition of an operational segment, SH 45 SE, to the system. Improved credit quality is likely if this potential is realized over the next several years.
The CTTS system feeds commuter traffic into Austin from the north via SH 45 North and Loop 1, and also allows longer distance commercial vehicles to bypass Austin via SH 130 which runs essentially parallel to Interstate 35. Total transactions increased 8.5% in fiscal 2012 following three years of growth of at least 5.7% annually. Fitch expects some additional ramp-up in the short term with the opening of SH 130, segments 5 and 6, a complementary facility that connects the CTTS to Interstate 10 northeast of San Antonio.
Reflecting continued ramp-up post opening, toll revenues have grown nearly 9% annually since 2009 with fiscal 2012 revenues of $75.7 million up 10% over fiscal 2011. The system's first toll increase will occur in Jan. 2013, accelerated from fiscal 2015 - a 50% increase on both the SH 45N and Loop1 segments and a 25% increase on SH 130. Beginning in Jan. 2014, annual CPI-based increases have been approved for these segments as well as the newly added SH 45SE.
First lien debt service coverage ratios in fiscal years 2010 and 2011 were strong at 1.79x and 1.90x, respectively. In fiscal 2012, DSCR is expected to be higher at 2.02x due to increased toll revenues and customer service fee revenue. Debt service rises annually from approximately $34 million to MADS of $255 million at maturity. This back-loaded debt profile results in weak MADS coverage of approximately 0.36x but would improve to approximately 0.5x if applying fiscal 2013 revenues which incorporate the impact of the toll increase, conversion to AET, and addition of SH 45SE to toll revenues.
Performance over the near term will determine the system's ability to support subordinated operating and maintenance expenses. The TTC's base case projects that approximately $117 million in TxDOT funds will be needed to supplement toll revenue through 2042 in order to meet operating expense requirements. The expected reliance on TxDOT funds is down significantly (from $780 million) as a result of the rate increases and conversion to AET. Fitch recognizes that the TTC provides significant credit enhancement by its commitment to pay the CTTS's operating and maintenance expenses, if needed.
The ratings for the above 2009 bonds were entered into Fitch's rating database under the issuer Texas Turnpike Authority. The bonds are in fact issued by the Texas Transportation Commission, acting for and through the Texas Turnpike Authority Division of TxDOT.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Rating Criteria for Infrastructure and Project Finance', (July 12, 2012);
--'Rating Criteria for Toll Roads, Bridges, and Tunnels', (Aug. 2, 2012).
Applicable Criteria and Related Research:
Rating Criteria for Infrastructure and Project Finance
Rating Criteria for Toll Roads, Bridges, and Tunnels
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