Fitch Rates Orlando Orange County Expressway Auth, FL Revs 'A', Affirms Outstanding; Outlook Stable
Fitch Ratings assigns an 'A' rating to Orlando Orange County Expressway Authority, Florida's (OOCEA or the authority) $350 million refunding revenue bonds, series 2012, and $325 million refunding revenue bonds, series 2013. In addition, Fitch affirms its 'A' rating on $2.6 billion outstanding revenue bonds. The Rating Outlook on all bonds is Stable.
KEY RATING DRIVERS:
Established Road System: OOCEA's roadway system is a critical component of the Orlando area's transportation network, supporting a largely commuter traffic base. The authority has a history of stable coordination with the Florida Department of Transportation (FDOT) and other expressway authorities in the state. However, the recent reduction of FDOT's contribution to operating and maintenance (O&M) costs and OOCEA's agreement to pay back previous FDOT advances puts some additional pressure on the credit.
Proven Ability To Manage Tolls: The authority has successfully implemented toll increases through the recent recession, and most recently implemented its first of several planned CPI-linked toll increases in July 2012. OOCEA maintains moderate levels of economic ratemaking flexibility, with board approval to implement future CPI-linked increases at regular intervals.
Some Exposure To Variable-Rate Debt, Sureties: OOCEA's debt is currently 62% fixed rate, with the remainder in synthetically fixed mode; post refunding, variable rate exposure is expected to fall to 30% of total debt outstanding. In addition, the majority of debt service reserve requirements are met with surety policies ($168 million sureties vs. $57 million cash, will be $162 million in sureties post refunding). Going forward, new money issues are expected to benefit from reserves funded from proceeds.
Relatively High Leverage: The system carries relatively high leverage at 10 times (x) net debt to cash flow available for debt service (CFADS), and is likely to remain so given continued capital needs, although management's conservative budgeting practices combined with the current low interest rate environment and lower construction costs may result in lower overall leverage required for the authority's capital improvement program (CIP).
Good Physical Condition Of Assets: OOCEA's management team has maintained the excellent physical condition of the facilities, with the authority's robust historical financial performance supporting a sizable portion of pay-as-you-go and debt-funded capital investment. OOCEA's capital program is expected to be moderate compared to past plans though still considerable, with the authority's expected share of the upcoming Wekiva Parkway project reduced to two segments.
WHAT COULD TRIGGER A RATING ACTION:
The rating will depend on resilience of traffic levels, management's continued ability to control expenses and manage its capital program, and the continuation of timely future toll increases to maintain historical levels of financial flexibility.
The bonds are secured by a pledge of and lien on the net revenues of the authority.
OOCEA is issuing $350 million in refunding revenue bonds, series 2012, and $325 million in refunding revenue bonds, series 2013. The bonds will be used to refinance outstanding 2003B bonds, generating expected present value savings of $20 million; and to restructure outstanding 2003C bonds, reducing the authority's variable rate exposure from 38% to 30% and reducing swap exposure through termination of swaps tied to the 2003C-1 and 2003C-3 bonds. OOCEA has also cash defeased its outstanding 2003A bonds, improving debt service coverage over the next four years. OOCEA proposes to finance swap termination payments associated with the 2003C-1 and 2003C-3 bonds with a deeply subordinated bank loan secured by the authority's general fund. There will be no change to the maturity profile, with the 2012 bonds maturing in 2025 and the 2013 bonds maturing in 2035. Overall present value savings are expected to be $13 million or 2.5%.
OOCEA's overall traffic increased 2.3% in fiscal 2012 (ending June 30). This compares to a 2.6% increase in 2011, and 1.4% and 7.1% declines in fiscal 2010 and 2009 respectively, driven by the impacts of the recession; higher fuel prices; and partly due to the toll increases implemented in April 2009. For the last 12 months through August 2012, OOCEA has had a 12-month total volume of 294 million total transactions, representing a 0.5% increase over the same period a year prior. Revenues were up 2.8% over the same period. Traffic levels grew year over year in six out of the last 12 months, with slight decreases in July and August. This may be attributed to the recent CPI-linked toll increase that went into effect in July 2012. Revenues in July and August were up 13%, largely due to the toll increase. The next CPI-linked increase will take place in 2017.
The authority's Operations, Maintenance and Administration (OM&A) expenses in fiscal 2012 were down 2.2% over 2011, while 2011 saw a 3.4% increase over fiscal 2010 levels. However, FDOT advances for O&M were lower, falling from $7.3 million in 2011 to $2.5 million in 2012. OOCEA's net revenues remain sufficient to adequately cover debt service obligations without ongoing O&M contributions by FDOT. Debt service coverage was 1.51x in 2012, and is expected to remain in the 1.6x range going forward, above minimum levels required by bond covenants. In addition, the authority benefits from a strong liquidity position, with over 1,200 days cash on hand for 2012 based on unrestricted cash balances.
OOCEA's five-year work plan covers the period from fiscal 2013 to fiscal 2017, with a combined total estimated project cost of approximately $706 million. The main projects in the plan include OOCEA's participation in the Wekiva parkway project and continued update work on the I-4/SR 408 interchange. As part of OOCEA's memorandum of understanding with FDOT for the Wekiva Parkway, OOCEA has begun reimbursing the state for its previous O&M contributions, and OOCEA will not issue any debt senior to the FDOT obligation without FDOT consent until it is paid off; the exceptions are debt for the Wekiva Parkway project and the I-4/SR 408 interchange project. To finance these projects, as well as the completion of projects in the fiscal 2018 to 2022 period, OOCEA expects to issue bonds in fiscal 2015 ($199 million) and fiscal 2018 ($456 million).
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
Emma W. Griffith, Director
One State Street Plaza
New York, NY 10004