TEXT-Fitch rates Harris County, Texas Toll Road, Auth.
Sept 19 - Fitch Ratings assigns an 'AA-' rating to approximately $353.68 million of the Harris County Toll Road Authority's (HCTRA) senior lien toll road revenue refunding bonds, series 2012C and D. In addition, Fitch affirms approximately $2 billion of outstanding parity obligations at 'AA-'. The Rating Outlook is Stable for all bonds. KEY RATING DRIVERS RESILIENT TRAFFIC DEMAND: The essential nature and monopolistic position of HCTRA's transportation links in the Houston metropolitan area as well as the primarily commuter nature has resulted in a growing traffic demand profile. System traffic has increased almost every year since fiscal 1988 (ended Feb. 28) and is comprised of approximately 97% passenger vehicles. APPROVED TOLL POLICY AND RELATIVE INELASTICITY: After the authority's toll policy, which provides for annual increases at the greater of 2% or inflation, was established in June 2007, tolls have increased only twice, in fiscal years 2008 and 2010. Traffic grew in those years by approximately 4.4% and 4.9%, respectively. The average toll rate remains moderate at $1.18 in fiscal 2012 (or $0.19 per mile). HCTRA does retain unlimited legal authority to raise rates. MODERATE DEBT STRUCTURE: Approximately 17% of the authority's debt is variable rate with several interest rate swaps outstanding. However, senior maximum annual debt service (MADS) occurs in fiscal 2022 and MADS coverage with 2012 net revenue is a strong 2.2x. STRONG FINANCIAL PERFORMANCE BUT HIGH EXPENSE PROFILE: Despite the gross revenue pledge, Fitch calculates senior and combined debt service coverage net of operating and capital expenses to be at least 2.6x and 1.6x, respectively, through final maturity. Leverage is relatively low at under 4.0x on a total senior and subordinate basis. Significant financial flexibility is afforded by the authority's strong cash and reserve balances; however, the authority's historical operating expense growth has been high with an 11% 10-year CAGR due to additional segments coming online. UNCERTAIN FUTURE DEBT PLANS: HCTRA's capital improvement plan (CIP) has fluctuated in size over the past 10 years but is centered on the development of demand-driven projects. The list of possible projects through 2020 totals nearly $2 billion; HCTRA will use financial guidelines to plan and fund the projects. WHAT COULD TRIGGER A RATING ACTION --Clarity regarding the scope and timing of the authority's extensive capital plan, including future debt plans without meaningful increases in leverage or dilution of debt service coverage. --A significant increase in leverage or erosion of combined net debt service coverage in the medium term below 1.8x due to lower than anticipated revenue yields from toll increases or higher than expected expense growth. SECURITY The senior lien bonds are secured by a first lien on the revenues derived from the ownership and operation of the toll road system and certain funds under the revenue indenture, such as moneys and securities in the debt service fund and debt service reserve fund. The county has $490.2 million in outstanding toll road unlimited tax bonds that are secured by a pledge of property taxes but it is the county's practice and policy to fully support debt service with toll revenues, albeit on a subordinate lien, after payment of senior lien debt service. TRANSACTION SUMMARY The authority will be issuing approximately $353.7 million in series 2012C and taxable series 2012D refunding bonds to refund the outstanding series 2002 bonds and to partially refund the outstanding series 2004A and 2004B-1 bonds. Net present value savings for the refunding is currently estimated at approximately $39.1 million through the life of the bonds. The bonds are expected to price on Oct. 2, 2012. For more information on the credit, please see Fitch's release 'Fitch Rates Harris County, Texas' Toll Revenue Refunding Bonds 'AA-'; Outlook Stable', dated June 29, 2012, and available at 'www.fitchratings.com'.
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