TEXT-Fitch affirms Richmond Metro Authority expressway revs at 'A-'
Oct 3 - Fitch Ratings affirms the 'A-' rating on the Richmond Metropolitan Authority's (RMA) approximately $183.5 million in outstanding expressway toll revenue bonds. The Rating Outlook remains Positive. KEY RATING DRIVERS --Stable Commuter History: The expressway system demonstrates a long operating history and mature traffic profile and serves the significant commuter base to and from the downtown Richmond metropolitan statistical area (MSA). Adequate employment and population performance has led to moderate resilience on the traffic front despite the downturn. --Moderate Price Risk: RMA maintains independent rate making flexibility to adjust tolls as needed. The lack of significantly viable economic alternative routes and relatively low level of tolls provide the RMA with moderate to strong economic rate making ability, though infrequent toll adjustments could suggest a mild political unwillingness to implement increases. --Conservative Capital Structure: RMA has no outstanding variable-rate debt. Legal covenants compare adequately to those of peers. The 1.0 times (x) maximum annual debt service (MADS) requirement limits back-loading of debt. --Solid Financial Metrics and Liquidity: RMA's coverage of debt service has increased from 1.4x amidst the recession to above 2x in fiscal 2012. Fitch expects coverage to remain above 1.7x for the foreseeable future as the debt service profile does not require significant traffic and revenue growth. Leverage is low, with fiscal year-end net debt to cash flow available for debt service at 5.7x, and unrestricted cash and investments of $17.1 million provide 516 days cash on hand. --Limited Debt Needs and Healthy Infrastructure: The RMA exhibits a solid track record of maintaining the infrastructure. 87.6% of the facility is rated 'very good to excellent' and the remainder rated 'good to very good.' Likewise, the engineer report indicates no structural deficiencies on the bridges. The capital program is moderate and expected to be funded from excess cash flows for the next 15 years. WHAT COULD TRIGGER A RATING ACTION --Maintenance of debt service coverage ratios of 1.7x and generation of adequate cash flows to fund life cycle capital cost. --A change in the board and/or management decisions that lead to a weaker financial profile of the RMA. SECURITY The bonds are secured by net toll revenues of the expressway system. CREDIT SUMMARY Fitch may take positive rating action if projections are met, capital continues to be funded from excess cash flows, and if any board changes and/or management decisions do not result in a weakening of the RMA financial profile. In August, long-time general manager Mike Berry announced retirement, effective at the end of this year. Recently, the Board of the RMA, with a majority six members out of eleven from the city of Richmond, replaced long-time chairman James L. Jenkins of Henrico County, who had served the post since 1984, in a 6-5 vote. Fitch will continue to monitor the extent to which, if any, these recent changes affect the RMA. Traffic has grown by 2.1% and 1.8% in fiscal years 2011 and 2012, respectively, and is highly correlated with employment in the Richmond MSA. Richmond serves as the core of a growing metropolitan area and is a regional center for employment and cultural amenities. The economy, which has traditionally been dominated by the government sector, has gained strength from education and health services, anchored by Virginia Commonwealth University (VCU). Though current employment growth is not robust, RMA's future financial flexibility is not particularly dependent on traffic growth, as evidenced by 2012 net revenue MADS coverage of 1.66x. Increases in the toll rate can generate significant growth in revenues, as illustrated by the toll increase in 2009 which led to a revenue increase of 26.4% in the midst of an annual traffic decline of 8.1%. The RMA's financial flexibility as measured by a variety of indicators is strong. Netting out unrestricted cash and investments and debt service reserve funds, the expressway system is currently leveraged at 5.7x net senior debt to cash available for debt service as of fiscal year 2012. Similarly, the RMA's days cash on hand of 516 compare favorably to those of higher-rated expressway systems. Debt service coverage in 2012 above 2x resulted to a certain extent from moderate traffic growth, but was mostly a function of a 24% decrease in electronic toll processing costs, as cited above, and lower debt service costs than paid in recent years. It remains to be seen if Board changes and repayment of city obligations will alter the RMA's focus going forward. Fitch's base projections assume a slow but sustained traffic growth and a decrease in electronic toll transaction processing cost for EZ Pass beginning with the actual reduction in fiscal 2012 and continuing into 2013. The forecast also assumes an increase in tolls by $0.10 in 2018 as planned, with operating costs increasing through 2022 at the 2002-2012 compound annual growth rate, or 5.77%. This rate includes faster growth in the mid-2000's than during the last few years and also encompasses the addition of six open-road tolling express lanes on the Powhite Parkway to the cost profile. The toll increase would be around a 14% increase, so less in magnitude than the 40% increase that was implemented in 2009 to maintain healthy financial margins during the recession. Fitch's stress projections grow traffic near zero until the toll increase in 2018, when it declines by around 3%, similar to the traffic response in 2009. Thereafter, traffic grows marginally until 2028, when traffic declines and recessionary conditions lead to another toll increase around 40%, again similar to 2009. Thereafter, traffic only recovers 1% annually through 2035 and remains flat through 2041. On the other hand, operating costs increase 6.77% through 2022. Though in this scenario the RMA would be forced to issue an additional $60 million in debt above expectations to fund anticipated lifecycle costs, leverage remains similar to current levels, and coverage never falls below 1.15x through the life of the forecast. RMA's three facilities (Powhite Parkway, Downtown Expressway, and Boulevard Bridge) have been operating since the 1970s. RMA is a commuter-oriented system, carrying people from Chesterfield County (64% of trip origins) and Henrico County (8%) to downtown Richmond and the dense northwestern part of the city. A large portion of traffic (22%) is also generated within Richmond itself. The RMA, a political subdivision of the Commonwealth of Virginia, was created in 1966 to provide and operate an urban expressway system that makes downtown Richmond more accessible to surrounding areas. In addition to the expressway system, the authority owns and operates several parking facilities as well as the Diamond, home of the Richmond Flying Squirrels baseball team. 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