TEXT - Fitch affirms California's Alameda Corridor Trans Auth
Nov 30 - Fitch Ratings affirms its 'A' rating on Alameda Corridor Transportation Authority's (ACTA, or the authority) $993 million senior revenue bonds, series 1999A and 1999C, and affirms its 'BBB+' rating on the authority's $998 million subordinate revenue bonds, series 1999D, 2004A, and 2004B. The Rating Outlook on all bonds is Stable. ACTA also has $83.7 million in unrated series 2012 bonds, which are on parity with the rated senior revenue bonds. KEY RATING DRIVERS: ECONOMIC ESSENTIALITY: The corridor provides an important intermodal transportation link, handling approximately 35% of all container throughput for the two largest container ports in North America (ports of Los Angeles and Long Beach, both rated 'AA' by Fitch). ACTA is a vital component of the ports' core business. STRONG COUNTERPARTIES PROVIDING FINANCIAL SUPPORT: In addition to ACTA's own operating revenues, the ports of Los Angeles and Long Beach provide ACTA with financial support in case of projected shortfalls to cover debt service obligations. In both 2011 and 2012, each port paid $2.95 million in such shortfall advance payments. Savings from refunding certain callable maturities of ACTA's 1999A senior lien bonds could minimize the need for additional shortfall advance payments. The two ports have strong financial capacity to meet their commitments to each, and jointly but not severally, cover up to 20% of any required annual debt service payments. BNSF and Union Pacific railroads cover operating costs through separate assessment charges. HIGH DEBT BURDEN WITH ESCALATING ANNUAL DEBT OBLIGATIONS: ACTA currently has relatively high all-in leverage of 20x net debt-to-cash flow available for debt service (CFADS). When including contingent port obligations, the leverage metric is 14x. Under Fitch base and rating cases, leverage is expected to decrease over the next five years. Annual debt service obligations grow by 3% per year over the next five years, placing some pressure on revenue growth. MINIMAL CAPITAL NEEDS: The corridor has no capital program beyond closeout of the original project and on-going maintenance. No additional borrowing for capital projects is anticipated. WHAT COULD TRIGGER A RATING ACTION Underperformance in container related trade volumes at the two area ports may adversely affect ACTA's credit quality. Any material change in the credit quality of ACTA's key counterparties, including the ports of Los Angeles and Long Beach for debt service as well as BNSF and Union Pacific railroads to cover operating and maintenance expenses, will likely affect the rating. SECURITY: Bondholder security includes the pledged revenue stream and all other monies held by the trustee except for the Maintenance and Operations (M&O) Fund and the Reserve Account, both of which are for purposes of operating and capital maintenance of the corridor. Pledged revenues consist primarily of the volume assessment charges payable by the railroads and debt service shortfall advances payable by the ports. A Use and Operating Agreement among ACTA, the ports and the railroads governs the volume assessment of charges. CREDIT SUMMARY In fiscal 2012 (ending June 30), 14.1 million twenty-foot equivalent units (TEUs), 35% of which were subject to a corridor fee, were transferred through the San Pedro Bay ports. ACTA saw an increase of 15.8% in total TEUs for fiscal 2011 followed by a 1.5% decrease for fiscal 2012 (in line with a respective 12.7% increase and 1.9% decrease for the San Pedro Bay ports overall). Year to date (three months through September) the corridor has experienced a decrease of 5.1% in TEUs (as compared to a 0.1% increase for the same period at the San Pedro Bay ports). This indicates a slight softening in volume recovery, though the revenue impact is minimized by CPI-linked annual rate increases on corridor traffic. Despite the recovery seen in 2011, volume setbacks incurred in 2008 and 2009 combined with the corridor's escalating debt service profile mean that meeting annual debt service obligations remains a challenge for ACTA. ACTA applied for a loan from the federal Railroad Rehabilitation & Improvement Financing (RRIF) Program in March 2010, with the intention of restructuring a portion of its outstanding debt. A RRIF loan in the amount of $83.7 million was ultimately approved in 2011, to be used to refund 1999A senior lien bonds. The $83.7 million in series 2012 bonds were privately sold in June 2012, and were issued on parity with existing senior debt. Proceeds from the sale were used on July 24, 2012 to call and refund all 1999A bonds maturing October 2014-2018, and a portion of those maturing October 2019. The transaction reduced debt service through 2019, and therefore reduces the potential need for shortfall advance payments during that timeframe. Both the Los Angeles and Long Beach ports are legally and individually committed under the operating agreement to cover shortfalls up to 20% of ACTA's annual debt service payment. A total of $11.8 million in shortfall advances has been made in 2011 and 2012; rates for loaded containers were also increased by $1.12/TEU per the agreement, an increase that will remain in effect until the ports are repaid in full for their shortfall contributions. No additional advances were requested for 2013, and based on the ports' projections of TEUs, no additional advances are likely to be needed in the near term. The backstop provided by the shortfall advance structure improves ACTA's standalone credit profile by virtue of the ports' superior financial resources and near-term contractually obligated revenue streams. Approximately 60% of both ports' operating revenue comes from minimum annual guarantees (MAGs) payable by tenants regardless of cargo volume. Fitch rates both ports 'AA' with a Stable Outlook. Both ports have an adequate amount of unrestricted cash to meet any near-term shortfall payments without having to adjust their rates or tariffs. However, should there be a material adverse change in overall port throughput levels, or should either port express an unwillingness to honor its obligations under the shortfall advance structure, ACTA's credit quality may be affected. ACTA is a public body that administers the Alameda Corridor, a 20-mile multi-track freight rail system linking the ports of Los Angeles and Long Beach, the two largest container ports in North America, with the transcontinental rail lines near downtown Los Angeles. The $2.4 billion corridor opened in April 2002 and currently handles roughly 35% of all container throughput through the San Pedro Bay ports. Pursuant to an operating agreement with the authority, the BNSF and Union Pacific railroads pay monthly assessments to cover certain costs of maintenance, operations and repair of the corridor, giving bondholders a gross lien on corridor revenue. The corridor connects existing railroad lines near the Los Angeles central rail yards with the San Pedro Bay port facilities.