TEXT - Fitch rates Florida's Orlando County Expressway Authority
Dec 11 - Fitch Ratings assigns an 'A' rating to Orlando Orange County Expressway Authority, Florida's (OOCEA or the authority) $445 million refunding revenue bonds, series 2013B. In addition, Fitch affirms the 'A' rating on OOCEA's $2.5 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 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 70% fixed rate, with the remainder in synthetically fixed mode. Upon closing of the series 2013B bonds, fixed rated bonds will represent 86% of the OOCEA's debt portfolio. In addition, the majority of debt service reserve requirements are met with surety policies ($162 million sureties vs. $57 million cash). Going forward, new money issues are expected to benefit from reserves funded from proceeds. RELATIVELY HIGH LEVERAGE: The system carries relatively high leverage at 9x 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). 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. 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. SECURITY The bonds are secured by a pledge of and lien on the net revenues of the authority. TRANSACTION SUMMARY OOCEA is issuing $445 million in refunding revenue bonds, series 2012B. The bonds will be used to refund all or a portion of outstanding 2003C-2, 2003C-4, 2003D, 2008B-2, and 2008B-4 bonds; or to pay the premium for an adequate reserve account credit facility; pay all or a portion of termination payments payable by the authority in connection with termination of outstanding 2003C, 2003D, and 2004 swaps; and to cover costs of issuance. In lieu of a reserve account credit facility, the Authority may fund the debt service reserve fund with available cash. There will be no change to the maturity profile, with the 2012B bonds maturing in 2040. The present value cost of the issuance is estimated to be $18.9 million. 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 293 million total transactions, representing a 0.6% increase over the same period a year prior. Revenues were up 5.0% over the same period. Traffic levels grew year over year in seven out of the last 12 months, with slight decreases in July, August, and September. This may be attributed to the recent CPI-linked toll increase that went into effect in July 2012. Revenues since July have been up between 9% and 15%, largely due to the toll increase. The next CPI-linked increase will take place in 2017. For more information on the authority's operating profile, debt service coverage levels, and anticipated capital program, please refer to the Fitch press release dated Nov. 1, 2012.