TEXT - Fitch affirms Texas' Cameron County revs

Mon Jan 28, 2013 12:22pm EST

Related Topics

Jan 28 - Fitch Ratings affirms the 'A' rating on Cameron County, Texas'
approximately $6.3 million international toll bridge system (the system) revenue
bonds. The Rating Outlook remains Stable.  In addition, the bridge system has an
outstanding obligation of approximately $13.9 million to Cameron County relating
to the system's pro rata share of the county's series 2005, series 2008 and
series 2011 limited tax certificates of obligations. This obligation is on
parity with the bridge system's revenue bonds. 

KEY RATING DRIVERS:

EXPOSURE TO VOLATILITY AND COMPETITION: The bridge system serves the sizable 
Brownsville-Harlingen service area with an extensive transportation network but 
faces exposure to competition from neighboring international bridge facilities. 
Traffic and revenues are inherently susceptible to economic cycles on both sides
of the border and the exposure of cross-border shopping trips to the Mexican 
economic and political conditions, particularly since passenger cars constitute 
58% of total traffic. Traffic declined for a sixth consecutive year, down 2.5% 
in fiscal 2012 (fiscal year ends Sept. 30) to 5.0 million total crossings. 

MODERATE ECONOMIC RATE-MAKING FLEXIBILITY: Management's proactive position 
towards raising toll rates, which have contributed to stabilized toll revenues 
despite continued declines in traffic, is viewed positively by Fitch. The 
proximity of a competing facility limits economic rate-making flexibility of the
system to some degree. 

CONSERVATIVE DEBT STRUCTRURE: All outstanding debt is in a fixed-rate mode with 
a declining debt service schedule, and good legal protections with backup 
pledges from Cameron County and participating cities to meet debt service. 

LOW LEVERAGE AND STRONG COVERAGE LEVELS: The system's low leverage (1.07x net 
debt/cash flow available for debt service), healthy liquidity (with 494 days of 
cash on hand) and strong debt service coverage ratio (with 3.51x total debt 
service coverage in fiscal 2012) provide significant cushion against volatility 
in traffic. While the system makes subordinated surplus transfers to the county 
and participating cities, these contributions pose little risk to financial 
flexibility. 

MANAGEABLE CAPITAL EXPENDITURE NEEDS: The bridges are generally in good 
condition and funding of any future enhancements are expected to be 
predominantly grant based. 

SENSITIVITY/RATING DRIVERS 

--The return of sizeable declines in passenger traffic or toll revenue levels 
driven by violence related to drug cartels and/or a considerable contraction of 
the manufacturing industry and cross-border trade;

--Changes in key financial metrics such as coverage and liquidity resulting from
management's reluctance to raise tolls as planned/needed or its inability to 
control operating and maintenance (O&M) expenses;

--Meaningful additional leverage. 

SECURITY: The outstanding revenue bonds are secured by net revenues of the 
Cameron County International Bridge System and by a back-up pledge of a direct 
and continuing ad valorem tax, within the limits prescribed by law, on all 
taxable property located within the county. 

CREDIT UPDATE

Total crossings have declined over the past six fiscal years at a compound 
annual growth rate (CAGR) of -7.5%. Passenger vehicles and pedestrians 
contributed to approximately 58.0% and 34.9% of total traffic in fiscal 2012, 
respectively, while commercial traffic represented about 4.4% of total traffic. 
Management implemented a toll increase in September 2011, increasing tolls on 
commercial vehicles and for bikes and pedestrians. In fiscal 2012, total 
crossings decreased by 2.5% to 5.01 million largely due to the toll increases 
implemented that fiscal year. 

Management has indicated that the security issues have been improving more 
recently and the declines in passenger vehicle traffic, which was down 2.0% in 
fiscal 2012, have tapered down. Commercial traffic has thus far been resilient, 
increasing 4.9% in FY2012, and the maquiladora industry is reportedly stable and
growing. Approximately 26% of total revenues were derived from commercial 
traffic compared to 58% from passenger vehicles in fiscal 2012.

 

Toll revenues have declined together with crossings (at -2.9% CAGR between 
fiscal 2006 and fiscal 2012), although the impact has been more moderate as the 
bridge system has instituted several toll increases to mitigate the impact of 
traffic declines. Fiscal 2012 toll revenues were up 3.6% to $15.1 million, 
primarily as a result of the aforementioned toll increases, which resulted in a 
12.5% increase in revenues from commercial vehicles, a 26% increase in 
pedestrian toll revenues and a 50% increase in revenues from bikes. The first 
three months in fiscal 2013 (through December) show crossings essentially flat, 
up 0.5%, while toll revenues were up 0.3% over the same time period in fiscal 
2012. 

Management has been able to contain expenses historically, which declined at 
2.3% CAGR over the last five fiscal years. Fiscal 2012 net toll revenues of 
$12.2 million provided a debt service coverage ratio (DSCR) of approximately 
3.51x, with DSCRs ranging between 3.37x and 6.20x since fiscal 2005. The DSCR 
declined as a result of higher debt service requirements as the system reached 
its maximum annual debt service in fiscal 2012 of $3.5 million. Fitch views this
level of cushion as necessary given the volatility in the traffic base that is 
tied to the performance of the maquiladora industry in Mexico and border 
security threats. 

The system supports subordinated transfers to the Cameron County general fund, 
which equaled approximately $5.8 million in fiscal 2012 (37% of toll revenues). 
Though these transfers may prevent liquidity from accumulating within the 
system, they pose little risk, as the need for transfers helps drive toll 
increases and are subordinated to payment of operating expenses, debt service, 
and required fund deposits. The system's liquidity position is adequate, with 
$4.8 million of cash and investments in fiscal 2012 equivalent to 494 days cash 
on hand. Cash and investment balances have averaged $3.2 million over the last 
five years. 

The system comprises three bridges located in the greater Brownsville-Harlingen 
area: the Gateway Bridge that was acquired in 1960, the Free Trade Bridge that 
opened in 1992, and the Veteran's Bridge that opened in 1999. While Cameron 
County is the sole owner of the U.S. half of all three bridges, other local 
municipalities participated in the two newer bridges by sharing in initial 
operating deficits with the benefit of also sharing in any surpluses as 
specified in the interlocal agreements. The interlocal agreement between the 
cities of San Benito and Harlingen and the county calls for surpluses, after the
payment of operations and maintenance as well as 1.4x debt service on the 
bridge, to be split 25% each for the cities and 50% for the county. The Veterans
Bridge shares surpluses evenly between the city of Brownsville and the county.
FILED UNDER: