TEXT - Fitch affirms Texas' Cameron County revs
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.