Dec 13 - Fitch Ratings affirms the 'BBB+' rating on the Mid-Bay Bridge
Authority, Florida's (the authority), approximately $100 million in outstanding
senior lien revenue bonds and the 'BBB' rating on the authority's approximately
$155 million in outstanding springing lien revenue bonds. The Rating Outlook on
all debt remains Stable.
KEY RATING DRIVERS:
Important Evacuation Link Exposed to Leisure and Military: Mid-Bay Bridge (the
bridge) and the Mid-Bay Bridge Connector (the connector), serve as important
transportation links for commuters and tourists and also serve as a key
hurricane evacuation route from the southern beach areas in Florida's Okaloosa
and Walton Counties. The rating also considers the area's heavy dependence on
local military operations, exposure to discretionary travel as well as some
competition. Ongoing and anticipated future infusion of military personnel and
their families at Eglin Air Force Base (Eglin AFB) somewhat offsets this risk
through the related need for growth in traffic capacity.
Moderate Economic Rate-Making Flexibility: Management's proactive position to
implement toll increases to support its escalating debt service requirements.
Concerns include increasing dependence on projected toll revenue growth in
conjunction with heightened political risks to implement future toll rate
increases, should traffic fail to meet the authority's projections.
Infrastructure Renewal: A lease-purchase agreement with Florida Department of
Transportation (FDOT) provides for a strong legal framework and an economic
gross lien on toll revenues to bondholders, enhancing stand-alone credit
quality. FDOT is obligated to cover operating expenses and renewal and
rehabilitation advances for the life of the debt, which includes deeply
subordinated repayments terms. The authority's capital plan is fully financed
with the existing bond proceeds.
Moderate Leverage and Adequate Reserves: Above average all-in leverage on a net
debt-to-cash flow available for debt service basis (at 13.2x) is somewhat
mitigated by authority's maintenance of required liquidity (a minimum of $6
million in the general reserve account as well as other available reserves)
beyond amounts in the debt service reserve fund. Fitch views the legal provision
for a possible full spring or partial conversion of springing lien bonds to a
parity senior lien position, upon satisfaction of the requirements for the
issuance of senior lien bonds, as weak as it would allow for a significant level
of future dilution of the senior lien bond coverage levels to the minimum
requirement under the relatively low additional senior lien bonds test (ABT) of
1.4x of annual debt service. The springing lien bonds are subject to a 1.2x
projected annual debt service coverage test, which is materially weaker than the
test for issuing senior lien bonds.
Fixed-Rate, Multi-Tier Capital Structure: The senior lien bonds benefit from
stronger legal provisions than the springing lien bonds. While the senior lien
bonds are subject to a rate covenant requirement of 1.4 times (x) annual debt
service (if the $6 million required reserve is not fully funded), the rate
covenant for all bonds is weaker, at 1.15x total annual debt service. The
authority does not have plans to issue new debt in the medium term.
WHAT COULD TRIGGER A RATING ACTION:
--Maintenance of the current rating will depend upon meeting projected traffic
levels post expansion completion as well as toll raising flexibility, lack of
additional leveraging and stability in coverage levels. Although the springing
lien bonds would be eligible for conversion into senior lien bonds upon meeting
the ABT, Fitch expects management to proactively manage senior lien debt service
coverage comfortably above 1.4x.
The senior and the springing lien revenue bonds are all secured by a gross
pledge of revenues of the authority, after administrative expenses only,
including all funds and accounts established under the resolution, and related
investment earnings. The springing lien bonds debt service repayment will be
subordinate to the existing senior lien obligations.
The unaudited financial data for fiscal year (FY) 2012 (ended Sept. 30) indicate
that toll revenues slightly increased to $15.8 million or 0.6%, reflecting a
0.1% increase in traffic relative to FY2011. These results are in line with
Fitch's performance expectations. While healthy year-over-year traffic increases
were observed in the busier months of the year, the total transactions remained
flat compared with last year at 6.5 million, demonstrating slow economic
recovery in the area. Management anticipates that traffic will increase in
FY2013 reaching approximately 6.8 million transactions; October and November
transactions were up by approximately 1.4% and 4%, respectively. Fitch expects
slower traffic growth due to continued weak economic conditions and exposure to
In FY2012, 2-axle SunPass traffic represented approximately 65% of total traffic
on the bridge, while SunPass revenue accounted for approximately 55% of total
toll revenue. Vehicles with three or more axles represented 1.4% of total
traffic and roughly 5% of toll revenues. The authority's $2.41 average toll
remained essentially unchanged from last year. It has determined that it will be
necessary to implement the next toll increase in FY2016 to support the
authority's accelerating debt service requirements.
Per indenture calculation (net of administrative expenses only), senior debt
service coverage (excluding the required reserve) was 2.35x, and combined senior
and springing lien coverage was 1.71x in FY2012. Combined senior and springing
lien coverage based on a true net revenue basis was estimated at 1.35x in
FY2012. The authority expects indenture based debt service coverage levels for
on all debt not to fall below 1.48x in FY2023 when maximum annual debt service
payment of $24.7 million is scheduled. Based on the authority's projections, the
springing lien bonds will meet the requirements for issuing additional senior
lien bonds and are expected to be converted to the senior lien in FY2016, with
projected total debt service coverage (excluding the required reserve) of 1.60x.
Should the conversion of the springing lien bonds to the senior lien level
result in a meaningfully diluted overall net senior lien coverage, resulting
metrics will be inconsistent with the 'BBB+' rating category for the aggregate
amount of senior lien bonds. Fitch will monitor developments and, in the event
that financial margins decline, negative credit actions may be warranted.
Fitch assessed a forecast rating case scenario, which contemplated a
recessionary 3% traffic decline in FY2013 followed by less bridge traffic and
slower connector ramp-up, and factoring in the projected toll increase and
higher cost increases. Under such assumptions, Fitch projects a minimum combined
senior and springing lien indenture based coverage (excluding the required
reserve) of 1.11x in FY2023. Fitch acknowledges the authority's healthy
liquidity available for payment of debt service, including approximately $12.7
million in the General Reserve account and a total of $25 million in the Debt
Service Reserve Accounts.
Under a lease purchase agreement with the authority, FDOT pays operating and
maintenance (O&M) expenses for the bridge and remits all tolls collected to the
authority as lease payments. The agreement remains in effect until all
outstanding senior, junior and springing lien bonds have been repaid and all
obligations owed to FDOT by the authority have been fully discharged, at which
point FDOT will own the bridge.
The Mid-Bay Bridge Authority operates the three-mile long Mid-Bay Bridge (State
Route 293) across the Choctawatchee Bay and four-miles in approaches on the
northern and southern sides of the bridge. The bridge connects SR 20 with U.S.
Highway 98 east of Destin, FL and provides a more direct route to tourists and
residents between northern and southern Okaloosa and Walton counties. The
facility is currently being expanded, with a construction of 11-mile expressway
(or the connector) from the bridge toll plaza (at the north end of the bridge),
north and west around Niceville, to SR 85. The connector is expected to serve as
a link between Interstate 10 and intercept SR 85 and SR 285 traffic before
reaching SR 20 in Niceville. Additionally, the traffic from the connector is
expected to induce added traffic on to the existing span. The construction of
phases two and three of the connector (eight miles, from Range Road to SR85)
commenced in January 2011. According to management, the construction remains on
schedule for completion in January 2014.