Oct 3 - Fitch Ratings affirms the 'A-' rating on the Richmond Metropolitan
Authority's (RMA) approximately $183.5 million in outstanding expressway toll
The Rating Outlook remains Positive.
KEY RATING DRIVERS
--Stable Commuter History: The expressway system demonstrates a long operating
history and mature traffic profile and serves the significant commuter base to
and from the downtown Richmond metropolitan statistical area (MSA). Adequate
employment and population performance has led to moderate resilience on the
traffic front despite the downturn.
--Moderate Price Risk: RMA maintains independent rate making flexibility to
adjust tolls as needed. The lack of significantly viable economic alternative
routes and relatively low level of tolls provide the RMA with moderate to strong
economic rate making ability, though infrequent toll adjustments could suggest a
mild political unwillingness to implement increases.
--Conservative Capital Structure: RMA has no outstanding variable-rate debt.
Legal covenants compare adequately to those of peers. The 1.0 times (x) maximum
annual debt service (MADS) requirement limits back-loading of debt.
--Solid Financial Metrics and Liquidity: RMA's coverage of debt service has
increased from 1.4x amidst the recession to above 2x in fiscal 2012. Fitch
expects coverage to remain above 1.7x for the foreseeable future as the debt
service profile does not require significant traffic and revenue growth.
Leverage is low, with fiscal year-end net debt to cash flow available for debt
service at 5.7x, and unrestricted cash and investments of $17.1 million provide
516 days cash on hand.
--Limited Debt Needs and Healthy Infrastructure: The RMA exhibits a solid track
record of maintaining the infrastructure. 87.6% of the facility is rated 'very
good to excellent' and the remainder rated 'good to very good.' Likewise, the
engineer report indicates no structural deficiencies on the bridges. The capital
program is moderate and expected to be funded from excess cash flows for the
next 15 years.
WHAT COULD TRIGGER A RATING ACTION
--Maintenance of debt service coverage ratios of 1.7x and generation of adequate
cash flows to fund life cycle capital cost.
--A change in the board and/or management decisions that lead to a weaker
financial profile of the RMA.
The bonds are secured by net toll revenues of the expressway system.
Fitch may take positive rating action if projections are met, capital continues
to be funded from excess cash flows, and if any board changes and/or management
decisions do not result in a weakening of the RMA financial profile. In August,
long-time general manager Mike Berry announced retirement, effective at the end
of this year. Recently, the Board of the RMA, with a majority six members out of
eleven from the city of Richmond, replaced long-time chairman James L. Jenkins
of Henrico County, who had served the post since 1984, in a 6-5 vote. Fitch will
continue to monitor the extent to which, if any, these recent changes affect the
Traffic has grown by 2.1% and 1.8% in fiscal years 2011 and 2012, respectively,
and is highly correlated with employment in the Richmond MSA. Richmond serves as
the core of a growing metropolitan area and is a regional center for employment
and cultural amenities. The economy, which has traditionally been dominated by
the government sector, has gained strength from education and health services,
anchored by Virginia Commonwealth University (VCU).
Though current employment growth is not robust, RMA's future financial
flexibility is not particularly dependent on traffic growth, as evidenced by
2012 net revenue MADS coverage of 1.66x. Increases in the toll rate can generate
significant growth in revenues, as illustrated by the toll increase in 2009
which led to a revenue increase of 26.4% in the midst of an annual traffic
decline of 8.1%.
The RMA's financial flexibility as measured by a variety of indicators is
strong. Netting out unrestricted cash and investments and debt service reserve
funds, the expressway system is currently leveraged at 5.7x net senior debt to
cash available for debt service as of fiscal year 2012. Similarly, the RMA's
days cash on hand of 516 compare favorably to those of higher-rated expressway
Debt service coverage in 2012 above 2x resulted to a certain extent from
moderate traffic growth, but was mostly a function of a 24% decrease in
electronic toll processing costs, as cited above, and lower debt service costs
than paid in recent years. It remains to be seen if Board changes and repayment
of city obligations will alter the RMA's focus going forward.
Fitch's base projections assume a slow but sustained traffic growth and a
decrease in electronic toll transaction processing cost for EZ Pass beginning
with the actual reduction in fiscal 2012 and continuing into 2013. The forecast
also assumes an increase in tolls by $0.10 in 2018 as planned, with operating
costs increasing through 2022 at the 2002-2012 compound annual growth rate, or
This rate includes faster growth in the mid-2000's than during the last few
years and also encompasses the addition of six open-road tolling express lanes
on the Powhite Parkway to the cost profile. The toll increase would be around a
14% increase, so less in magnitude than the 40% increase that was implemented in
2009 to maintain healthy financial margins during the recession.
Fitch's stress projections grow traffic near zero until the toll increase in
2018, when it declines by around 3%, similar to the traffic response in 2009.
Thereafter, traffic grows marginally until 2028, when traffic declines and
recessionary conditions lead to another toll increase around 40%, again similar
to 2009. Thereafter, traffic only recovers 1% annually through 2035 and remains
flat through 2041. On the other hand, operating costs increase 6.77% through
2022. Though in this scenario the RMA would be forced to issue an additional $60
million in debt above expectations to fund anticipated lifecycle costs, leverage
remains similar to current levels, and coverage never falls below 1.15x through
the life of the forecast.
RMA's three facilities (Powhite Parkway, Downtown Expressway, and Boulevard
Bridge) have been operating since the 1970s. RMA is a commuter-oriented system,
carrying people from Chesterfield County (64% of trip origins) and Henrico
County (8%) to downtown Richmond and the dense northwestern part of the city. A
large portion of traffic (22%) is also generated within Richmond itself.
The RMA, a political subdivision of the Commonwealth of Virginia, was created in
1966 to provide and operate an urban expressway system that makes downtown
Richmond more accessible to surrounding areas. In addition to the expressway
system, the authority owns and operates several parking facilities as well as
the Diamond, home of the Richmond Flying Squirrels baseball team.
Additional information is available at 'www.fitchratings.com'. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Rating Criteria for Infrastructure and Project Finance' (July 12, 2012);
--'Rating Criteria for Toll Roads, Bridges, and Tunnels' (Aug. 2, 2012).
Applicable Criteria and Related Research:
Rating Criteria for Infrastructure and Project Finance
Rating Criteria for Toll Roads, Bridges, and Tunnels