Fitch Ratings has affirmed the 'A+' rating for approximately $32.4 million of Florida Department of Transportation (FDOT) Alligator Alley revenue bonds. The Rating Outlook remains Stable.
KEY RATING DRIVERS
The affirmation reflects Alligator Alley's continued strong traffic and revenue performance resulting in robust debt service coverage ratios in excess of 5.0x and is expected to remain high with scheduled inflationary toll increases.
Revenue Risk- Volume: Midrange
Narrow Service Area: Alligator Alley is a critical link and the most efficient means of east-west surface transportation in the southern Florida area between the metropolitan centers of Miami and Naples, respectively. However, the narrow service area of the toll road which provides connectivity only between these population centers, and the higher share of commercial traffic relative to other department-owned and operated roads accentuate its exposure to economic downturns.
Revenue Risk- Price: Stronger
Strong Pricing Flexibility: Alligator Alley has considerable economic rate-making ability. Toll rates are indexed to inflation with increases planned every five years for cash tolls and annually for SunPass tolls. Average toll rates are low at $0.043 on a per mile basis.
Debt Structure: Stronger
Conservative Debt Structure: All bonds outstanding are fixed rate bonds. Debt service schedule is flat with annual payments of $3.4 million with a final maturity in 2027. No additional debt is anticipated in the near to medium term.
Infrastructure Renewal and Development: Stronger
Infrastructure funded on Pay-Go Basis: It has been an FDOT practice to fund capital improvement projects on a pay-go basis. FDOT has an institutionalized practice to plan for, fund and implement major renewal and replacement projects on a regular basis.
High Coverage and Low Leverage: Alligator Alley maintains a very strong financial profile with debt service coverage of 5.37x and low leverage of 1.75x net debt to cash flow available for debt service (CFADS) for fiscal 2014 (ended June 30). Liquidity position is also robust; the parkway has 975 days cash on hand when including operation and maintenance (O&M) reserve and renewal and replacement (R&R) reserve.
Peers: Alligator Alley's peers include similar stand-alone facilities such as Chesapeake Expressway (rated 'BBB'; Stable Outlook by Fitch) and Fort Bend County (rated 'A+'; Stable Outlook). The authority's toll rates are more favourable than its peers; however, has slightly higher leverage than Fort Bend County. Coverage and debt service amount are very similar with Fort Bend County, and is stronger than the lower rated Chesapeake Expressway.
RATING SENSITIVITIES
Negative:
--Significantly lower coverage levels as a result of traffic declines or unmanaged expense growth.
--Plans by the state of Florida to add significant leverage to support non-facility investments.
CREDIT UPDATE
Following a toll increase which caused revenues to increase 27.8% in FY2013, FY2014 saw an increase of 6.5% in toll revenue. Similarly, traffic increased for the third straight year, up 5.3%, and surpassing 8 million transactions. Traffic has increased at a five-year growth rate (2009 - 2014) of 1.9%, while the growth rate for revenues during this same period has been 6.7%. Both traffic and revenue have continued to perform well into 2015, up 6.2% and 7.9%, respectively, through the first three months of FYTD2015.
Fitch conducted several sensitivity scenarios. Fitch's base case scenario assumes annual traffic growth of 0.5% with the exception of years with toll increases which assumes a 1% decline along with moderate expense growth of 4%. Under these conditions, coverage remains very strong averaging 5.84x and not dropping below 5.18x through bond maturity in 2027. Tollway leverage also evolves downward to below 1.0x by 2020. Fitch's rating case scenario assumes similar conditions to the 2008 economic downturn, with the toll road experiencing a traffic decrease of 4% in 2015 followed by 8% in 2016. From 2017 -2019 there is no growth, with recovery beginning in 2020 at 1%. Operating expenses are stressed 100 additional basis points. Under this scenario, coverage remains above 4.08x with low leverage being maintained despite reaching 1.97x in 2016. Fitch notes that coverage levels produced under the stress case scenario are consistent with the current 'A+' rating. Breakeven analysis further supports this position, demonstrating the ability to tolerate significant sustained revenue declines without affecting its ability to service debt.
The five-year capital improvement program is estimated at $68.3 million, and is focused on safety improvements as well as rest area and toll system enhancements. No additional debt is expected to be issued as projects are funded on a pay-go basis.
SECURITY
The 2007A bonds are secured by a pledge of and first lien on, and will be payable solely from, the net revenues derived from the operation of Alligator Alley. Net revenues are defined as what remains after deducting the administrative, maintenance, and operating costs.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Rating Criteria for Infrastructure and Project Finance' (July 11, 2012);
--'Rating Criteria for Toll Roads, Bridges, and Tunnels' (Aug. 20, 2014).
Applicable Criteria and Related Research:
Rating Criteria for Infrastructure and Project Finance
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682867
Rating Criteria for Toll Roads, Bridges, and Tunnels --- Effective Aug. 2, 2012—Oct. 15, 2013
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684146
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=977895
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