OREANDA-NEWS. Fitch Ratings has affirmed the rating on the Richmond Metropolitan Transportation Authority's (the authority) approximately $90.2 million in outstanding expressway toll revenue bonds, series 1998, 2002, and 2011-D. The Rating Outlook is Stable.

KEY RATING DRIVERS

The rating reflects Richmond Metropolitan Transportation Authority's (RMTA) small expressway system, facing limited competition, serving a relatively narrow commuter base in and around Richmond, VA. It is further supported by a steadily declining debt profile. Stable recent traffic and revenue performance is broadly in line with Fitch's expectations, and the resulting rating case average debt service coverage profile that averages around 1.7x is in line with criteria guidance for the 'A' category as well as peer small expressway projects.

Revenue Risk - Volume: Midrange

Stable Commuter History: The expressway system has a long operating history and mature traffic profile that serves a well-established commuter base to and from downtown Richmond. Relatively stable employment and population trends supported a reasonable level of traffic resilience during the last economic downturn. Current toll rates are moderate, indicating some likely economic flexibility to implement further toll increases with modest elasticity.

Revenue Risk - Price: Stronger

High Rate-Making Flexibility: RMTA has full legal rate-making ability which allows it to implement toll increases when necessary, and has historically been willing and able to raise tolls with no evidence of political pushback.

Infrastructure Development & Renewal: Stronger

Limited Debt Needs and Healthy Infrastructure: The authority exhibits a solid track record of maintaining its infrastructure with over 90% of the facility's lane miles in good condition, and reports indicate no structural deficiencies on the bridges. The six year capital program is moderate at $84.9 million and is expected to be funded from excess cash flows for the foreseeable future.

Debt Structure: Stronger

Conservative Capital Structure: RMTA has no outstanding variable rate debt and legal covenants compare adequately to peers. A maximum annual debt service (MADS) requirement of 1.0x limits back-loading of debt.

Financial Metrics

RMTA's debt service coverage ratio (DSCR) has steadily increased in recent years to a Fitch-calculated level of 2.02x in 2015 which reflects consistent operational performance and a smoother debt profile after the 2011 issuance. Leverage is moderate, with fiscal year-end net debt to cash flow available for debt service (CFADS) in 2015 at approximately 5.0x. In Fitch's rating case, the 10-year average coverage of 1.78x remains in the criteria range for the 'A' category. Due to a large decrease in debt service after 2023, the eight-year average DSCR is lower at 1.70x, but still remains in line with criteria guidance.

Peers

RMTA's peer group consists of similarly-sized expressway systems including Fort Bend County Toll Road Authority (FBCTRA, senior lien rated 'A+'/Stable Outlook) and South Jersey Transportation Authority (SJTA, 'BBB+'/'BBB-'/Outlook Stable). RMTA benefits from low toll rates per mile than FBCTRA albeit its rates are higher than SJTA's, and a larger number of transactions than both. DSCRs are significantly below those for FBCTRA senior debt, and somewhat more robust than those for SJTA, reflecting its more stable operating profile.

RATING SENSITIVITIES

--Negative: Changes in management or Board decisions that lead to a weaker financial profile.

--Negative: Significant and persistent operating underperformance that leads to the authority's average DSCR profile falling significantly below 1.70x.

--Positive: Given the facility's current operating and debt metric profile, positive rating action is unlikely in the near term.

SUMMARY OF CREDIT

Across the system, fiscal 2015 revenues and traffic both increased (2.6% and 2.4%) year-on-year, as increases in both traffic and revenue on the Downtown Expressway and Powhite Parkway continue to offset weakening performance across the Boulevard Bridge. Total fiscal year-to-date (YTD) 2016 transactions are up 5.3% through April and continue to be driven by Powhite Parkway as well as the Downtown Expressway. Fitch considers the demand profile stable but without significant potential for growth and views the authority's conservative traffic forecasting as prudent.

Chesterfield County generates the most traffic and also demonstrates higher household incomes than the city of Richmond. The city's employment base has increased annually 2011-2014 with growth outpacing state and national rates, and the unemployment rate, at 5.3% as of June 2015, continues to improve but remains above the state average. The authority historically raised tolls every decade, with an increase previously planned in 2018. However, Fitch understands that RMTA is no longer planning to implement this increase based on its current performance projections, but continues to monitor performance to determine whether any future rate adjustments may be needed. Fiscal 2015 average tolls were in line with the previous year at $0.63 for the Downtown Expressway, $0.68 for Powhite Parkway, and $0.35 for Boulevard Bridge.

Toll increases can generate significant revenue growth as seen after the fiscal 2009 toll increase, which led to a 26.4% revenue increase despite 8.1% traffic decline. Even so, without a toll increase in 2018, and absent a significant weakening in operating performance, the authority could still meet debt service payments on the current expressway system with DSCRs consistent with an 'A' category rating. Priority projects, funding sources, and the authority's direction will be determined as the recent board and recent management changes fall into place.

No major capital projects requiring debt issuance are currently planned, and the authority maintains sufficient cash flow to fund current capital plan. Its last debt issuance was in 2011, which repaid the RMTA's long-standing obligation to the city, added new money, and extended the maturity date to 2041 from 2022. Near-term capital projects through the next six years include road overlay, replacing tolling systems, and additional deck rehab.

DSCR in fiscal 2015 was 2.02x compared to Fitch's base case projections of 1.96x during the last review. Leverage is manageable at approximately, 5.0x net-debt-to-fiscal 2015 CFADS while the authority's approximately 413 days cash on hand provide additional financial cushion. Historic volatile employment growth is mitigated by the authority's lack of dependence on traffic growth, and DSCR should remain at 2x even if periods of cyclical traffic stress are repeated in the near future.

Fitch's base case assumes a 5.25% growth in traffic for fiscal 2016, based on YTD data, with moderate growth thereafter. Tolls remain constant, and total revenues are expected to grow by an eight-year CAGR of 1.64%, combined with expenses growing at a 5% CAGR over the same period. Under this scenario, DSCR is expected to average 1.91x throughout the forecast with leverage dropping from 4.56x to 3.12x after eight years.

Fitch's rating case assumes the same 5.25% traffic growth in 2016, followed by no growth in 2017 and an approximate 4% decline in traffic in 2018 due to recessionary effects. Moderate recovery of 1%-3% occurs annually from 2019. In this scenario, total revenues grow at an eight-year CAGR of 1%, combined with expenses growing at conservative rate of 6% CAGR over the same period. DSCR averages 1.7x through 2023 with leverage dropping from 4.56x to 3.67x. The 10-year average DSCR is higher, at 1.78x, reflecting the reduction in debt service that occurs in 2024. Days cash on hand remains above 259 throughout the rating case period. Fitch notes that, although not reflected in its rating case, RMTA would have the ability to implement toll increases or to manage its operating cost profile in such a scenario to further protect its coverage profile.

SECURITY

The bonds are secured by net toll revenues of the expressway system.