Fitch Rates Triborough Bridge & Tunnel Authority's (New York) Rev Bonds 'AA-'; Outlook Stable
KEY RATING DRIVERS
The 'AA-' rating reflects the bridge and tunnel system's essentiality, performance, and mature and stable traffic base with historically strong ratemaking flexibility. Offsetting concerns include the system's dependence on annual revenue growth to support annual transfers to the Metropolitan Transportation Authority (MTA) for transit and commuter rail services. These transfers have left TBTA with lower liquidity and a dependence on future borrowing to fund a large part of its sizable capital plan. While the significant level of transfers to the MTA could be a risk, all resolution requirements of the authority's system are senior to this transfer.
Revenue Risk - Volume: Stronger
CRITICAL ASSETS: The bridge and tunnel system provides vital transportation links in the New York metropolitan area and is important to the regional economy, evidenced by its relatively stable historic traffic growth. As of 2014, traffic has grown at a 0.37% annual rate since 1970.
Revenue Risk - Price: Stronger
DEMONSTRATED TOLL INCREASES: The system has a mature and stable traffic base with historically strong ratemaking flexibility. While toll rates are elevated, traffic has remained relatively inelastic to TBTA's frequent increases. Between 2002 and 2014, TBTA has raised rates six times resulting in a 0.4% annual decline in traffic with a 5% CAGR in toll revenues.
Infrastructure Development/Renewal Risk: Midrange
LARGE DEBT-FUNDED CAPITAL PROGRAM: TBTA has a large, mostly debt-funded (79%) 2015 - 2019 capital reinvestment program totalling $2.9 billion (pending an amendment before the board on October 28) that is focused on state of good repair and includes $570 million in pay-go funding. In addition to the proposed issuance, TBTA's current projections include nearly $1 billion in new money issuance through 2019.
Debt Structure Risk: Midrange
TRANSFER SUBORDINATION PROTECTS BONDHOLDERS: Structural subordination of transfers (ranging from $500 million - $630 million between 2012 - 2014) to MTA for operations ensure high senior and combined debt service coverage ratios (DSCRs). However, these transfers leave the authority short on liquidity support and reliant on additional debt to fund capital expenditures. The absence of cash-funded debt service reserves is a risk, partially mitigated by nearly $520 million of cash reserves in place as of August 2015. TBTA's aggregate revenues bonds are 80.8% fixed, 10% synthetically fixed and 9.2% unhedged variable rate.
Financial Metrics: TBTA has strong financial flexibility as demonstrated by its robust DSCRs of 2.70x on the senior lien and 2.17x on a combined basis in 2014. Senior leverage is relatively low at around 5x net debt-to-cash flow available for debt service (CFADS), increasing to over 6.0x by 2018 if additional senior lien debt is issued. Total leverage of 6.4x is currently moderate and would rise to over 7x with future issuances.
Peers: Bay Area Toll Authority (BATA; rated 'AA-'/Stable Outlook by Fitch) is TBTA's closest peer. BATA has a higher consolidated leverage at over 12x compared to 6.6x for TBTA; however, BATA has a policy to maintain $1 billion in cash and investments, providing significant liquidity to the authority while TBTA provides annual surplus transfers to MTA limiting its ability to build up reserves and making it more reliant on future toll increases.
Negative: DSCRs on the general revenue bonds (senior lien) meaningfully below 2.0x or below 1.8x on a consolidated basis for a sustained period.
Negative: Lower than anticipated revenue yields from biennial planned toll increases or higher than anticipated expense growth.
Negative: Significant reduction in reserve levels with no expectation of replenishment.
Negative: Higher leverage than projected or an indication of maintenance being deferred to sustain continued MTA transfers.
Positive: Given the size of the issuer's capital program and its constrained liquidity, upward rating movement is not likely in the near term.
SUMMARY OF CREDIT
The proceeds of the $65 million general revenue bonds series 2015B will be used to finance various capital projects for TBTA. The bonds will be issued in a fixed-rate mode, amortizing through 2045 and are expected to be the last new debt issued in 2015.
Concurrently with this issuance, TBTA plans a conversion of $91.5 million in parity general revenue bonds, subseries 2008B-3 to a fixed-rate mode from a variable-rate mode.
The bridge and tunnel system has a mature and stable traffic base with a 0.37% CAGR since 1970 through 2014. Traffic in 2014 was up 0.66% reaching 286 million, and while it was expected to decline 1% in 2015 as a result of a 4% toll increase implemented in March of this year, volume in the first eight months of the year through August was up 3.8% over the same period in 2014. Toll revenues grew in 2014 by 1.9% to $1.68 billion with 2015 toll revenues currently expected to increase by 5.5%, or 3.1% above budget, driven by year-to-date traffic performance. Total costs are currently expected to increase by about 15% and DSCRs are anticipated to remain strong, reaching 2.65x in 2015 compared to budgeted 2.50x.
For more information on the TBTA, please see Fitch press release 'Fitch Rates Triborough Bridge & Tunnel Authority's (New York) Rev Bonds 'AA-'; Outlook Stable' dated April 30, 2015 available at www.fitchratings.com.
The general revenue bonds are secured by the senior pledge of the net revenues collected on the bridges and tunnels operated by TBTA.