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Fitch Rates Florida DOT's $100MM TIFIA Loan (Miami Intermodal Center) 'BBB'; Outlook Stable

Posted on: Wednesday, 22 August 2007, 18:20 CDT

Fitch assigns a 'BBB' rating to the Florida Department of Transportation's (FDOT or the department) up to $100,000,000 Transportation Infrastructure Finance and Innovation Act (TIFIA) 2007 Rental Car Facility (RCF) loan for the Miami Intermodal Center (MIC). The 2007 RCF loan is scheduled to close the week of August 27th. The 2007 RCF loan is on parity with FDOT's up to $170,000,000 TIFIA 2005 RCF loan, for which Fitch affirms its 'BBB' rating. The Rating Outlook is Stable. The loans are secured by customer facility charges (CFC) levied by Miami-Dade County, Florida on rental car transactions at Miami International Airport (MIA or the airport), and to the extent the CFC is insufficient, contingent rent on the participating rental car companies operating at the RCF. Proceeds will finance the construction of the RCF, which is located adjacent to MIA.

The rating on the TIFIA loans reflects the economic strength of the MIA rental car market, an innovative and flexible financing structure that focuses on ultimate recovery and allows for the timely payment of all obligations even if multiple downside events were to occur, the RCF's role as a critical element to the overall MIC program to improve access and circulation at the airport, and FDOT's strong support and involvement in project development, implementation and financing. The rating also considers that pledged CFC revenues are subject to economic and competitive factors affecting MIA air passenger activity.

Significant structural protections provide important mitigants to the risks of delayed facility opening, higher than expected construction and operating and maintenance costs, and lower than projected demand. These mitigants include flexible loan amortization, collection of pledged CFCs prior to the RCF's opening, a forward-looking project life coverage ratio (PLCR) rate covenant, additional security from levying contingent rent if needed, significant reserves, and a conservative approach to establishing the base case financial forecast. While the rate covenant provides a clear framework for increasing CFCs and imposing contingent rent on participating rental car companies (PRCCs), competitive pressures affecting the MIA air travel market limit economic rate-raising ability. Nevertheless, Fitch expects the RCF to benefit from MIA's strong economic fundamentals, the rental car market serving the airport, and the strong incentive for PRCCs to support and use the facility given that it will allow them to shed the cost of their own facilities and bus operations.

In Fitch's opinion, the loans' structural features and a supportive working relationship among FDOT, the County and the United States Department of Transportation (USDOT) have allowed credit quality to be maintained despite up to a $100 million in additional leverage to finance an increase in the RCF's construction cost to $370 million from $190 million and accommodate a two year delay in the project's construction. The RCF's higher construction cost is primarily due to rising demand for goods arising from the housing market and damage from a series of hurricanes in recent years in southeastern Florida, as well as the pressure on construction prices in general across the southern US from the aftereffects of hurricanes Katrina and Rita. As FDOT is expected to enter into an agreement with a contractor for a firm price, Fitch believes the potential for future cost increases has diminished significantly. However, construction delays or a postponed opening of the MIA Mover, a fixed guideway transport between the airport and the RCF designed to replace current shuttle bus operations, represent but two potential obstacles that could result in further cost escalations.

As part of the financing of the additional RCF costs, the County recently adopted an ordinance that will raise the CFC rate to $4.00 from $3.25 this year with an additional increase to $4.60 with the facility's expected opening in January 2010 and 25 cent increases every five years thereafter as part of the base schedule to meet the PLCR rate covenant. Additional increases above the base schedule in a downside scenario require Board of County Commissioner's approval and introduces political risk where further rate adjustments to meet the PLCR rate covenant potentially could be delayed, requiring greater reliance on contingent rent. However, this is mitigated by the County's recognition of its obligations, its recent adoption of the higher base CFC schedule to meet the additional resource needs of the RCF and the flexibility of the loan structure.

Under the loan agreement, FDOT can only draw on the TIFIA loan once amendments that conform the PLCR rate covenant in the concession agreement to the TIFIA loan documents have been executed with the eight national PRCCs that represent the vast majority of CFC collections. FDOT and the County expect these amendments to be executed in the near term.

The RCF TIFIA loans are administered by FDOT as borrower, with the United States Department of Transportation (USDOT) as the lender. RCF construction costs are to be financed by a combination of TIFIA loan disbursements of up to $270 million, a $95 million FDOT loan for land acquisition payable on a subordinate basis to the TIFIA loan from CFCs and contingent rent, and CFC revenues on hand during construction.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

Source: Business Wire

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