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Fitch Revises Tampa-Hillsborough County Expressway Authority (Florida) Outlook to Stable

Posted on: Friday, 1 June 2007, 15:00 CDT

Fitch Ratings has affirmed the underlying 'A-' rating on the Tampa-Hillsborough County Expressway Authority, Florida (THCEA) revenue bonds. Fitch has also revised THCEA's Rating Outlook to Stable from Negative. The rating action applies to $406.6 million in outstanding revenue bonds consisting of the following:

--$326 million series 2005 revenue bonds;

--$79.1 million series 2002 revenue bonds;

--$1.5 million series 1997 revenue bonds.

The bonds are secured by a gross pledge of toll revenue collected on the Lee Roy Selmon Crosstown Expressway. All of the bonds are rated 'AAA' based on financial guarantee insurance policies provided by Ambac Assurance Corp., and Financial Guarantee insurance Company (insurer financial strength for both entities rated 'AAA' by Fitch).

The Outlook revision to Stable reflects the THCEA's successful completion of the elevated reversible express lanes project within revised budget and schedule estimates, following major cost and schedule revisions brought about by the subsidence of two piers during construction in 2004. In addition to project completion, traffic and revenue estimates made at the time of the 2005 financing have essentially been achieved. The THCEA is continuing to pursue insurance and legal claims as a result of the subsidence. Recovery in excess of $100 million, which is the authority's current estimate of the incremental costs from legal and project related expenses, could be used to retire senior and/or subordinate lien debt, or provide the authority with cash for additional capital projects being considered.

The THCEA experienced turnover of key personnel during 2006 after several highly publicized events, beginning with a publicly questioned board vote on selecting legal counsel that led the Governor to request the Florida State Auditor General conduct an investigation into authority practices. The THCEA has taken significant steps since the end of 2006 including the replacement of key personnel and adopting recommendations made by the Florida State Auditor General.

The underlying 'A-' rating on the bonds reflects the gross revenue pledge of the THCEA, the lease-purchase agreement with the Florida Department of Transportation (FDOT), whereby FDOT is obligated to cover operation and maintenance (O&M) expenses and renewal and replacement costs for the life of the debt, the growing service area, the mature traffic base with a large commuter component and state support for capital needs in the form of deeply subordinated loans. The rating also reflects higher than anticipated leverage brought about by unexpected capital costs on the reversible express lanes project, limited near-term financial flexibility, dependence on state support and the stand-alone nature of the facility.

The elevated reversible express lanes were opened in August 2006. On Jan. 1, 2007, the THCEA implemented a 50 cent toll increase for cash customers and Sunpass patrons who pay via electronic transponder. The Sunpass toll increased by 57%, while the cash toll increased by 44%, reflecting the higher base cash toll relative to the Sunpass toll. Transactions grew at a compound annual growth rate (CAGR) of 2.3% from fiscal 2000-2006, while toll revenue has grown at a CAGR of 5.4% given the 2004 toll increase.

For fiscal 2006, transactions and revenue grew by 7.7%, producing gross debt service coverage of 1.70 times (x) and net coverage of 1.25x. Through April of fiscal 2007, transactions are up 4.2% and revenues are up 21.9% due to the toll increase. Gross coverage in fiscal 2007 is projected by Fitch to be 1.45x. Under Fitch base case assumptions, net debt service coverage including O&M expenses is expected to range from 1.4x to 1.6x between 2008 and 2016, when the next toll increase is expected. Given the standalone nature of the system and the level of leverage, the ability to maintain growing financial flexibility and achieve net debt service coverage and total obligation coverage consistent with these assumptions is an important rating consideration.

The THCEA's 2006-2011 work plan totals $103.6 million, of which $7.3 million will be funded from authority cash. The remainder will be funded through deeply subordinated loans provided by FDOT. Given the limited work plan additional debt is not expected. However, the authority and FDOT are exploring the construction of a direct connector to I-4. The project is currently estimated to cost approximately $560 million, with a yet to be determined contribution from the THCEA likely in the medium term. The I-4 connector has the potential to add volume on the authority's facility and thus increase revenues. However, leverage beyond the THCEA's already high $7.2 million in debt per lane mile could constrain financial flexibility.

The Tampa-Hillsborough County Expressway Authority is a corporate body and an agency of the State created by Florida Statutes. It operates the Lee Roy Selmon Crosstown Expressway, which is a 14-mile, four-lane, limited access toll road that crosses the Tampa metropolitan area from west to east. The authority's elevated reversible express lanes, which opened in August 2006, are located generally within the median of the existing expressway and provide three additional lanes in the peak direction during morning and evening rush hours.

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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