More Topics:
Fitch Affirms McAllen, TX's International Toll Bridge System Revs at 'A'; Outlook Stable
Posted February 3, 2012
We Recommend...
CHICAGO--(BUSINESS WIRE)--Fitch Ratings affirms the 'A' rating on the City of McAllen, Texas' approximately $36.5 million international toll bridge system (the system) revenue bonds, series 2007A and 2007B. Fitch also affirms approximately $285,000 of outstanding series 2002 parity bonds at 'A'. The Rating Outlook remains Stable for all series.
KEY RATING DRIVERS:
--Volatile Traffic Base with Competitive Pressure: The Hidalgo Bridge is a mature facility with strong revenue generating capabilities. However, it remains subject to the macroeconomic conditions of the U.S. and Mexico, drug cartel violence and increased border crossing regulations/security, as well as to competition from neighboring international bridges. Traffic has declined almost every year since 2002 and was down nearly 8% in fiscal 2011. Higher value commercial traffic volume remains limited until 2015 when the Anzalduas Bridge is authorized to accept it.
--Moderate Rate-Making Flexibility: Management has a proven track record of raising rates as needed to mitigate declining traffic levels; however, the proximity of competing facilities limits economic rate-making flexibility of the bridge system to some degree.
--Conservative Capital Structure: Fixed-rate debt with a flat amortization profile through maturity (2032) is further supported by an adequate level of reserves.
--Low Leverage and Healthy Coverage: Strong debt service coverage (3.5 times [x] in fiscal 2011) from the existing Hidalgo Bridge mitigates the ramp-up and traffic risk on the new Anzalduas Bridge. In addition, adequate cash reserves (216 days cash on hand) and moderate leverage equate to a relatively low net debt-to-cash flow available for debt service (CFADS) ratio of 3.4x with no additional borrowing anticipated.
--Manageable Capital Expenditure Needs: The Anzalduas Bridge is newly completed and the Hidalgo Bridge is generally in good condition; funding is predominantly grant-based and any required matching is covered with bridge system reserves and a $0.25 set-aside from the June 2011 toll increase.
WHAT COULD TRIGGER A RATING ACTION:
--Continued declines in passenger traffic or toll revenue levels driven by violence related to drug cartels and/or a considerable contraction of the manufacturing industry and cross-border trade;
--Changes in key financial metrics such as coverage and liquidity resulting from management's reluctance to raise tolls as planned/needed or its inability to control operating and maintenance (O&M) expenses;
--Meaningful additional leverage.
SECURITY:
The outstanding revenue bonds are secured by a first lien on and pledge of net revenues of the toll bridge system.
CREDIT UPDATE:
Total crossings have declined over the past five fiscal years at a compound annual growth rate (CAGR) of 4.6% and were down 7.9% in fiscal 2011 to 5.4 million crossings. These declines were the result of concerns over safety following the cross-border violence, the weakened economy, and, to a lesser extent, the toll increases in fiscals 2008, 2010, and 2011. Commercial traffic is now practically non-existent and passenger vehicles represent the majority of the transactions (71%) with pedestrians accounting for the rest (28%). As a result, passenger traffic accounts for approximately 90% of toll revenues and passenger traffic the rest. Fitch expects a shift in this traffic profile once commercial traffic is allowed on the Anzalduas Bridge in 2015; however, the impact on traffic and revenue remains uncertain. Should passenger volume continue to decline, negative rating action could be warranted.
Toll revenues rebounded by 2.5% in fiscal 2011, despite the decline in transactions. After raising tolls by $0.25 in fiscal 2010, management implemented a $0.50 increase in fiscal 2011 to proactively mitigate the loss in traffic. Further, $0.25 of the $0.50 raise is being transferred to a capital improvement fund for future system improvements. Overall, management has been able to maintain flat toll revenues over the past five years (CAGR of 0.1%) in the face of declining traffic. The Board adopted a plan to raise rates by $0.25 every four years for cars and $1 every three years for trucks (once commercial traffic is allowed); however, they have shown an ability and willingness to raise rates as needed. Fitch notes, however, that future toll increases could be limited due to the nearby competing facilities.
Expenses have grown over the past couple of fiscal years as the Anzalduas Bridge was being brought on line. Management anticipated a 16.8% growth in O&M for fiscal 2011; however, expenses only rose by 10.7%. This, together with traffic being down by less than forecast and the toll increase, resulted in fiscal 2011 debt service coverage of 3.5x, which surpassed forecast and was in line with the prior year. Management anticipates O&M expense containment in the next few years, before they normalize in the 3%-5% range following the return of commercial traffic to the system. Going forward, Fitch expects management to maintain high coverage levels, especially when commercial traffic adds to the toll revenue base beginning in 2015. Fitch views this level of cushion as necessary given the volatility in the traffic base that is tied to the performance of the maquiladora industry in Mexico and border security threats.
Capital expenditure needs are modest given the recent completion of the Anzalduas Bridge and the good condition of the Hidalgo Bridge. Several projects to improve efficiency are in the pipeline and funding is predominantly grant-funded with a 20% match required of management. Money is already set aside for these projects and the $0.25 set-aside from the toll increase should enhance the system's ability to undertake additional projects in the future.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Rating Criteria for Infrastructure and Project Finance,' (Aug. 16, 2011);
--'Rating Criteria for Toll Roads, Bridges, and Tunnels,' (Aug. 5, 2011).
Applicable Criteria and Related Research:
Rating Criteria for Infrastructure and Project Finance
http://www.fitchratings.com/creditdesk/report...
Rating Criteria for Toll Roads, Bridges, and Tunnels
http://www.fitchratings.com/creditdesk/report...
blog comments powered by