Fitch Rates Miami-Dade Expressway Authority,(FL)'s Revs at 'A'; Outlook Stable
KEY RATING DRIVERS
The system's ratings are supported by historic and projected debt service coverage ratios (DSCR) exceeding 1.50x and moderate leverage that continues to decline as a result of tolling expansion on the system. The ratings further reflect the essentiality of the MDX system to commuters in the Miami area. With a manageable capital plan for assets that are in good condition and no additional debt anticipated, Fitch expects MDX to maintain this level of financial performance in the foreseeable future.
Revenue Risk - Volume: Stronger
Stable Commuter Base With Strategic Importance: The MDX system has a mature traffic profile with over 472 million annual toll transactions in FY 2016 and provides critical links within the Miami-Dade transportation network. The availability of limited alternative routes ensures the importance of the system to the region. The implementation of open road tolling (ORT) on all expressways has resulted in recent large year over year increases in transactions; however, growth is projected to level off in forthcoming years as ORT stabilizes.
Revenue Risk - Price: Midrange
Moderate Price Flexibility: MDX currently has moderate toll rates with solid economic rate-making ability. Growth in the system has been driven by the tolling of previously untolled traffic, providing additional revenue. MDX adopted a toll policy in which tolls can be indexed to the consumer price index (CPI) beginning in FY 2019. The policy allows for delays in rate increases, if needed, with board support. Nevertheless, there are inherent political risks associated with toll increases especially if economic conditions deteriorate.
Infrastructure & Renewal Risk: Stronger
Good Physical Condition of Assets: MDX has maintained the system and its facilities with regular investments. MDX's FY 2017-FY 2021 work program is moderate at $634 million with no additional debt planned.
Debt Structure: Stronger
Modest Variable-Rate Exposure: MDX's debt portfolio is mostly fixed rate with the 5% in variable-rate mode fully hedged. The overall debt service profile is moderately escalating and the debt service reserve is cash funded at maximum annual debt service (MADS).
Moderate Leverage and Healthy Financial Metrics: FY 2016 net debt to cash flow available for debt service (CFADS) was 7.52x, a decrease from prior years due to a rise in the revenue base with the roll out of ORT. Leverage is estimated to continue to decrease to the 6x range through FY2020. Debt service coverage has historically been above 1.50x with FY 2016 coverage at 1.98x. Longer term, Fitch projects DSCRs to remain above 1.70x.
Peer Group: In comparison to peers in Fitch's portfolio, MDX functions closest to Central Florida Expressway Authority (CFX, 'A', Outlook Stable) with a politically sensitive pricing environment but a strong volume profile. Debt service coverage ratios and leverage are comparable over the medium term.
Negative: Erosion of the debt service coverage ratio significantly below 1.6x for a sustained period.
Negative: The addition of obligations that increase leverage or divert excess revenues will weaken the credit.
Positive: Revenue growth outpacing the sponsor's projections in an environment reflecting stable operations and limited additional capital expansion, leading to sustained coverage above 2x and continued substantial deleveraging could result in an upgrade.
SUMMARY OF CREDIT
MDX's ORT expansion plan, which has increased toll collection points across the expressway system, has resulted in dramatic rises in both transactions and revenues for fiscal year 2015 and estimated 2016. FY 2016 estimated traffic is up 28.7% while operating revenue is up 19.7% after previous increases of 50.1% and 41.5% respectively for FY 2015. MDX estimates that FY 2017 traffic and revenue will continue to grow but at less volatile levels than have occurred historically due to the phasing out of the expressway system's tolling expansion. Growth thereafter is projected in the Fitch rating case to be more moderate, reflecting a normalization of business operations.
FY 2016 expenses grew substantially with a 29.3% rise over FY 2015. Expenses have grown at elevated levels over recent years primarily due to cost rises associated with the ORT ramp-up. These expense items relate to billing service providers and FDOT pass-through charges for additional SunPass processing as well as software/hardware maintenance needs. MDX expects costs to normalize at current levels going forward as the tolling expansion comes to a close.
FY 2016 DSCR is estimated to be 1.98x, well above historical levels in the 1.5x range and elevated from the original sponsor expectations of 1.78x. This performance is due to better than expected ramp up of annual transactions resulting in a larger revenue base. Fitch's base case projects DSCRs averaging 1.81x and with a minimum of 1.74x through FY 2027. Fitch's rating case reduces the sponsor's transaction and revenue projections while assuming no tolling linkage to CPI growth rates. Under these stressful assumptions, average coverage through FY 2027 is 1.76x while a minimum of 1.65x is maintained, which are supportive of the rating. Leverage decreases incrementally, arriving at 4x by FY 2027.
MDX's 2017 - 2021 $634 million work program primarily includes improvements to various interchanges, reconstruction of certain portions of the system, and ongoing renewal and replacement projects aimed at system preservation. The authority expects to fund the program through existing bond proceeds, cash funded general reserves, and excess cash flow derived from net revenue after debt service payments. No additional debt is needed.
MDX was formed in 1994 and is a public instrumentality and agency of the State of Florida. MDX is responsible for operating, maintaining and improving an expressway system that currently includes the Airport Expressway (SR-112), the East-West (Dolphin) Expressway (SR-836), the South Dade (Don Shula) Expressway (SR-874), the Gratigny Parkway (SR-924), and the Snapper Creek Expressway (SR-878).