OREANDA-NEWS. Fitch Ratings has assigned an 'A+' rating to the Fort Bend County, Texas' approximately $86.1 million series 2016 senior lien toll road revenue bonds issued on behalf of the Fort Bend County Toll Road Authority (FBCTRA). Fitch has also affirmed the 'A+' rating on approximately $75.8 million of parity FBCTRA senior lien toll revenue bonds. The Rating Outlook for all bonds is Stable.

The rating reflects continued strong and growing traffic and revenue performance on the authority's two-segment toll road system, while also taking into account the limited catchment area that it serves that exposes it to adverse fluctuations in a narrow segment of the Houston, TX economy. It also reflects the authority's successful recent expense containment, which is similarly expected to help support robust coverage through the medium term. The system's moderate senior leverage (estimated at around 5x in Fitch's rating case following the series 2016 issuance) and strong liquidity with over 3,100 days cash on hand (DCOH) provide further rating stability.

KEY RATING DRIVERS

Revenue Risk: Volume - Midrange
DEVELOPING NETWORK, LIMITED OPERATING HISTORY: The system's two toll roads opened in 2004 and 2005 and have experienced some volatility as a result of the recession and toll increases. Still, traffic growth across the system has remained positive over the past five years, exhibiting a compounded annual growth rate (CAGR) of approximately 5% for the period (2009-2014), including the project B expansion. The traffic base is nearly 100% passenger vehicle oriented and the facilities are on the western edge of the strong and growing Houston MSA. The Westpark Tollway and Fort Bend Parkway both provide direct access to the Sam Houston Tollway loop around Houston; however, there is some level of competition from alternative routes.

Revenue Risk: Price - Stronger
DEMONSTRATED RATE-MAKING FLEXIBILITY: Since fiscal 2012 the authority has followed a toll policy providing for automatic annual increases at the greater of 2% or CPI-U. The average toll rate remains on the moderate side at approximately $0.23 per mile and all-electronic tolling makes implementing rate increases easier.

Infrastructure Development/Renewal - Stronger
MANAGEABLE NEAR-TERM CAPITAL PROGRAM: The two system roadways comprise only 60 lane miles with minimal maintenance needed given the relatively young age of the assets. Funding for the phase I and II Westpark expansion projects is coming from a variety of sources including the series 2016 senior lien issuance and there should be sufficient flexibility to shift the timing of any future projects to coincide with an adequate cash flow-generation profile. Fitch views there to be minimal completion risk associated with the currently planned expansionary projects given the relatively small and routine nature of the construction and the authority's favorable history of scheduled delivery and budget.

Debt Structure - Stronger
CONSERVATIVE DEBT STRUCTURE: Outstanding senior lien debt is fixed-rate with conservative amortization. A cash-funded debt service reserve fund equal to maximum annual debt service (MADS) provides additional credit support.

Financial Metrics
SOLID METRICS AND COUNTY SUPPORT: Due in part to FBCTRA's strong cash position, projected senior leverage (including the series 2016 bonds) is forecast to grow to a still moderate 5x (from 1.2x) on a net debt-to-CFADS basis in fiscal year (FY) 2016 and still remain consistent with the 'A+' rating. Total leverage, including subordinate debt backed by Fort Bend County's general obligation pledge (rated 'AA+' by Fitch), is higher at 6.3x for fiscal 2015 and forecast to grow to 10.4x with the 2016 issuance. Including the 2016 bonds, Fitch's rating case results in senior debt service coverage ratio (DSCR) - calculated on a net basis - remaining at or above 2.5x through the medium term.

Peer Group
Closest Fitch-rated small expressway network peers include Richmond Metropolitan Authority (RMA; 'A'/Stable Outlook) and State of Florida, Department of Transportation's Alligator Alley ('A+'/Stable Outlook). FBCTRA is a smaller system, generating fewer transactions and lower revenues, but demonstrating greater pricing power and more robust coverage levels than RMA.

RATING SENSITIVITIES
Negative: Additional leverage used to fund future projects that materially dilutes projected coverage ratios below current expectations;

Negative: Higher than anticipated expense profile or delays in implementing adequate toll adjustments that materially affects the financial metrics;

Negative: Material underperformance of new system segments.

Positive: Given the system's small size and limited catchment area coupled with its current capital program, upward migration is not likely at this time.

TRANSACTION SUMMARY
FBCTRA is issuing approximately $86 million of new money bonds to fully fund the authority's portion of phase I and phase II of the Westpark Tollway expansion. The bonds are fixed-rate and fully amortizing with final maturity of Sept. 30, 2045, and are expected to price the week of Jan. 11, 2016. The debt service profile will be relatively level, but sculpted to increase in fiscal 2033 following the maturity of the subordinate lien toll revenue bonds in fiscal 2032. The debt service reserve will be funded to MADS with cash on hand. Proceeds of the issuance, along with approximately $40 million of County funds (to be repaid by TxDOT), will fund the extension of four toll lanes approximately 2.6 miles, pre-work for the eventual extension of the four toll lanes another 3.2 miles, and four non-tolled lanes (FM1093/frontage roads) nearly 4.2 miles. In addition, another approximately $49 million of County funds (to be repaid from County Assistance District 1) will be used for phase II of the extension, including building out four lanes of FM1093 another 4.2 miles. Fitch expected this issuance, and it had already been factored into prior analysis.

The system has been fairly resilient in its limited operating history. Although susceptible to macroeconomic factors, traffic recovered to pre-recessionary levels in three years following declines in 2009-2010. Since 2009, overall system traffic has increased at a five-year CAGR of 5.3%, with growth coming from both toll roads, albeit stronger on the Westpark Tollway. More recently, transactions grew by 9.9% in fiscal 2013 and another 9.4% in fiscal 2014 to nearly 29 million. The authority took over tolling operations in fiscal 2015 and switched to all mainline gantries from ramp and mainline gantries, such that 2015 cannot be readily compared to 2014; however, prior to this change, transactions were averaging 8% growth and given the estimated 2015 revenues, it appears that a similar level of growth was maintained throughout the year and surpassed Fitch's base case estimates. For the first two months of fiscal 2016, transaction growth seems to be in line with 2015's.

Over the same five-year period (2010-2014), toll revenues grew at a more robust CAGR of 6.6% as a result of the authority's proactive toll increase in fiscal 2009 to counteract the recessionary traffic loss. Management raised rates again in 2011 and 2014 while adopting an automatic annual toll increase, the greater of 2% or CPI-U (Houston) rounded to the nearest nickel, following Harris County's lead. Further, FBCTRA's all-electronic tolling system makes implementing these increases easier. Fiscal 2015 saw estimated revenue growth of greater than 10% and fiscal 2016 is up more than 9% through two months. Fitch views the authority's demonstrated willingness to raise rates favorably and believes that management will take the necessary actions to preserve strong coverage levels with adequate toll rates.

The existing system is relatively new, being built in 2004 and 2005, and remains in excellent condition. FBCTRA does not anticipate any major capital expenditure needs to the existing facility until at least 2020, when actions will be taken to ensure the system's 40-year useful life. Approximately $7.2 million of unrestricted cash is already earmarked for renewal and replacement needs and is growing annually. Management indicated that the general engineer is beginning to evaluate the system's lifecycle needs, so that the authority can put together a plan. Phase I and II of the Westpark Tollway extensions are set to begin in February 2016 and finish in approximately 2-3 years. Further expansions to the system are possible; however FBCTRA appears to have flexibility with regard to the timing of future projects.

The outstanding series 2012 and 2014 senior lien bonds are fixed-rate, fully amortizing bonds with a relatively level debt service profile. The series 2016 senior lien issuance will follow a similar structure, but the debt service schedule will be sculpted to increase in fiscal 2033 following the maturity of the subordinate lien toll revenue bonds. The senior lien debt service reserve fund is cash funded at MADS. Fitch views this conservative structure as a credit strength. Another credit strength, and adding financial flexibility, is FBCTRA's robust unrestricted cash balance of $51.3 million, which equates to over 3,100 DCOH. Fitch also notes that the county's O&M tax pledge, as well as the unlimited GO tax pledge for the outstanding subordinate bonds, provide additional support in a downside scenario.

Fitch modelled both its base and rating cases taking into account the series 2016 issuance. The base case uses estimated fiscal 2015 transactions as a starting point and slightly more tepid growth than forecast by the authority's T&R consultant. The Westpark Tollway extension is forecast to open in 2018. Expenses are consistent with the sponsor case (2016 budget followed by 3% annual growth) and violation revenues are estimated at 4% of annual toll revenues based on the historical average. The result is robust senior net coverage of no less than 2.65x and a 10-year average DSCR of 3.28x. All-in average coverage, including the subordinate lien, remains adequate at 1.59x with a minimum of 1.29x. Fitch's rating case, which assumes approximately half of the traffic growth experienced in the base case as well as increased expense growth of 4% per annum, results in a still strong average net senior coverage (2016-2025) of 2.88x with a low of 2.53x. All-in average coverage remains sufficient at 1.39x and never falls below 1.23x. Senior lien leverage in Fitch's rating case is projected to increase to a moderate 5.1x net debt-to-CFADS for fiscal 2016, with total leverage higher at 10.4x, including the subordinate lien bonds.

Fitch also ran a breakeven analysis to test the system's dependence on revenue growth. Under Fitch's base case assumptions, and using fiscal 2015 CFADS and balance sheet liquidity, FBCTRA would actually have more than enough resources to cover total debt service every year without any growth as indicated by the -0.6% revenue growth result. Incorporating the rating case assumptions, resources would be tighter, but still sufficient without growth as indicated by the -0.3% revenue growth breakeven. These results make sense given that the MADS coverage with 2015 CFADS is 1.88x of senior debt and 1.09x of total debt.

SECURITY
The bonds are secured by a senior lien on the revenues derived from the ownership and operation of the toll road system and certain funds under the indenture. In addition, as long as there are any senior or subordinate bonds outstanding, the system benefits from an O&M tax pledge. Only the authority's subordinated obligations have the additional security of the county's unlimited general obligation tax pledge.