Fitch Ratings has assigned the following underlying ratings to the Triborough Bridge and Tunnel Authority, New York's (TBTA):
--$266.3 million general revenue refunding bonds, series 2012D 'AA-';
--$637.9 million subordinate revenue refunding bonds, series 2012C 'A+'.
Additionally, Fitch has affirmed the following underlying, long-term ratings for the TBTA:
--$29.6 million outstanding general revenue variable rate refunding bonds, series 2005B-4a at 'AA-'.
Fitch has also affirmed the following underlying long-term ratings for the TBTA:
--$6.6 billion outstanding general revenue bonds at 'AA-';
--$1.8 billion outstanding subordinate revenue bonds at 'A+'.
The Rating Outlook is Stable for all bonds.
KEY RATING DRIVERS
--CRITICAL ASSET: The bridge and tunnel system provides critical transportation links in the New York metropolitan area and is important to the economy of the greater New York region.
--DEMONSTRATED TOLL INCREASES: The system has a mature and stable traffic base with historically strong ratemaking flexibility. While toll rates are high, traffic has remained relatively inelastic to TBTA's frequent increases.
--LARGE CAPITAL PROGRAM: The TBTA has a large, mostly debt-funded capital reinvestment program that is focused on state of good repair.
--MTA TRANSFERS PROVIDE SOME BONDHOLDER PROTECTION: Structural subordination of MTA transfers (ranging from $300-$528 million since 2004) enhances bondholder protection by ensuring high senior and combined debt service coverage ratios.
--HEALTHY FINANCIAL METRICS WITH LOW TO MODERATE LEVERAGE: The TBTA has experienced strong levels of financial flexibility through robust debt service coverage levels (2.5 times (x) on the senior lien and 1.9x on a combined basis, respectively in 2011), albeit lower than historical coverage levels. Senior leverage is relatively low at 5.6x net debt to cash flow available for debt service. However, total leverage of 7.2x is moderate.
WHAT COULD TRIGGER A RATING ACTION
--Debt service coverage on the general revenue bonds (senior lien) meaningfully below 2.0x or below 1.8x on both the senior and subordinate liens for a sustained period;
--Lower than anticipated revenue yields from biennial planned toll increases or higher than anticipated expense growth;
--Significant reduction in reserve levels with no expectation for replenishment;
--Increased levels of deferred maintenance to sustain continued MTA transfers.
The general revenue and subordinate revenue bonds are secured by the net revenues collected on the bridges and tunnels operated by the TBTA.
The series 2012C subordinate lien bonds will refund portions of TBTA's outstanding series 2002E and 2003A bonds and the series 2012D general revenue bonds will refund portions of TBTA's outstanding general revenue bonds for interest savings. In addition, the TBTA is effecting a mandatory tender and purchase and remarketing of the outstanding series 2005B-4a floating rate notes (FRNs) on Jan. 2, 2013. The TBTA has four additional subseries of FRNs that have mandatory tender dates from 2015 -2018.
As a result of tropical storm Sandy on October 29, 2012, preliminary estimates from infrastructure damage to the TBTA are nearly $800 million. In addition, a combined $60 million in lost revenue and higher operating costs will impact year-end 2012 financials. The TBTA expects to recover most of these costs over the next few years from various insurance coverage and FEMA assistance; however, the agency may need to issue additional, unexpected debt, placing both near- and medium-term strains on its finances. The TBTA facilities were either shut down one to two days (six of the seven bridges re-opened Oct. 30) or were closed into November due to flooding. The Brooklyn-Battery tunnel, now Hugh L. Carey, re-opened Nov. 19th and the Queens Midtown tunnel re-opened Nov. 9th.
In the November Financial Plan management has budgeted essentially flat toll revenue growth of 0.20% for 2012 but the projected revenue loss associated with Sandy is currently $25 million, resulting in a 1.5% decline over 2011 toll revenues to $1.48 billion. Meanwhile, the TBTA's independent engineer, Stantec Consulting Services, Inc. (Stantec), estimates a slightly lower toll revenue figure of $1.45 billion, or a 3.2% decline over 2011 toll revenues. Traffic through October is up slightly by 0.8%. Since 2003, the TBTA has implemented fare and toll rate increases five times, most recently in March 2008, July 2009 and December 2010. Traffic has been inelastic to these increases with a negative compound annual growth rate of 0.60% over the eight year period through 2011. The TBTA also plans on biennial toll increases to achieve revenue yield increases of 7.5% beginning in 2013 and is committed to implementing these as first presented in July 2010, despite hurricane Sandy.
The TBTA has a history of producing consistently sound financial results. Since 2007, senior coverage has declined from historical levels of at least 3.0x to 2.5x most recently, in 2011. Combined coverage (senior and subordinate) has historically been greater than 2.0x and was a solid 1.9x in 2011. Adjusting for the effects of Sandy and Stantec's revenue assumptions, Fitch projects senior and combined coverage to fall to 2.30x and 1.75x, respectively for 2012. Increasing operating and capital commitments will likely erode coverage to levels below prior performance, despite planned toll increases and efforts to meaningfully reduce expenses.
Fitch conducted a scenario to forecast the effects of borrowing nearly $800 million for infrastructure damage on the TBTA's debt service coverage ratios. At this point, Fitch does not view the potential increase in debt and debt service as a material credit risk. However, should the TBTA's obligations increase significantly above forecast or without offsetting cost reductions and/or capital adjustments, the ratings could be pressured. Fitch recognizes the TBTA has achieved debt service savings with its various refunding transactions since early 2012.
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' (July 11, 2012);
--'Rating Criteria for Toll Roads, Bridges, and Tunnels' (Aug. 2, 2012).
Applicable Criteria and Related Research:
Rating Criteria for Infrastructure and Project Finance
Rating Criteria for Toll Roads, Bridges, and Tunnels