Fitch Rates Florida Turnpike Enterprise $195MM 2013A Rev Refunding Bonds
'AA-'; Outlook Stable
NEW YORK -- March 15, 2013
Fitch Ratings assigns an 'AA-' rating to the $194.875 million State of Florida
Department of Transportation (FDOT) turnpike revenue refunding bonds, series
2013A. Additionally, Fitch affirms the 'AA-' rating on the approximately $2.8
billion outstanding turnpike revenue and refunding bonds.
The Rating Outlook is Stable.
KEY RATING DRIVERS
--Strategic Importance: The Florida Turnpike is a critical transportation
system with a mature traffic profile and established demand.
--Strong Rate-Making Flexibility: Considerable economic flexibility exists to
increase toll rates. Toll rates were increased effective June 24, 2012 for the
first time since 2004 and, per statute, annual increases indexed to the
Consumer Price Index (CPI) will be applied to electronic payers going forward.
Cash rate increases, also linked to CPI, will be implemented every five years
--Low Leverage and Solid Financial Margins: Leverage is currently low at 5x.
Debt service coverage (DSC) was solid at 1.84x in fiscal year (FY) 2012 (ended
June 30) but down from over 2.0x in FYs 2009 and 2010. Fitch expects DSC to
rise to historical levels in FY 2013 given the aforementioned toll increase.
--Manageable Work Program: The turnpike's 2013-2018 proposed Work Program
totals $4.1 billion which assumes $984 million in additional borrowing during
this period. While larger than the last reviewed program, debt service
coverage levels are projected to be consistent with those expected under the
prior plan given revenue growth that has and is projected to exceed prior
--Erosion of DSC in the medium term below 2x for a sustained period due to
lower-than-anticipated revenue yields from toll increases or
higher-than-anticipated expense growth.
--Increases in debt to fund projects that significantly increase leverage
beyond historical levels.
--Given the limited prospects for growth in the near term due to economic
conditions in Florida, management's inability to actively control its
operating expenses along with controlling costs related to its work program.
Turnpike revenue bonds are secured by a first lien on the net revenues of the
After experiencing two consecutive years of declines, toll transactions
increased 1.4% and 2.1% in FYs 2010 and 2011, respectively. Transactions in FY
2012 saw continued growth of 1.7% above fiscal 2011 levels. For the first half
of FY 2013, transactions are up slightly by 0.6% over the same period last
year. Toll revenues totaled nearly $609 million for FY 2012, 1.5% above FY
2011 revenue performance and above prior expectations. Management is
projecting 20% revenue growth for FY 2013 following implementation of the
aforementioned toll increase and through the first half of the FY, revenues
are approximately 24% ahead of receipts from the same period last year. The
turnpike has demonstrated higher levels of stability but the continued weak
economic recovery in Florida remains a concern.
The turnpike's proposed work program covering fiscal years 2013 through 2018
totals $4.1 billion, which is somewhat larger than the prior work plan.
Approximately one-third of that total is slated for widening projects while
capital projects account for $2.8 billion of the total work plan, implying
deferral is possible if traffic volumes are less than expected. Planned debt
under the program, following this issuance which is purely for refunding
purposes, is estimated at $984 million. Fitch expects the turnpike will
delicately balance borrowing associated with the program while maintaining
historically robust DSC ratios and strong financial flexibility. Historically,
the turnpike has produced adequate net revenues after debt service to ensure
that pay as you go funding is available for construction projects.
Management has taken strong initiatives to reduce expenses. Operating expenses
were reduced by 10% in FY 2010 due to the elimination of approximately 25% of
manual cash collectors and reducing some back-office staff. In FY 2011,
operating expense grew approximately 5% to $180 million from $172 million. For
FY 2012, operating expenses declined by 3.5% to $173.7 million, reflecting in
large part the transition all-electronic tolling on the Homestead Extension.
Operating expenses are projected to grow by a reasonable 2.9% in fiscal 2013
and through the first half of the period expenditures are tracking slightly
below target. Fitch recognizes management's historically conservative forecast
assumptions and the demonstrated track record of outperforming the budget.
Additional conversions to all-electronic tolling are expected in the coming
years, and as such projects move forward, careful oversight and management of
costs associated with implementation and operation will be critical.
Fitch's Base Case assumes the indexing of tolls going forward, greater traffic
diversion in FY 2013 and slower traffic growth through the forecast period
when compared to the sponsor case. Operating expense growth is assumed to be
above the sponsor forecast but consistent with historical levels. Under this
scenario, Fitch expects DSC ratios to be at least 2x in the medium term.
Fitch's Rating Case assumes somewhat slower traffic and revenue growth and
slightly higher growth in operating expenses when compared to the base case.
Under this scenario, Fitch forecasts coverage levels to decline to just under
1.9x in the near-to-medium term with growth resuming thereafter. To the extent
that revenues and operating expenses produce coverage levels below 2x for a
sustained period, toll increases above inflationary levels would be necessary
to maintain financial flexibility consistent with the rating level. It should
be noted that the policy to increase tolls at CPI does not preclude the
turnpike from larger increases should they be necessary.
The turnpike system operates as an enterprise within FDOT. Its facilities
include the Mainline, segments of which were operational in the 1950s, the
Sawgrass, Seminole, and Veteran's expressways, the Southern Connector
Extension, the Polk and Suncoast parkways, and Western Beltway, Part C. A
connection linking I-4 with the Selmon Expressway in Tampa is expected to
become part of the system in FY 2014.
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 12, 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
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Kenneth T. Weinstein, +1-212-908-0571
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
Chad Lewis, +1-212-908-0886
Seth Lehman, +1-212-908-0755
Elizabeth Fogerty, +1-212-908-0526
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