Central Texas Regional Mobility Authority; Toll Roads Bridges

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1 Summary: Central Texas Regional Mobility Authority; Toll Roads Bridges Primary Credit Analyst: Todd R Spence, Dallas (1) ; [email protected] Secondary Contact: Peter V Murphy, New York (1) ; [email protected] Table Of Contents Rationale Outlook Related Criteria And Research OCTOBER 14,

2 Summary: Central Texas Regional Mobility Authority; Toll Roads Bridges Credit Profile Central Texas Regl Mobility Auth sr ln Central Texas Regl Mobility Auth Long Term Rating BBB-/Stable Upgraded Rationale Standard & Poor's Ratings Services raised its long-term and underlying rating (SPUR) to 'BBB' from 'BBB-' on the Central Texas Regional Mobility Authority's (CTRMA) outstanding senior lien revenue bonds. At the same time, Standard & Poor's raised its long-term rating and SPUR to 'BBB-' from 'BB+' on the authority's subordinate lien revenue bonds. The outlook on all ratings is stable. The raised rating reflects our view of the strong service area that provides a good base of demand for CTRMA system roads. In addition, the recent completion of the Manor Expressway, which was completed on time and within budget, reduces risk associated with ongoing construction projects. Initial traffic on the Manor Expressway is higher than projections provided at the start of construction. The ratings reflect our view of the authority's: General uncertainty associated with traffic and revenue forecasts for projects that rely on projections of wealth levels, residential and commercial development, development of competing and feeder facilities, and increasing toll rates; Dependence on system revenue growth to cover escalating annual debt service requirements, particularly in the earlier years; Potential additional system projects that will require additional debt; Relatively high toll rates of 25 cents per mile in 2013 on the 183A turnpike and 26 cents per mile by 2015 on U.S. 290; and Lower financial margins for the subordinate-lien debt. These above weaknesses are partly offset by our view of the authority's: Good operating history of the existing toll road's open sections; Continued growth in traffic and revenues during the current economic recession, illustrating continued development in the region and a growing travel demand; and Adequate projected senior-lien debt service coverage of approximately 1.8x or higher from 2015 forward, which will provide some cushion should traffic and revenues fall below projections. OCTOBER 14,

3 Summary: Central Texas Regional Mobility Authority; Toll Roads Bridges The senior lien bonds are secured by a senior lien pledge of revenues of the authority, after payment of operating costs. The indenture also has a junior lien between the senior and subordinate lien, but this lien has no debt outstanding, and the authority does not have plans to use it at this time. CTRMA owns and operates a toll road system in the Austin metropolitan area that currently includes two operational toll roads. Having opened to traffic in March 2007, the fully operational 183A toll road was financed with the series 2005 and 2010 senior lien bonds, a TIFIA loan, and the 2010 subordinate lien bonds. The 183A expansion was completed on April 6, 2012, and the project was completed on time and within budget. The authority completed construction of US 290 East, a 6.2-mile toll road with four direct connectors at the western terminus of the project. The U.S. 290 project was completed on schedule and within budget. Toll collections on U.S. 290 commenced on May 17, Initial average weekday transactions for U.S. 290 are above the initial forecast. The authority's current and planned debt is structured with escalating annual debt service. Therefore, strong growth in toll revenues will be necessary for the authority to provide adequate debt service coverage, particularly during the next 10 years. In our view, the socioeconomic and development trends in the corridor and metropolitan area provide the underlying demand for good traffic growth. Toll revenue for 2013 totaled $32.2 million, a 36% increase from The authority's net revenues have provided adequate coverage historically. Net revenues, equal to operating revenues less operations and maintenance (O&M) expenses on the system-provided senior lien coverage ranging from 1.57x to 2.02x from 2009 to In 2013, the second year that included subordinate lien debt service, overall coverage was 1.24x, including O&M expenses. The authority's preliminary financial projections, which include estimates for the Bergstrom Expressway, provide projected debt service coverage on the senior of about 1.82x or better during the life of the bonds. Debt service coverage on the senior and subordinate lien is at least 1.32x. We consider the financial forecast reasonable and believe it provides good coverage on the senior lien and adequate aggregate coverage. Under a stress scenario in which revenues are 20% below projections, senior lien coverage still remains at or above 1.36x, while subordinate lien coverage dips below 1.00x in two years to 0.99x. Any operational or financial performance below forecast would be a credit risk. The escalating debt service schedule requires consistent increases in traffic and revenues to meet the forecast. Solid projected debt service coverage is an important credit factor in our view, given the uncertainties inherent in traffic and revenue projections and consumer price index-linked toll rates. If the authority adds the Bergstrom Expressway to the system, we believe the construction and start-up risks associated with expanded system will be manageable, given the authority's track record of completing similar projects. For more information, please see the analysis published Oct. 14, 2014, on RatingsDirect. Outlook The stable outlook reflects our view of the toll road systems strong underlying demand provided by the Austin region. Given the authority's potential expansion projects and escalating debt service, revenue levels that fall below the financial forecast would be a sign of credit risk. Given the potential additional projects that will require additional debt, we do not anticipate raising the rating within the two-year outlook period. We could lower the rating if the authority OCTOBER 14,

4 Summary: Central Texas Regional Mobility Authority; Toll Roads Bridges experiences financial or operational performance that is below forecast. Related Criteria And Research Related Criteria Criteria: Toll Road And Bridge Revenue Bonds In The U.S. And Canada, Feb. 25, 2014 Ratings Detail (As Of October 14, 2014) Central Texas Regl Mobility Auth sr ln Central Texas Regl Mobility Auth (AGM) Unenhanced Rating BBB(SPUR)/Stable Upgraded Central Texas Regl Mobility Auth (AGM) Unenhanced Rating BBB-(SPUR)/Stable Upgraded Central Texas Regl Mobility Auth Unenhanced Rating BBB(SPUR)/Stable Upgraded Many issues are enhanced by bond insurance. Complete ratings information is available to subscribers of RatingsDirect at All ratings affected by this rating action can be found on Standard & Poor's public Web site at Use the Ratings search box located in the left column. OCTOBER 14,

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