Fitch Ratings has assigned an 'A' rating to the following new issues for the city of Miami, FL (the city) Department of Off-Street Parking (the department):
--$59.4 million tax-exempt parking system revenue and revenue refunding bonds series 2009A;
--$6.745 million taxable parking system revenue and revenue refunding bonds series 2009B.
Additionally Fitch upgrades the $5.925 outstanding parking system revenue refunding bonds, series 1998 to 'A' from 'A-'. The Rating Outlook on all bonds is Stable.
The upgrade to 'A' from 'A-' primarily reflects the solid financial performance of the system, which has produced annual debt service coverage of between 2.7 times (x) and 3.4x. In addition, the city adopted an ordinance in 2005 allowing the department to raise rates annually at 3% without approval from the city. Revenue growth has been derived from a combination of growth in the number of on- and off-street parking spaces and a rate increase in 2006. Surplus revenue flows back to the city's general fund and provides a significant incentive for management to proactively manage costs and also to ensure that the stability of surplus revenue flows back to the city.
The 'A' rating reflects the department's monopoly position over essential on-street parking spaces in the Miami central business district, which comprises about half of the system's revenues; moderate economic rate-making flexibility and the authority to increase rates at an average annual rate of 3% per year without city council approval; the department's ability to expand and reposition metered parking spaces in designated zones to maximize revenue; the department's operation of 10 different parking garages, 56 surface lots and over 10,000 on-street parking spaces provides revenue diversity and minimizes reliance on any single system component and a strong incentive to provide excess cash to the city of Miami. The rating also reflects the department's low leverage (5.0-7.0x net debt/EBITDA) and debt service coverage which is anticipated to remain meaningfully above 2.0x. Concerns for the rating include: moderate dependence on rate increases over time; competition for off-street parking from private operators; the potential for additional leverage to cover renewal and rehabilitation expenses and potentially provide the city with additional cash; the department's minimal internal liquidity; and the potential for increased elasticity and political resistance to the department's rate increases.
The bonds are special and limited obligations secured by a pledge of net revenues of the city's parking system, the right of the city and the department to receive net revenues, and money and investments and interest thereon of funds and accounts established under the bond ordinance. The bonds are being issued to finance the acquisition, construction and installation of the G1 garage (discussed below), refund the department's outstanding $41 million in series 2008 variable-rate debt, pay $6.6 million in swap termination costs, fund a $4.9 million debt service reserve fund, and pay the costs of issuance. The bonds have a rate covenant of 1.5x debt service coverage on net revenues from system rates and charges, and a one-year historical and five-year projected 1.5x additional bonds test.
Construction of the G1 parking garage began in 2006 with the demolition of the existing 515-space garage to create a new 852-space garage and is expected to be completed in December 2009. Cost increases on the garage, adjacent to the new Wilkie D. Ferguson federal courthouse, are the result of scope increases, including 152 added spaces and additional office space as well as general construction cost increases. The final cost of the garage is estimated to be $36.9 million, up from $25.9 million in 2006.
The authority runs nine other off-street parking lots at various stages in their lifecycles. Consulting engineer reports prepared for the department indicate that at least two garages have a significant amount of concrete damage Findings indicate that the damage has significantly worsened and repair is highly recommended immediately. Management expects these remediations to cost $845,000 over the next several months. It is unclear if several other garages have a similar amount of deferred maintenance.
The Miami parking system has been steadily gaining spaces for the past five years with 17,500 spaces in fiscal 2004 and 33,000 spaces as of 2009. Per the department's charter with the city, it is able to place or move meters in most areas within the city proper that are zoned as commercial or mixed-use streets. Additionally, the department has benefited from use of 'pay and display' machines (PADs) that offer numerous operating efficiencies for revenue maximization in the on-street parking system. After the 2005 Parking Rate ordinance allowing the department to increase parking rates at 3% annually, the city increased rates in fiscal 2006 and plans to increase rates every three years thereafter at 9%. The combined result of the expanding system, improving technologies, and rate increases has caused revenues to grow from $13 million in 2004 to $24 million in 2008. Despite the economic downturn, 2009 parking revenue is expected to be down only 4.8%.
The planned fiscal 2009 rate increase by the department was delayed in light of the national economic downturn. However, the city has elected to increase rates on parking as a part of a larger budgeting effort with new rates going into effect in November 2009. As a result the department is anticipating nearly $4 million in additional revenue by fiscal 2011. The 2009 rate increase delay may suggest a political reluctance to increase rates. However, given the strong incentives by the city to realize the excess cash generated from the system, political risk may be somewhat mitigated.
Operating expenses have increased over the past five years as the system has expanded, with operating expenses climbing from $9.6 million in fiscal 2004 to $17.2 in fiscal 2008. However, on a per space basis, expenses have remained essentially flat. Debt service coverage on the bonds has fluctuated between 2.71x and 3.44x over the past five years with fiscal 2009 coverage expected to be 2.9x.
The department manages on-street and off-street parking operations through metered spaces, surface parking lots, and garages. The department shares ticketing, towing, and parking enforcement responsibilities with the city and Miami-Dade County. Department revenues are derived primarily from the meter, lot, and garage operations, with no funds flowing from parking enforcement activities. The department also operates the Gusman Center and Olympia Building Complex. The department is an agency and instrumentality of the City of Miami, governed by a five-member board of directors appointed by the city commission.
The application of the following criteria was used to derive the rating of the above referenced bonds: Rating Criteria for Infrastructure and Project Finance, dated Sept. 29, 2009.
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