Fitch Ratings affirms the 'A-' rating on the $155.5
million outstanding Richmond Metropolitan Authority, VA (RMA)
expressway system revenue bonds. The Rating Outlook on the expressway
system bonds is Stable. Though the system's financial performance is
expected to weaken in 2005 as a result of increased roadway
competition and from increased costs and lost revenues related to the
significant flooding which occurred in August 2004, Fitch believes
that these effects are limited to the near term and that long-term
expressway system traffic and financial margins will remain consistent
with the current rating.
The bonds are secured by net toll revenues of the expressway system. The RMA, a political subdivision of the Commonwealth of Virginia, was created in 1966 to provide and operate an urban expressway system between downtown Richmond and its surrounding suburbs. RMA's three facilities (the Powhite Parkway, the Downtown Expressway, and the Boulevard Bridge) each opened between 1969 and 1976 and provide an integral link in the regional transportation system for commuters traveling between downtown Richmond and its western suburbs. RMA also maintains $20.3 million in parking system bonds, which are secured by non-expressway revenue sources and are not rated by Fitch.
RMA's 'A-' rating reflects the expressway system's long history of operation in a stable metropolitan area, demonstrated rate-making flexibility and financial support provided by the city of Richmond. RMA also benefits from a moderate overall debt load and a manageable pay-go funded capital plan, which contains some potential for system expansion. Credit concerns center principally on the limited ability to deal with changes or increases in operating or capital obligations within the current financial envelope, and also on the growing subordinated debt obligation to the city of Richmond. The Stable Rating Outlook is based on the historical resiliency of traffic, on RMA's limited need for future revenue bond debt and on the strength of the Richmond, VA metropolitan statistical area (MSA).
In fiscal 2004 (fiscal year ending June 30) the expressway system registered approximately 59 million toll transactions, representing a 3.8% increase over fiscal 2003 and a 2% growth rate on average annually since 1994. System revenues of $25.4 million in fiscal 2004 increased 4.1% from fiscal 2003 and represented a 4.8% average annual growth rate over the last decade. The growth in revenues is due principally to a system-wide toll rate increase implemented in fiscal year 1998, when 2-axle vehicle rates were raised by $0.15 system-wide.
System traffic through the first eight months of fiscal 2005, however, reflects a 3.3% decrease on the same period the prior year due the expansion of state road 288. It should be noted that traffic and revenue data for this period is also influenced by the lingering effects of Tropical Storm Gaston, discussed below. The expanded portion of State road 288 opened in October 2004 and runs close to western portions of Powhite Parkway, offering a free north-south alternative for drivers who had previously utilized the southwestern portions of the Powhite. Traffic on the Powhite, which historically accounts for 60% of system's toll transactions and revenues, fell 12% year to year for the months of November and December 2004, before losses slowed to 10% in the months from December 2004 through February 2005.
Such traffic diversions are typical immediately following the opening of competing free roads, and management expects to gauge the overall impact by November 2005. Given the slowed loss rate in the three most recent months of fiscal 2005, it is possible that the percent of total system traffic lost to 288 will be significantly less than the 5% drop in traffic which had been forecasted by management. Year to date traffic for fiscal year 2005 on RMA's other facilities (the Downtown Expressway and the Boulevard Bridge) shows a 1-2% increase on the prior year.
Fiscal 2004's net system revenues of $11.7 million were sufficient to provide debt service coverage of approximately 1.63 times (x). RMA's financial forecast, which runs through 2014, calls for modest traffic growth of approximately 1.5% per year, reflecting both the strong yet mature economy of the Richmond area and the increased competition from state route 288. Current forecasts do not include any toll-rate increases, giving RMA some flexibility to raise tolls should it prove necessary in the future. Debt service coverage through the forecast period is expected to remain at or above 1.50x, which is lower than levels experience since the last toll rate increase. Maintenance of debt service coverage above 1.50x is a key rating consideration.
Fiscal 2005 financial and traffic performance will also reflect the negative impact of Tropical Storm Gaston, on Aug. 30, 2004, which caused widespread flooding in the Richmond area and forced the closure of portions of the expressway system and surrounding roadways for 1-2 days. Though the system re-opened to traffic 1-2 days later, water depths of up to 10 feet at the Powhite's toll plazas prevented electronic toll collections until Sept. 15th, and eliminated the ability to validate manual toll collections until March 15, 2005. During this period the toll payment violations rate increased, as the toll gate was raised as drivers dropped any combination of coins into a reservoir. The RMA's insurance provider has set aside approximately $6.1 million in order to settle business interruption and equipment replacement claims. The total out of pocket cost to date to RMA is estimated at $437,000.
RMA's multi-year (2005-2009) capital improvement plan (CIP) is highly modular and projects $31.6 million in potential project costs. Phase 1 of the CIP (a widening of eastern portions of the Powhite) is underway and is expected to be completed in May 2005, while phase 2 (the addition of express lanes with high speed transponder readers) will be postponed pending evaluation of the long term impact of state route 288. The projects are intended to keep the system in a state of good repair and will be cash funded on a pay-as-you-go basis. Management has no near-term plans to issue revenue bond debt, but may need to raise system toll rates to accommodate significant debt funded capital expansion.
The stable economy of the Richmond MSA provides the basis for future system growth. The RMA's service area of the city of Richmond (rated 'AA' by Fitch) and the counties of Henrico ('AAA') and Chesterfield ('AAA') have a combined population of nearly 720,000. The MSA's 2003 median household buying income of $41,112 is comparable to the state ($41,979) and higher than the nation ($38,201). The region's 2004 unemployment of 4.2% remains low, but does reflect a slowdown in economic development from the 2% unemployment rate for 2000.
Although RMA currently owes $52.7 million in subordinated loans to the city of Richmond, comprised of $22.8 million in principal and $29.9 million in accrued interest. Richmond's support is considered a positive factor and Fitch considers the city to be a patient investor, allowing the system to retain the bulk of surplus revenues after operations and essential maintenance through deposits into the Repair and Contingency Fund. This commitment from the city has enabled the RMA to invest in periodic renewal and rehabilitation projects on a pay-as-you-go basis and maintain the facilities in good condition while reducing its debt load. Fitch views the subordinated loans as a form of equity investment given that control in the expressway system, as written in the enabling legislation, will be given to the city when all expressway system debt has been repaid. Though repayment of the notes has been pushed out by mutual agreement of the parties, the growing liability to the city could place constraints on management's ability to accommodate future capital projects or revenue shortfalls.
The bonds are secured by net toll revenues of the expressway system. The RMA, a political subdivision of the Commonwealth of Virginia, was created in 1966 to provide and operate an urban expressway system between downtown Richmond and its surrounding suburbs. RMA's three facilities (the Powhite Parkway, the Downtown Expressway, and the Boulevard Bridge) each opened between 1969 and 1976 and provide an integral link in the regional transportation system for commuters traveling between downtown Richmond and its western suburbs. RMA also maintains $20.3 million in parking system bonds, which are secured by non-expressway revenue sources and are not rated by Fitch.
RMA's 'A-' rating reflects the expressway system's long history of operation in a stable metropolitan area, demonstrated rate-making flexibility and financial support provided by the city of Richmond. RMA also benefits from a moderate overall debt load and a manageable pay-go funded capital plan, which contains some potential for system expansion. Credit concerns center principally on the limited ability to deal with changes or increases in operating or capital obligations within the current financial envelope, and also on the growing subordinated debt obligation to the city of Richmond. The Stable Rating Outlook is based on the historical resiliency of traffic, on RMA's limited need for future revenue bond debt and on the strength of the Richmond, VA metropolitan statistical area (MSA).
In fiscal 2004 (fiscal year ending June 30) the expressway system registered approximately 59 million toll transactions, representing a 3.8% increase over fiscal 2003 and a 2% growth rate on average annually since 1994. System revenues of $25.4 million in fiscal 2004 increased 4.1% from fiscal 2003 and represented a 4.8% average annual growth rate over the last decade. The growth in revenues is due principally to a system-wide toll rate increase implemented in fiscal year 1998, when 2-axle vehicle rates were raised by $0.15 system-wide.
System traffic through the first eight months of fiscal 2005, however, reflects a 3.3% decrease on the same period the prior year due the expansion of state road 288. It should be noted that traffic and revenue data for this period is also influenced by the lingering effects of Tropical Storm Gaston, discussed below. The expanded portion of State road 288 opened in October 2004 and runs close to western portions of Powhite Parkway, offering a free north-south alternative for drivers who had previously utilized the southwestern portions of the Powhite. Traffic on the Powhite, which historically accounts for 60% of system's toll transactions and revenues, fell 12% year to year for the months of November and December 2004, before losses slowed to 10% in the months from December 2004 through February 2005.
Such traffic diversions are typical immediately following the opening of competing free roads, and management expects to gauge the overall impact by November 2005. Given the slowed loss rate in the three most recent months of fiscal 2005, it is possible that the percent of total system traffic lost to 288 will be significantly less than the 5% drop in traffic which had been forecasted by management. Year to date traffic for fiscal year 2005 on RMA's other facilities (the Downtown Expressway and the Boulevard Bridge) shows a 1-2% increase on the prior year.
Fiscal 2004's net system revenues of $11.7 million were sufficient to provide debt service coverage of approximately 1.63 times (x). RMA's financial forecast, which runs through 2014, calls for modest traffic growth of approximately 1.5% per year, reflecting both the strong yet mature economy of the Richmond area and the increased competition from state route 288. Current forecasts do not include any toll-rate increases, giving RMA some flexibility to raise tolls should it prove necessary in the future. Debt service coverage through the forecast period is expected to remain at or above 1.50x, which is lower than levels experience since the last toll rate increase. Maintenance of debt service coverage above 1.50x is a key rating consideration.
Fiscal 2005 financial and traffic performance will also reflect the negative impact of Tropical Storm Gaston, on Aug. 30, 2004, which caused widespread flooding in the Richmond area and forced the closure of portions of the expressway system and surrounding roadways for 1-2 days. Though the system re-opened to traffic 1-2 days later, water depths of up to 10 feet at the Powhite's toll plazas prevented electronic toll collections until Sept. 15th, and eliminated the ability to validate manual toll collections until March 15, 2005. During this period the toll payment violations rate increased, as the toll gate was raised as drivers dropped any combination of coins into a reservoir. The RMA's insurance provider has set aside approximately $6.1 million in order to settle business interruption and equipment replacement claims. The total out of pocket cost to date to RMA is estimated at $437,000.
RMA's multi-year (2005-2009) capital improvement plan (CIP) is highly modular and projects $31.6 million in potential project costs. Phase 1 of the CIP (a widening of eastern portions of the Powhite) is underway and is expected to be completed in May 2005, while phase 2 (the addition of express lanes with high speed transponder readers) will be postponed pending evaluation of the long term impact of state route 288. The projects are intended to keep the system in a state of good repair and will be cash funded on a pay-as-you-go basis. Management has no near-term plans to issue revenue bond debt, but may need to raise system toll rates to accommodate significant debt funded capital expansion.
The stable economy of the Richmond MSA provides the basis for future system growth. The RMA's service area of the city of Richmond (rated 'AA' by Fitch) and the counties of Henrico ('AAA') and Chesterfield ('AAA') have a combined population of nearly 720,000. The MSA's 2003 median household buying income of $41,112 is comparable to the state ($41,979) and higher than the nation ($38,201). The region's 2004 unemployment of 4.2% remains low, but does reflect a slowdown in economic development from the 2% unemployment rate for 2000.
Although RMA currently owes $52.7 million in subordinated loans to the city of Richmond, comprised of $22.8 million in principal and $29.9 million in accrued interest. Richmond's support is considered a positive factor and Fitch considers the city to be a patient investor, allowing the system to retain the bulk of surplus revenues after operations and essential maintenance through deposits into the Repair and Contingency Fund. This commitment from the city has enabled the RMA to invest in periodic renewal and rehabilitation projects on a pay-as-you-go basis and maintain the facilities in good condition while reducing its debt load. Fitch views the subordinated loans as a form of equity investment given that control in the expressway system, as written in the enabling legislation, will be given to the city when all expressway system debt has been repaid. Though repayment of the notes has been pushed out by mutual agreement of the parties, the growing liability to the city could place constraints on management's ability to accommodate future capital projects or revenue shortfalls.
© 2005 Business Wire
