Fitch Ratings affirms the underlying 'A' rating on $5.4 million Cameron County, TX International Toll Bridge System revenue bonds, series 1998, and assigns an 'A' rating to $4 million International Toll Bridge System revenue refunding bonds, series 2007, which were issued to refund the previous series 1997 revenue bonds. Both outstanding series of bonds are secured by net revenues of the Cameron County International Bridge System (the bridge system). The Rating Outlook on the bonds is Stable.
In addition, the bridge system has an outstanding obligation of $4.3 million to Cameron County relating to the 2005 refunding of its 1996 series revenue bonds. This obligation is on parity with the bridge system's revenue bonds, and is considered in the calculation of debt service obligations and debt service coverage levels for the bridge system.
The 'A' rating reflects the bridge system's favorable historical financial performance; stable liquidity levels; competitive toll rates relative to competing facilities in the area; moderate debt position with relatively short maturity and no anticipated future bonding needs; legal protections with backup pledges to meet debt service; and stable service area. The rating also incorporates concerns regarding the bridge system's susceptibility to economic cycles on both sides of the U.S./Mexican border, particularly in the manufacturing sector; potential impact of changes in security/border policy; a history of declining annual traffic in recent years; competition from other area bridges; and the sizable annual transfers to the Cameron County (the county) general fund and partner cities.
The Stable Outlook reflects the bridge system's positive long-term economic prospects driven by U.S.-Mexico trade, which serves to stabilize traffic and revenue levels over time, and management's demonstrated willingness to raise tolls to generate a stable revenue profile.
The system comprises three bridges located in the greater Brownsville-Harlingen area: the Gateway Bridge that was acquired in 1960, the Free Trade Bridge that opened in 1992, and the Veteran's Bridge that opened in 1999. Total crossings have shown decreases in five out of the past six years, from fiscal year (FY) 2003 to FY2008, with a compound annual growth rate (CAGR) decrease of 3.9%. For FY2008 total crossings decreased by 9.1%, while the 10 months to July 2009 show crossings down 11.1% due to economic downturns in the U.S. and Mexico. This downward trend is mitigated by the region's long-term economic prospects driven by U.S.-Mexico trade, which provide a consistent base of traffic.
The bridge system has instituted toll increases to make up for declines in traffic experienced in recent years. Toll rates were last increased for passenger vehicles and pedestrians in FY2006, and for commercial vehicles in FY2008. Further passenger toll increases are currently being discussed. Toll increases have resulted in revenue stability between FY2003 and FY2008 despite traffic declines, with a CAGR of 1.0% over the period. FY2008 net toll revenues of $13 million were sufficient to provide a high 4.62 times (x) coverage of debt service, with coverage levels ranging between 3.40x and 6.20x since FY2001. Bridge system toll rates are adjusted periodically to match rates for neighboring international bridge crossings. Fitch estimates that current traffic and system toll rates are sufficient to provide debt service coverage well above the 1.40x rate covenant, even with an average annual decrease of 2.5% in system traffic through final maturity of the debt in 2018.
The system supports subordinated transfers to the Cameron County general fund, which equaled approximately $7 million in FY2008. Though these transfers may prevent liquidity from accumulating within the system, they pose little risk to the system as they help drive toll increases and are subordinated to payment of operating expenses, debt service, and required fund deposits. The system's liquidity position is adequate, with $4.8 million of cash and investments in FY2008 representing 29% of total operating revenues. Cash and investment balances have averaged $3.6 million over the last five years.
While Cameron County is the sole owner of the U.S. half of all three bridges, other local municipalities participated in the two newer bridges by sharing in initial operating deficits with the benefit of also sharing in any surpluses as specified in the interlocal agreements. After six years of operations, the Free Trade Bridge generated a surplus beginning in fiscal 1999. The interlocal agreement between the cities of San Benito and Harlingen and the county calls for surpluses, after the payment of operations and maintenance as well as 1.4x debt service on the bridge, to be split 25% each for the cities and 50% for the county. The Veterans Bridge, which shares surpluses evenly between the City of Brownsville and the county, has posted surpluses since its inception in fiscal 1999. The county distributed $2.5 million to partner cities in FY2008.
Cameron County's bridge system faces some exposure to competition from neighboring international bridge facilities (Pharr-Reynosa, Brownsville & Matamoros Bridge, Anzalduas Bridge). However, the competing facilities cater to various types of traffic and provide access to different destinations from those served by the Cameron County bridges. There is some competition for passenger vehicle traffic from the privately owned Brownsville & Matamoros bridge, located less than 1 mile from Cameron County. The Pharr-Reynosa bridge, located 30 miles from Cameron County, provides some competition for commercial traffic; however, the facility mainly provides access to the interior of Mexico rather than the industrial areas closer to Matamoros. Finally, the Anzalduas Bridge in the McAllen area, opening in the second half of 2009 to commercial traffic, is expected to have limited impact on bridge system crossings due to its distance from Brownsville.
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