Fitch Ratings assigns a rating of 'AA/F1+' to the Riverside County Transportation Commission (RCTC), CA's $185,000,000 sales tax revenue bonds (limited tax bonds) 2009 series consisting of:
--$85,000,000 2009 Series A;
--$65,000,000 2009 Series B; and
--$35,000,000 2009 Series C.
The Rating Outlook for the bonds is Stable. Fitch also assigns a long-term bank bond rating of 'AA' to RCTC's sales tax revenue bonds (limited tax bonds) 2009 series consisting of series A, series B and series C. Fitch notes that the bonds are not currently in bank bond mode. In addition, Fitch affirms RCTC's outstanding sales tax revenue bonds (limited tax bonds) 2008 series A at 'AA'.
The 'AA' long-term rating is based on RCTC's long-term credit factors, primarily reflecting its very high debt service coverage provided by the gross sales tax pledge, the size and breadth of the underlying economic base, and the flexible nature of its capital expenditures. Credit risks include the economically sensitive nature of pledged revenue which has already declined more than 21% since its peak, the sizeable demand for transportation funding, and the cost escalations inherent to large capital projects which could lead to higher than expected leverage. Maintaining strong coverage of debt service obligations and assuming conservative revenue projections while implementing the approximately $4 billion 10-year capital improvement plan will be key to sustaining high credit quality.
The short-term 'F1+' rating is based on the liquidity support provided by JPMorgan Chase Bank, N.A. in the form of three standby bond purchase agreements (SBPAs). The SBPAs provide for the payment of the purchase price of tendered bonds during the weekly and daily rate modes if remarketing proceeds are insufficient to pay the purchase price. Each of the SBPAs is sized to provide for the entire principal amount of the bonds, plus 34 days of interest at the maximum interest rate of 12%, based on a year of 365 days. Each SBPA will expire on Sept. 30, 2011 unless such date is extended or upon the occurrence of other events of termination, according to its terms. Fitch's short-term rating on the bonds will expire upon any expiration or termination of the SBPAs. The bonds are expected to be available for delivery on or about Oct. 1, 2009.
Debt service on the bonds is secured by a first lien on the one-half cent sales tax revenues collected from July 2009 through June 2039. Voters originally approved the tax in 1988; in November 2002 voters renewed it and approved a limit on outstanding indebtedness of $500 million. In addition to this debt limit, bondholders are protected by a 1.5 times (x) maximum annual debt service (MADS) additional bonds test. While RCTC's internal policy is to maintain debt service coverage of at least 2.0x, coverage will need to stay well-above that level to remain consistent with the current rating level. Pending near-term revenue performance and results of environmental planning through 2014, RCTC may request an increase to the current $500 million debt limit which would dilute coverage.
Even with estimated 2010 sales tax revenues down 23% from the 2007 peak, coverage of projected MADS of $14.2 million is a very high 8.6x. If the additional $315 million in debt authorization is issued, MADS coverage is still strong at 3.2x. Finally, if the additional $315 million in debt is issued and assuming a stress scenario where sales tax revenues fall a further 33% from fiscal 2009 actual levels, MADS coverage still remains a healthy 2.1x. Additional financial strength accrues from RCTC's strong balance sheet; unrestricted cash and investments totaled $448.7 million, equal to 449 days of cash on hand in fiscal 2008.
RCTC sales tax receipts have declined almost every month (year over year) since September 2007 as a result of the collapse of the local housing and construction markets which have impacted the entire regional economy. Nonetheless, Fitch positively views the long-term outlook for continued economic growth based on the affordability and availability of land. Fitch believes that RCTC's regular monitoring of sales tax revenues, including mid-year projection revisions and quarterly analyses provided by an outside consultant, and its commitment to maintaining at least 2.0x MADS coverage provides a framework to conservatively project revenues and plan debt and capital spending appropriately.
The bonds initially bear interest in the weekly rate mode and may be converted to a daily, term, commercial paper, long-term or fixed rate interest rate mode. While the bonds bear interest in the weekly or daily rate mode, interest is payable on the first business day of each calendar month, commencing Nov. 2, 2009. The bonds are subject to mandatory tender: (1) on an interest rate mode conversion date; (2) while the bonds are in a commercial paper mode, at the end of each interest rate period; (3) at the end of an interest rate period for bonds in a long-term rate mode; (4) upon the substitution, termination or expiration of the liquidity facility; or (5) receipt by the trustee of a notice from the liquidity provider that an event of default under the SBPA has occurred. The bonds are also subject to optional and mandatory redemption provisions.
The proceeds of the 2009A-C bonds will refund all of the RCTC's sales tax revenue bonds (limited sales tax revenue bonds) series 2008 and retire approximately $53.5 million of outstanding commercial paper notes, series A. The series 2009A-C bonds mature from June 1, 2010 through 2029, 10 years prior to the expiration of the 2009 Measure A sales tax.
RCTC oversees funding and coordination of all public transportation services within Riverside County, including Metrolink and various local agencies. In this role, RCTC has limited exposure to transportation operating risk. Operations by local and other entities have historically shown efficiencies with farebox recovery ratios at more than 42% per rail line. Public rail transportation services and ridership within the county continued to grow through 2008; weekday trips on commuter rail increased 8.5% on average annually from fiscal 1998-2008 and fiscal 2008 weekday ridership was 127% above the 1998 level.
RCTC also has the taxing and implementation authority for voter approved 1989 Measure A and its renewal, 2009 Measure A. Both half-cent sales tax measures were adopted to fund specific capital programs. While many projects will be supported by Measure A sales tax revenues, a significant amount of funding will need to come from federal and state sources and potentially from toll revenues. The original and latest estimate for the 2009 Measure A revenues totaled a sizable $4.7 billion over the next 30 years. RCTC has also adopted a 10-year priority projects program, which totals $4.7 billion. The bulk of the 10-year priority projects ($3.6 billion) are commitments to build, specifically freeway improvements to the SR-91 and I-15 with construction start dates in 2011 and 2015, respectively. Importantly, management indicated these projects are expected to be mostly funded by toll revenues rather than sales tax revenues. Preliminary engineering and environmental work are underway for both projects and each has received federal and state tolling authority. While RCTC has limited transit operating exposure, it does have exposure to construction risk. Fitch will continue to monitor RCTC's financial plans as it solidifies funding sources and spending plans.
Historical financial operating results remain healthy, which is notable given the prolonged sales tax revenue declines. RCTC's operating statement illustrates the importance of sales tax revenue, representing 70% to 79% of total operating revenues between fiscal years 2003 and 2008. Total operating revenues at RCTC are not particularly diverse, but have historically been consistent and grew 14% on average annually between fiscal years 2003 and 2008. RCTC has a wide array of programs that it administers, the expenditures for which nearly kept pace with total operating revenues, as total operating expenditures grew 17% on average annually between fiscal years 2003 and 2008. Due to the nature of capital projects and programmed expenditures, Fitch expects some fluctuation in the relationship between operating revenues and operating expenditures, as evidenced by RCTC's operating ratio, which has ranged from negative 22% to positive 30% over the five-year historical period. Fitch expects this relationship to continue to fluctuate due to the implementation of the 2009 Measure A CIP.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 'www.fitchratings.com'. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
Contacts:
Fitch Ratings
Karen Ribble, 415-732-5611, San Francisco
(the
long-term rating)
Linda Friedman, 212-908-0727, New York
(the
short-term rating)
or
Media Relations:
Cindy Stoller,
212-908-0526, New York
Email: cindy.stoller@fitchratings.com