Fitch Ratings has assigned an 'A-' rating to Chesapeake Bay Bridge and Tunnel District, VA's (the district) general resolution revenue bonds, refunding series 2008A, and has upgraded the rating on the series 1998 to 'A-' from 'BBB'. The Rating Outlook is Stable.
In addition, the revenue bonds refunding series 2001 and the general resolution revenue bonds, refunding series 2001, matured on July 1, 2010.
RATING RATIONALE:
The assignment and upgrade reflects the district's reduced annual debt service obligations and improved debt service coverage following the maturity of the series 2001 bonds. In addition, the rating reflects the monopolistic nature of the district's bridge and tunnel facility, which provides the only linkage between Virginia's eastern shore and the metropolitan area of South Hampton Roads, VA; mature traffic demand; healthy financial performance and a moderate economic rate-making flexibility which allows the district to accumulate cash to fund future expansion of the parallel tunnel facility contemplated to take place in 2025. While unrestricted cash is being built to fund the expansion, cash to debt now stands above 1 times (x).
Key credit concerns include the variable interest rate on the series 2008A, which accounts for about 63% of outstanding debt. Although the district has entered into two interest rate swaps to synthetically fix the rate, it is still exposed to basis risk and counterparty credit risk. Also, the district is exposed to seasonal leisure traffic whose growth may be affected by congestion and increased travel times during peak periods.
KEY RATING DRIVERS:
The additional bonds test is relatively low at 1.2x of maximum annual debt service and the rating is predicated on the district's maintaining its financial flexibility and not taking on additional leverage prior to the construction of the parallel tunnel facility, expected to start in 2025, one year before the outstanding debt matures.
SECURITY:
The general resolution bonds are primarily secured by net revenues, subject to the prior lien of the senior general revenue bonds which matured on July 1, 2010.
CREDIT SUMMARY:
Financial data for June 2010 indicate that toll revenues for the fiscal year increased by 1.4% to $45.1 million after declines of 4.6% and 2.1% in fiscal years 2009 and 2008, respectively. This trend reflects the rebound in traffic, which increased by 1.6% after falling by 3.6% and 1.6% over the corresponding periods. The rebound in traffic was tempered by snow storms in January and February 2010, when traffic fell by about 10.1%. The first three months of fiscal year 2011 show an increase of 3.5% in traffic and 1.9% in toll revenue. The average toll paid fell slightly to $12.84 from $12.87 in the previous year. The toll rate schedule remains the same since the last increase in 2004, with cars paying $12 and trucks $35 for a one way trip.
Operating expenses increased by 1.7% in fiscal year 2010 after remaining flat in fiscal year 2009. In addition, the district reserves for annual periodic maintenance capital expenditures at the beginning of each fiscal year. These preservation expenses are determined by the capital needs to maintain the overall infrastructure in a generally good or better condition, as determined by the independent annual inspection of the facility. In fiscal year 2010 it amounted to $3.4 million, down from $13.7 million the prior year. There were some delays in project implementation which caused certain expenditures to be rolled over to fiscal year 2011. The six-year capital development budget for fiscal year 2011 to 2016 is estimated to cost $62 million and will be funded from cash flow.
The total debt service coverage ratio (DSCR)in fiscal 2010 was 1.8x. The coverage ratio is projected to remain at 1.8x in 2011 and increase significantly in fiscal year 2012 following the reduction in debt service obligations to about $11.3 million from $21 million due to the maturity of the series 2001 bonds. The district has also accumulated about $173 million in unrestricted cash and investments as of the end of June 2010, monies which are projected to increase as the district continues accumulating cash to fund the parallel tunnel project.
The Chesapeake Bay Bridge and Tunnel is a 20-mile, four-lane trestle and bridge, and two-lane tunnel crossing the Chesapeake Bay between the cities of Virginia Beach and Norfolk to the south and Northampton County on the eastern shore of Virginia to the north. The facility is part of U.S. Route 13, the main north-south highway on Virginia's eastern shore and the metropolitan area of South Hampton Roads, VA. The Chesapeake Bay Bridge and Tunnel Commission is the governing body of the district and was established in 1954 to construct, maintain, repair and operate the bridge and tunnel. The district is led by a governing body consisting of 11 members appointed by the governor of the commonwealth of Virginia. One member represents the commonwealth transportation board and the remaining members represent the localities within the district comprising Virginia Beach, Norfolk, Portsmouth, Chesapeake, Hampton, Newport News and the eastern shore counties of Northampton and Accomack. Members serve four-year terms with a maximum of two terms.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Rating Criteria for Infrastructure and Project Finance', Aug. 13, 2010.
--'Rating Criteria for Toll Roads, Bridges and Tunnels' Aug. 10, 2010.
Applicable Criteria and Related Research:
Rating Criteria for Infrastructure and Project Finance
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=548345
Rating Criteria for Toll Roads, Bridges, and Tunnels
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=543265
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