Fitch affirms the 'BBB' rating of the Florida Department of Transportation's (FDOT, or the department) $270,000,000 Transportation Infrastructure Finance and Innovation Act (TIFIA) Rental Car Facility (RCF) loan for the Miami Intermodal Center (MIC). The Rating Outlook is revised to Positive from Stable.
The change in Outlook is based on the improving credit profile of the project with construction on the Miami Mover (MIA Mover) nearing completion and financial projections indicating a strong possibility the TIFIA loan will be amortized much sooner than originally anticipated due to a combination of transaction days ahead of forecast and operating expenses 40% below original projections. The MIA Mover is projected to be substantially complete and open to riders within the next two months. There are no reported construction delays related to the MIA Mover that would result in higher operating expenses payable from customer facility charge (CFC) revenues. FDOT's base-case forecast indicates the TIFIA debt will be paid off in 2027 compared with the initial projection of 2037 when the 2007 TIFIA loan was made. Should expenses fall short of forecast and transaction days exceed forecast, upward rating movement is possible.
KEY RATING DRIVERS:
--Miami International Airport (MIA) remains a strong rental car market and the participating rental car companies (PRCC) have significant economic incentive to use the RCF.
--Ability to levy contingent rent on participating rental car companies (PRCCs) provides protection against potential CFC revenue volatility.
--The RCF is a critical element of the MIC construction project to improve customer access and traffic circulation at the airport. FDOT has demonstrated a strong level of support and involvement in the project.
--Construction risk is largely mitigated. The RCF was completed in July 2010 and is currently fully operational. The MIA Mover is scheduled to be completed in September with no reported construction delays affecting the TIFIA loan.
--Debt structure focuses on ultimate recovery, providing flexibility to withstand multiple downside events with an ability to raise CFC rates and levy contingent rent on the PRCCs if economics warrant. The Oct. 1, 2044 maturity utilizes the facility's long probable economic life and provides significant cushion if the pace of debt repayment slows.
--Revenue is subject to the same economic and competitive factors that drive air passenger activity at MIA and is dependent on long-term positive trend growth in regional travel.
WHAT COULD TRIGGER A RATING ACTION:
Upgrade:
--Final completion of MIA Mover with no delays or subsequent increases in operating expenses above current estimates;
--Continued strong performance of CFC revenues and lower than expected operating costs supporting faster amortization of the TIFIA debt over the next one to two years.
Downgrade:
--A permanent downward shift in the level of transaction days and/or higher than expected operating expenses extending the expected amortization period of the TIFIA loan beyond current projections;
--Sustained reliance on contingent rent from PRCC to make debt service payments.
SECURITY:
The loan is secured by CFCs levied by Miami-Dade County, Florida, on rental car transactions at MIA, and to the extent the CFC are insufficient, contingent rent on the participating rental car companies operating at the RCF.
CREDIT UPDATE:
CFC revenue and rental car transaction volumes are generally in line with recent base case forecasts. Fiscal 2011 through May had collections of $24.5 million compared to $17.7 million for the same period in fiscal year 2010. Fiscal 2011 through May had transactions days of $5.3 million compared to transactions days of $4.7 million for the same period in fiscal 2010. Actual non-transportation RCF operating expenses have come in well below forecast since the opening of the facility in July 2010. For the first nine months of fiscal year (FY) 2011, actual RCF operating expenses totaled $1.9 million with only three months remaining. The current FY 2011 cost projection is $3.2 million vs. $5 million in the previously provided projections
The MIA Mover linking the MIC to the airport is expected to open in September 2011 at a cost of $260 million. There are no reported construction delays on the MIA Mover that would impact the repayment of the TIFIA Loan. Miami Central Station, a rail and bus station on 16.5 acres, is expected to open in August 2013 at a cost of $95 million.
The TIFIA loan consists of an initial $170 million borrowing in 2005 and an additional $100 million in 2007 to accommodate a construction cost increase from $190 million to $370 million. The borrower claimed cost increases were due to competing demand from a regional construction boom.
The RCF TIFIA loan is a highly structured financing with a cash waterfall managed by a trustee using the financial advisor's (Jeffrey A. Parker) computer model. Periodic interest can accrue through Oct. 1, 2012. Principal amortization, also beginning on that date, is 30% of any balance then in the secondary reserve fund. There is no pre-set amortization schedule; however, the sponsor's base case forecast indicates a 2027 repayment date, which is much earlier than the sponsor's original forecast of 2037. The faster amortization projection is based on higher transaction days and lower operating costs than originally projected. Fitch's sensitivity analysis indicates the date could push back nine years to 2036 if transaction days growth rate slows and/or expenses come in higher than expected. An amortization date of 2036 is still eight years earlier than final maturity in 2044.
Concession agreements of 15 years each from the opening date have been executed with 16 different PRCCs. The agreements allot each company a pre-set amount of space within the facility and also establish the base CFC schedule per rental car transaction day. The rental car companies collect the CFCs and remit them to the loan trustee. Additionally, they may be assessed rent (hereafter 'contingent rent) to help pay the TIFIA loan should CFC collections be insufficient to meet both facility expenses and maintain appropriate debt service coverage. Even if contingent rents are imposed, strong incentive remains for the PRCCs to support and use the RCF given that it allows them to shed the cost of maintaining their own facilities and shuttle bus services.
The rate covenant provides a clear framework for increasing CFCs and levying contingent rent on the PRCCs as needed. However, fee revenue remains subject to the same economic and competitive factors that drive air passenger activity at MIA.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Rating Criteria for Infrastructure and Project Finance,' (Aug. 16, 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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