Fitch Ratings this week placed its low investment-grade rating for Missouri's Lake of Ozarks Community Bridge Corp. on negative watch due to a downturn in bridge traffic this year and management's unwillingness to raise tolls.
The $41 million of BBB-minus rated bonds were sold in 1998 to refund previous debt. They mature in December 2026 and are secured by the net revenues of a toll bridge over the Lake of the Ozarks in central Missouri.
Analysts said demand this year is weak and bridge management has so far refused to raise toll rates to a level consistent with legal covenants made to bondholders and with an investment-grade rating. Officials have said they prefer to allow increased traffic to meet debt service needs in the future.
"To the extent that management does not act aggressively in the interests of bondholders within the next six months, Fitch will downgrade the bonds," analysts warned.
The bridge agency's current BBB-minus rating is the lowest level of investment-grade debt. Traffic in May, June, and July was down more than 10% over the same period last year, marking the sixth consecutive month of declines, analysts noted.
In 2005 the bridge corporation extended the summer period during which higher tolls are charged, but the revenue increase was insufficient to provide the 1.2 times coverage ratio required under the bond indenture. Instead, management used a defeasance program to apply available cash in order to artificially meet the covenant. Current cash flow provides about 1 times coverage.
The half-mile bridge opened in 1998 with traffic levels 30% below initial forecasts. The bridge reduces the drive around the Lake of Ozarks by an hour with annual traffic of about 1.6 million vehicles. Traffic grew about 7% annually between 2001 and 2007, with the summer rate between April and September set at $2.50 and the off-season rate set at $1.50.
Analysts said the current rating reflects the bridge's small but historically growing base of traffic, substantial general fund balance of $5.8 million, and rate-making flexibility due to the absence of comparable alternative routes.
The bridge agency is a nonprofit created to oversee construction and financing and management of the bridge. It was the first of its type to be created under the Missouri Transportation Corporation Act of 1990, which allowed private nonprofit corporations to develop projects as an alternative to normal bridge and highway funding methods.
