Standard & Poor's Ratings Services said it has lowered its rating on Miami-Dade County Expressway Authority (MDX), Fla's senior toll system revenue bonds to A-minus from A.
The outlook is stable.
"The downgrade reflects our assessment of a decline in preliminary, unaudited debt service coverage in 2012 that was below budget for the year," said Standard & Poor's credit analyst Adam Torres. It was also below the authority's minimum policy, although it remains above the rate covenant. Furthermore, the budget for 2013 indicates a debt service coverage (DSC) ratio in the same range.
Management notes that certain unrecognized budget items might cause a return to a DSC above the authority's minimum policy. "Nevertheless, given a recent increase in debt service requirements, coupled with still-rising -- if less steeply -- annual payments, we believe there will be continued stress on financial metrics that are consistent with a lower rating," Torres added.
More specifically, the rating reflects the following strengths: the critical links that the urban toll system provides within the Miami-Dade County region roadway network, featuring moderate-to-significant time savings compared with travel times on free alternative routes; operating revenue benefits from continuing the open road tolling (ORT) conversion, thereby reducing the share of users who exit before paying tolls; and strong liquidity, with $75.8 million in unrestricted cash in fiscal 2012 (unaudited; year ended June 30), or 770 days' cash on hand. S&P expects liquidity to remain strong.
Credit concerns include: preliminary (unaudited) DSC ratios that are lower than the authority's DSC policy (1.37x in 2012, compared with a 1.40x policy on the senior lien), coupled with a budget that once again calls for net revenues providing less than the policy in 2013 (1.30x). However, these are still above the 1.20x rate covenant; and a sharp increase in debt service, to an estimated $73.6 million in 2012 from $58.5 million in 2011, with a still-rising debt service schedule beyond 2012.
The stable outlook reflects the expectation that traffic and revenue will continue to demonstrate stable to growing trends in the next two years.
More broadly, MDX should continue toward full ORT conversion and complete closure to free traffic movements. If, in the next two years, traffic and revenue decline considerably, or if DSC continues to erode, S&P said it could lower the rating further.
A negative rating action might be warranted if the authority leverages its potential gains from planned ORT conversion, if such conversion is significantly delayed. Were MDX to demonstrate sustained financial improvements relative to DSC, undertake steps to respond to the still-rising debt service schedule, and demonstrate stable liquidity, the rating could be raised.
