Fitch Affirms Richmond Metro Transportation Auth (VA) Expressway Rev Bonds at 'A'; Outlook Stable

Fitch Ratings has affirmed the rating on the Richmond Metropolitan Transportation Authority's (the authority) approximately $90.6 million in outstanding expressway toll revenue bonds, series 1998, 2002, and 2011-D. The Rating Outlook is Stable.

The rating reflects the authority's role as a small expressway network in a mid-sized service area facing limited competition, with a relatively stable traffic base and a good level of pricing power. The affirmation reflects performance in line with Fitch's expectations.

KEY RATING DRIVERS

STABLE COMMUTER HISTORY, Revenue Risk - Volume: Midrange

The expressway system has a long operating history and mature traffic profile that serves a significant commuter base to and from downtown Richmond. Relatively stable employment and population trends supported a reasonable level of traffic resilience during the recent economic downturn.

MODERATE PRICE RISK, Revenue Risk - Price: Midrange

The authority has independent rate making ability which allows it to adjust tolls when necessary. Low tolls with small increases historically combined with a lack of viable economic alternatives have resulted in fairly low price elasticity.

LIMITED DEBT NEEDS AND HEALTHY INFRASTRUCTURE, Infrastructure Development & Renewal: Stronger

The authority exhibits a solid track record of maintaining its infrastructure with 98.5% of the facility's lane miles in excellent condition, and reports indicate no structural deficiencies on the bridges. The six-year capital program is moderate at $91.9 million and is expected to be funded from excess cash flows for the foreseeable future.

CONSERVATIVE CAPITAL STRUCTURE, Debt Structure: Stronger

The authority has no outstanding variable rate debt and legal covenants compare adequately to peers. Maximum annual debt service (MADS) requirement of 1.0x limits back-loading of debt.

SOLID FINANCIAL METRICS AND LIQUIDITY

The authority's debt service coverage ratio (DSCR) increased from 1.38x during the recent recession to Fitch-calculated 1.98x in 2014 which reflects relatively stable operational performance and a smoother debt profile after the 2011 debt issuance. Coverage is expected to remain at current levels for the foreseeable future even without significant traffic and revenue growth. Leverage is moderate with fiscal year-end net debt-to-cash flow available for debt service (CFADS) at approximately 5x.

PEER ANALYSIS

The authority's peer group consists of a similarly-sized toll revenue base including Fort Bend County Toll Road Authority (rated A+ with a Stable Outlook by Fitch) and Chesapeake Bay Bridge & Tunnel District (rated 'A-' with a Stable Outlook). Compared to both toll roads, the authority benefits from low toll rates per mile and a larger number of transactions, and, although DSCR is lower on senior debt, it remains at levels consistent with an 'A' category rating for small network and standalone toll roads. Leverage for the authority and Fort Bend County are very similar at a much lower rate than Chesapeake Bay.

RATING SENSITIVITIES

-Negative: Changes in management or board decisions that lead to a weaker financial profile.

-Negative: Performance consistently under estimates that leads to the inability to service debt at a level consistent with peers in the 'A' category.

-Positive: Given the facility's role as a small expressway network, a rating above the 'A' category is unlikely.

CREDIT UPDATE

Across the system, fiscal 2014 revenues and traffic both increased (2.9% and 2.6%) as increases in traffic on the Downtown Expressway and Powhite Parkway continue to offset declining traffic across the Boulevard Bridge, and fiscal 2014 revenues increased on both the Powhite Parkway (2.1%) and Downtown Expressway (5%) but declined 2.5% on the Boulevard Bridge, mirroring traffic performance. Total fiscal 2015 transactions are up 1.5% through February and continue to be driven by Powhite Parkway as well as the Downtown Expressway. Inclement weather in February 2015 slowed total expressway system performance but should experience a rebound through June. Fitch considers the demand profile stable but without significant potential for growth and views the authority's conservative traffic forecasting as prudent.

Chesterfield County generates the most traffic and also demonstrates higher household incomes than the city of Richmond. The city's employment base has increased annually 2011-2014 with growth outpacing state and national rates, and the unemployment rate, at 6.4% as of September 2014, continues to improve but remains above the state and national averages. The authority plans to review its toll structure in advance of a potential adjustment in 2018, consistent with historical 10-year toll increases. Fiscal 2014 average tolls were broadly in line with the previous year at $0.63 for the Downtown Expressway, $0.68 for Powhite Parkway, and $0.35 for Boulevard Bridge.

Toll increases can generate significant revenue growth as seen after the fiscal 2009 toll increase, which led to a 26.4% revenue increase despite 8.1% traffic decline. However, if tolls are not raised as planned in 2018, the authority could still meet debt payments on the current expressway system, maintaining DSCR at levels consistent with an 'A' category rating. Priority projects, funding sources, and the authority's direction will be determined as the recent board and recent management changes fall into place.

No major capital projects requiring debt issuance are currently planned, and the authority maintains sufficient cash flow to fund its renewal. Its last debt issuance was in 2011, which repaid the RMTA's long-standing obligation to the city, added new money, and extended the maturity date to 2041 from 2022. Near-term capital projects through the next six years include replacing tolling systems and additional deck rehab.

DSCR in fiscal 2014 was 1.98x compared to Fitch's base case projections of 1.94x during the last review. Leverage is manageable at 5x net-debt-to-fiscal 2014 CFADS while the authority's approximately 278 DCOH provide additional financial cushion. Historic volatile employment growth is mitigated by the authority's lack of dependence on traffic growth, and DSCR should remain at around 2x even if periods of cyclical traffic stress are repeated in the near future.

Fitch's base case assumes a 2.25% 26-year CAGR in total revenues combined with expenses growing at a 4% CAGR over the same period. Under this scenario, DSCR is expected to average 2.72x throughout the forecast with leverage dropping from 5.29x to 3.65x after the first five years as debt is paid off. Fitch's rating case assumes a 1.82% 26-year CAGR in total revenues combined with expenses growing at a 4.6% CAGR over the same period. Under this scenario, DSCR is expected to average 2.19x throughout the forecast with leverage dropping from 5.12x to 4.18x after the first five years as debt is paid off.

SECURITY

The bonds are secured by net toll revenues of the expressway system.

Additional information is available at: www.fitchratings.com

Applicable Criteria and Related Research:

--Rating Criteria for Infrastructure and Project Finance - 11 July 2012

--Rating Criteria for Toll Roads, Bridges, and Tunnel - August 2014

Applicable Criteria and Related Research:

Rating Criteria for Infrastructure and Project Finance

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682867

Rating Criteria for Toll Roads, Bridges and Tunnels

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=758708

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=983601

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