Fitch Affirms Orlando Orange County Expressway Auth, FL Revs at 'A'; Outlook Stable

Fitch Ratings has affirmed the 'A' rating on Orlando Orange County Expressway Authority, Florida's (OOCEA) $2.6 billion outstanding revenue bonds. The Rating Outlook is Stable.

RATING RATIONALE
The rating reflects the essentiality of the OOCEA system to commuters in the Orlando area, coupled with a demonstrated willingness and ability to implement toll increases even during challenging economic times. OOCEA's continued efforts to reduce its variable rate debt portfolio and to improve its liquidity position add strength to OOCEA's debt structure. The upcoming capital plan, while sizable and requiring additional borrowing, is manageable and will serve to enhance the essentiality of the system.

KEY RATING DRIVERS

ESTABLISHED ROAD SYSTEM: OOCEA's roadway system is a critical component of the Orlando area's transportation network, supporting a largely commuter traffic base. Proposed legislation to expand areas served to include Seminole, Lake, and Osceola Counties may provide a broader traffic base and provide some operating efficiencies. Revenue Risk Volume: Stronger

PROVEN ABILITY TO MANAGE TOLLS: OOCEA successfully implemented toll increases through the recent recession and, furthermore, implemented its first planned CPI-linked toll increase in July 2012 with limited impact on traffic. OOCEA maintains moderate levels of economic ratemaking flexibility, with board approval to implement future CPI-linked increases at regular five-year intervals. Revenue Risk Price: Midrange

GOOD PHYSICAL CONDITION OF ASSETS: OOCEA's management team has maintained the facilities to a high standard, with robust historical financial performance supporting a sizable portion of pay-as-you-go and debt-funded capital investment. OOCEA's $870 million capital program through 2018 is considerable, with 38% of funds going to the Wekiva Parkway project. However, OOCEA has a proven track record of delivering capital improvements, having recently completed the John Land Apopka Expressway and several capacity improvement projects. Infrastructure Development Renewal: Stronger

SOME EXPOSURE TO VARIABLE RATE DEBT, SURETIES: OOCEA's debt is currently 80.4% fixed rate, with the remainder in synthetically fixed mode. In addition, the majority of debt service reserve requirements are met with surety policies, with $162 million in the form of surety backing versus $57 million cash funded. Going forward, new money issues are expected to benefit from reserves funded from proceeds, including a planned subordinate TIFIA loan with a $16.7 million cash reserve. OOCEA has also established a $160 million cash reserve for debt management. Debt Structure: Midrange

RELATIVELY HIGH LEVERAGE: The system carries relatively high leverage at 8.5x net debt-to-cash flow available for debt service (CFADS), and is likely to maintain relatively high leverage in the medium term given continued capital needs. The senior debt service coverage ratio (DSCR) was 1.91x in 2013, and is expected to remain at or above 1.6x going forward, well above the covenanted level of 1.2x. Assuming the subordinate TIFIA loan is put in place, second lien DSCR would be expected to remain at or above 1.55x. Management targets coverage of 1.6x on the senior lien and 1.5x on the second lien.

RATING SENSITIVITIES

Resilience in traffic levels and the continued implementation of timely toll increases to maintain historical levels of financial flexibility would support the current rating.

An inability to control expenses and manage its capital program would pressure the current rating.

Should OOCEA be unable to put the TIFIA loan in place, requiring material additional senior lien debt to fund the capital plan, the senior lien rating would likely be affected.

SECURITY

The bonds are secured by a pledge of, and lien on, the net revenues of OOCEA.

CREDIT SUMMARY

OOCEA's overall traffic increased 3.2% in fiscal 2013 (ending June 30) following the 2.3% increase in 2012. On a year-to-date basis for fiscal 2014 through March, traffic is up 6.4%. Revenues showed a similar trend, increasing 13.5% for fiscal 2013, and rising 6.5% on a year-to-date basis for 2014 through March. These increases partly reflect the opening of a new toll plaza on the SR 528 and northern extensions on the SR 429 and SR 414. In July 2012, OOCEA implemented a CPI-linked toll increase of approximately 98% at toll collection sites across its system. For the first time, cash toll rates were increased to a higher level than the electronic toll rates and, as a result, EPass participation went up 3.4% following the toll increase. OOCEA plans to implement toll increases every five years, with the next increase scheduled for 2017.

OOCEA's five-year work plan covers the period to fiscal 2018, with a combined total estimated project cost at $870 million. The main projects in the plan include OOCEA's participation in the Wekiva Parkway project and continued update work on the I-4/SR 408 interchange.

As part of OOCEA's memorandum of understanding with FDOT for Wekiva Parkway, OOCEA has begun reimbursing the state for its previous O&M contributions and OOCEA will not issue any debt senior to the FDOT obligation without FDOT consent until paid off - OOCEA anticipates making payments of $20 million to FDOT per year until 2024. The exceptions are debt for the Wekiva Parkway project and the I-4/SR 408 interchange project. To finance these projects, OOCEA anticipates issuing senior revenue bonds in fiscal 2016 and 2019 totaling $492 million, as well as issuing $192 million in the form of a junior lien TIFIA loan, which will allow the project to be completed two years early and with $194 million in authority cash.

The TIFIA loan is expected to be approved in 2014, and would be preceded by the issuance of senior lien bond anticipation notes (BANs) in fiscal 2015. TIFIA terms are not yet set, but OOCEA intends for the junior lien rate covenants and additional bonds tests (ABTs) to mirror those in place for existing senior lien debt. Should OOCEA be unable to put the TIFIA loan in place as currently anticipated, requiring it to refinance the BANs with additional senior lien debt, the senior lien rating may be affected.

OOCEA currently has $2.6 billion in outstanding parity bonds. Through various refundings and swap terminations, OOCEA has reduced its current variable rate debt exposure to 19.6% of total senior lien debt, and the notional amount of outstanding interest rate swaps from $999 million to $499 million. OOCEA's existing debt service is relatively flat, declining towards the back end of the maturity profile. Current leverage is somewhat high relative to peers at 8.5x net debt to CFADS.

Current draft legislation being considered by the Florida state legislature (SB 230/HB 311) would expand the jurisdictional footprint of OOCEA to include Lake, Seminole and Osceola Counties, under the concept of a regional toll authority under the name Central Florida Expressway Authority (CFX). The legislation provides for the transfer of governance and control, legal rights and powers, responsibilities, terms and obligations of the OOCEA System to CFX and provides for the composition of the governing body of CFX. Fitch continues to monitor the developments regarding this legislation, and the resulting effects it may have on governance at OOCEA.

Additional information is available at www.fitchratings.com.

Applicable Criteria and Related Research:
--'Rating Criteria for Infrastructure and Project Finance' (July 12, 2012);
--'Rating Criteria for Toll Roads, Bridges, and Tunnels' (Oct. 16, 2013).

Applicable Criteria and Related Research:
Rating Criteria for Toll Roads, Bridges and Tunnels
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=720736
Rating Criteria for Infrastructure and Project Finance
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682867

Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=827694
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