OREANDA-NEWS. Fitch Ratings has assigned an 'A-' rating to the \$193 million junior lien TIFIA loan being issued by the Central Florida Expressway Authority (CFX; formerly Orlando Orange County Expressway Authority or OOCEA). Fitch has also affirmed the 'A' rating on CFX's \$2.6 billion outstanding revenue bonds. The Rating Outlook on both the TIFIA loan and senior bonds is Stable.

RATING RATIONALE

The ratings reflect the essentiality of the CFX system to commuters in the Orlando area, coupled with a demonstrated willingness and ability to implement toll increases even during challenging economic times. CFX's continued efforts to improve its liquidity position add strength to CFX'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

Revenue Risk Volume: Stronger
ESTABLISHED ROAD SYSTEM: CFX's roadway system is a critical component of the Orlando area's transportation network, supporting a largely commuter traffic base. Recent legislation creating the new agency (formerly OOCEA) expands the authority's jurisdiction to include Orange, Seminole, Lake, and Osceola Counties, providing a broader traffic base while also allowing for greater operating efficiencies.

Revenue Risk Price: Midrange
PROVEN ABILITY TO MANAGE TOLLS: CFX successfully introduced toll increases through the recent recession and, furthermore, implemented its first planned CPI-linked toll increase in July 2012 with limited impact on traffic. CFX maintains moderate levels of economic ratemaking flexibility, with board approval to implement future CPI-linked increases at regular five-year intervals (next increase slated for 2017).

Infrastructure Development Renewal: Stronger
GOOD PHYSICAL CONDITION OF ASSETS: CFX'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. CFX's \$919 million capital program through 2020 is considerable, with 57% of funds going to the Wekiva Parkway. However, CFX's track record of delivering capital improvements is strong. Projects from other counties newly under CFX jurisdiction have not yet transferred to the authority; when they do, they will be considered 'non system projects' and will not have claim to system pledged revenues under the bond resolution.

Debt Structure (senior lien): Midrange; Debt Structure (second lien): Midrange
SOME SURETY EXPOSURE: CFX'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 \$58.2 million cash funded. Going forward, new money issues are expected to benefit from reserves funded from proceeds, including the planned second lien TIFIA loan with a \$10.8 million cash reserve sized at maximum annual debt service (MADS). CFX has also established a \$160 million cash reserve for debt management. Notably, the proposed junior TIFIA loan is not expected to feature a 'springing lien' mechanism, ensuring that it remains fully-subordinated to senior debt in all circumstances.

Financial Metrics
RELATIVELY HIGH LEVERAGE: The system carries relatively high leverage at 7.3x 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 1.99x in 2014, and is expected to remain at or above 1.68x going forward, well above the covenanted level of 1.20x. With the junior TIFIA loan in place, second lien DSCR is expected to remain at or above 1.62x. Management targets coverage of 1.60x on the senior lien and 1.50x on the second lien. Leverage is expected to remain in the 7x-9x range for the next five years due to borrowing for the capital improvement plan (CIP), but will fall to more moderate levels (5x-6x) over the next 10 years.

Peers
Comparable peers include other large expressway systems such as Miami Dade Expressway (MDX; 'A-'/Outlook Stable) and Harris County Toll Road Authority (HCTRA; 'AA'/Outlook Stable). CFX's lower rating relative to HCTRA reflects its higher leverage, lower revenues, and lower coverage; its higher rating relative to MDX reflects more robust revenues and coverage levels.

RATING SENSITIVITIES

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

Positive: Traffic and revenue perform significantly above expectations.

TRANSACTION SUMMARY

CFX is seeking a secured loan for the portions of the Wekiva Parkway Project for which it is responsible for constructing. With TIFIA assistance, CFX expects Wekiva construction to be accelerated and completed in fiscal year (FY) 2018 - two years earlier than could otherwise be completed. The total Wekiva Parkway Project has an estimated project cost of \$2.106 billion. CFX's portions of the project have a current estimated project cost of \$630.7 million per the Cost and Schedule Risk Assessment Report dated August 2014 prepared by HDR. Of the \$630.7 million of project costs, \$534 million are TIFIA eligible, as are additional financing costs of \$53 million.

CFX is seeking to fund approximately 33% of total eligible costs with a second lien TIFIA loan. The TIFIA loan will be sized at \$193.695 million, with interest payments beginning on Jan. 1, 2023, principal payments beginning July 1, 2028, and level debt service through final maturity on July 1, 2049. The TIFIA loan is expected to be preceded by the issuance of senior lien bond anticipation notes (BANs) in fiscal 2015, with a single disbursement of the TIFIA loan expected in July 2018. There are a number of conditions precedent for disbursement of the TIFIA loan to redeem the project notes and, while these conditions are largely administrative, Fitch notes the obligation to disburse funds is not a full guarantee and thus the rating on the junior TIFIA loan reflects the risks associated with CFX meeting all conditions precedent. However, Fitch notes CFX has proven market access on its senior lien, with the remainder of its CIP assumed to be funded with senior revenue bonds. Should CFX fail to meet any of the conditions precedent preventing disbursement of the TIFIA loan, Fitch believes that CFX would have the ability to refinance the BANs with senior debt.

The junior lien rate covenant and ABT test for the TIFIA loan will mirror those in place for existing senior lien debt. Furthermore, management targets coverage of 1.6x on the senior lien, and proposes a target of 1.5x on the second lien. The senior DSCR was 1.99x in 2014, and is expected to remain at or above 1.68x for the senior lien and 1.62x for the second lien going forward under the base case which assumes moderate 1%-3% traffic growth (1% compound annual growth rate [CAGR] for 2015-2034), programmed, inflationary toll increases every five years (3.6% toll revenue CAGR), and operating expense growth above historic averages (CAGR of 4.2%). Under a downside scenario which assumes a recession resulting in a one-time 8% drop in transactions and 3% drop in toll revenue (0.5% traffic CAGR, 3.1% toll revenue CAGR), half of expected revenue growth for Wekiva following ramp-up, and higher expense growth (4.7% CAGR), senior DSCR remains above 1.55x and second lien remains at or above 1.50x. Under all sensitivity scenarios, coverage levels remain well above the covenanted level of 1.2x. However, should coverage on the senior and second lien fall meaningfully below management's target levels, the ratings would be pressured. Leverage is relatively high for CFX at 7.3x in fiscal 2014, and rises to 9x in the near term under the Fitch downside scenarios as borrowing for the capital program comes online. However, leverage moderates over time and is anticipated to fall to the 5x-6x range over the next 10 years.

CFX's overall traffic increased 6.8% in fiscal 2014 (ending June 30) following the 3.2% increase in 2013. On a year-to-date basis for fiscal 2015 through December, traffic is up a further 7.3%. Revenues showed a similar trend, increasing 7.1% for fiscal 2014, and rising 8.7% on a year-to-date basis for 2015 through December. In July 2012, CFX 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. EPass accounted for 80% of transactions in 2014, and 77% of revenues. CFX plans to implement toll increases every five years, with the next increase scheduled for 2017.

On June 20, 2014, Florida Governor Rick Scott signed Senate Bill 230 into law, establishing the Central Florida Expressway Authority. All operations, governance and control of the OOCEA System were transferred to CFX, and jurisdiction was expanded to include the construction, maintenance, and operation of toll roads in Orange, Seminole, Lake, and Osceola Counties. All assets, liabilities, duties, responsibilities and obligations of OOCEA under existing contracts and agreements, including obligations under OOCEA's Amended and Restated Master Bond Resolution, remain and become obligations of CFX. CFX, pursuant to SB 230, must continue to operate and maintain the System in accordance with the Bond Resolution and the Lease Purchase Agreement entered into between CFX and the Florida Department of Transportation (FDOT). Fitch does not view this change in governance as having a negative effect on CFX's credit.

SECURITY

The senior bonds are secured by a pledge of, and lien on, CFX System Revenues net of Operations, Maintenance and Administrative Expenses.

The TIFIA loan is secured by a second lien pledge of, and lien on, CFX System Revenues net of Operations, Maintenance and Administrative Expenses.