OREANDA-NEWS. Fitch Ratings has affirmed the 'A+' rating on Fort Bend County, Texas' approximately \$75.8 million senior lien toll road revenue bonds issued on behalf of the Fort Bend County Toll Road Authority (FBCTRA). The Rating Outlook is Stable.

RATING RATIONALE
The rating reflects continued strong and growing traffic and revenue performance on the authority's two-segment toll road system, while also taking into account the limited catchment area that it serves that exposes it to adverse fluctuations in a narrow segment of the Houston, TX economy. It also reflects the authority's successful recent expense containment, which is similarly expected to help support robust coverage through the medium term. Anticipated issuance of approximately \$100 million in senior lien bonds over the next four years is considered in the rating. The system's low senior leverage (currently negative, but expected to grow to around 4.9x) and strong liquidity with over 5,500 days cash on hand (DCOH) provide further rating stability.

KEY RATING DRIVERS

Revenue Risk: Volume - Midrange
DEVELOPING NETWORK WITH LIMITED OPERATING HISTORY: The system's two toll roads opened in 2004 and 2005 and have experienced some volatility in recent years as a result of the recession and toll increases. Still, traffic growth across the system has remained positive over the past five years, exhibiting a compounded annual growth rate (CAGR) of approximately 5% for the period, including the project B expansion. The traffic base is nearly 100% passenger vehicle oriented and the facilities are on the western edge of the strong and growing Houston MSA. The Westpark Tollway and Fort Bend Parkway both provide direct access to the Sam Houston Tollway loop around Houston; however, there is some level of competition from alternative routes.

Revenue Risk: Price - Stronger
DEMONSTRATED RATE-MAKING FLEXIBILITY: Since fiscal 2012 the authority has followed a toll policy providing for automatic annual increases at the greater of 2% or CPI-U. The average toll rate remains on the moderate side at \$0.22 per mile and all-electronic tolling makes implementing rate increases easier.

Infrastructure Development/Renewal - Stronger
MANAGEABLE NEAR-TERM CAPITAL PROGRAM: The two system roadways comprise only 60 lane miles with minimal maintenance needed given the relatively young age of the assets. Additional parity senior lien bond issuances for the proposed Westpark extension projects are anticipated in fiscal 2016 and 2019; however, there should be sufficient flexibility to shift the timing of future projects to coincide with an adequate cash flow-generation profile. Fitch views there to be minimal completion risk associated with these projects given the relatively small and routine nature of the construction and the authority's favorable history of scheduled delivery and budget.

Debt Structure - Stronger
CONSERVATIVE DEBT STRUCTURE: Outstanding senior lien debt is fixed-rate with conservative amortization. A cash-funded debt service reserve fund equal to maximum annual debt service (MADS) provides additional credit support.

Financial Metrics
MODERATE LEVERAGE, STRONG COVERAGE, AND COUNTY SUPPORT: FBCTRA continued to maintain liquidity in excess of senior lien debt for fiscal 2014. Projected senior leverage (including the series 2014 bonds and two contemplated additional issuances) is forecast to grow to a still moderate 4.9x on a net debt-to-CFADS basis by 2019. Total leverage, including subordinate debt backed by Fort Bend County's general obligation pledge (rated 'AA+' by Fitch), is higher at 5.2x for fiscal 2014 and forecast to grow to 8.7x with the additional issuances. Assuming all projected senior bonds are issued, Fitch's rating case results in senior debt service coverage ratio (DSCR) - calculated on a net basis - remaining at or above 2.1x through the medium term.

Peer Group
Closest Fitch-rated small expressway network peers include Richmond Metropolitan Authority (RMA; 'A'/Stable Outlook) and State of Florida, Department of Transportation's Alligator Alley ('A+'/Stable Outlook). FBCTRA is a smaller system, generating fewer transactions and lower revenues, but demonstrating greater pricing power and more robust coverage levels than RMA.

RATING SENSITIVITIES

Negative:
--Additional leverage used to fund future projects that materially dilutes projected coverage ratios below current expectations;
--Higher than anticipated expense profile or delays in implementing adequate toll adjustments that materially affect the financial metrics;
--Material underperformance of new system segments.

Positive:
--Given the system's small size and limited catchment area coupled with its current capital program, upward migration is not likely at this time.

CREDIT UPDATE
The system has been fairly resilient in its limited operating history. Although susceptible to macroeconomic factors, traffic recovered to pre-recessionary levels in three years following declines in 2009-2010. Since 2009, overall system traffic has increased at a five-year CAGR of 4.9%, with growth coming from both toll roads, albeit stronger on the Westpark Tollway. More recently, transactions grew by 9% in fiscal 2013 and another 6.8% in fiscal 2014 to nearly 28.5 million.

Over the same five-year period (2010-2014), toll revenues grew at a more robust CAGR of 6.6% as a result of the authority's proactive toll increase in fiscal 2009 to counteract the recessionary traffic loss. Management raised rates again in 2011 and 2014 while adopting an automatic annual toll increase, the greater of 2% or CPI-U (Houston) rounded to the nearest nickel, following Harris County's lead. Further, FBCTRA's all-electronic tolling system makes implementing these increases easier. Fitch views the authority's demonstrated willingness to raise rates favorably and believes that management will take the necessary actions to preserve strong coverage levels with adequate toll rates.

The outstanding series 2012 and 2014 senior lien bonds are fixed-rate, fully amortizing bonds with a relatively level debt service profile. Future senior lien issuances are anticipated to follow a similar structure. Fitch views this conservative structure as a credit strength. Further, assuming subsequent senior lien issuances, Fitch's rating case projects senior MADS coverage from net revenues to be strong at more than 1.7x using fiscal 2014 CFADS.

Factoring in future bond issuances, senior lien leverage is projected to rise to a moderate 4.9x net debt-to-CFADS, with total leverage higher at 8.7x, including the subordinate lien bonds. Further, senior DSCR in Fitch's rating case (including all expected issuances) is projected to remain high at 2.0x or greater on a net revenue basis, and total net coverage, including the subordinate lien, is projected to average over 2.0x and never drop below 1.1x.

Adding additional financial flexibility and serving as a credit strength is FBCTRA's robust unrestricted cash of \$55.7 million which, when combined with O&M and Renewal and Replacement reserves, equates to over 5,500 DCOH. Fitch also notes that the county's O&M tax pledge, as well as the unlimited GO tax pledge for the outstanding subordinate bonds, provides additional support in a downside scenario.

The existing system is relatively new, being built in 2004 and 2005, and remains in excellent condition. FBCTRA does not anticipate any major capital expenditure needs to the existing facility until 2020, when actions will be taken to ensure the system's 40-year useful life. However, FBCTRA does have further expansionary plans over the near- to medium-term including issuing \$60 million-\$69 million this summer for the Westpark phase I and maybe phase II, followed by an issuance of approximately \$33 million in fiscal 2019 for further Westpark build-out. Importantly, the strength of the existing system's revenues at its present level could sustain the additional project debt service and operating costs of the additional tollway extensions should these new projects not generate sufficient incremental toll revenues. Additionally, Fitch notes that FBCTRA appears to have flexibility with regard to the timing of future projects; however, Fitch has layered in both future debt issuances into its rating analysis.

SECURITY
The bonds are secured by a senior lien on the revenues derived from the ownership and operation of the toll road system and certain funds under the indenture. In addition, as long as there are any senior or subordinate bonds outstanding, the system benefits from an O&M tax pledge. Only the authority's subordinated obligations have the additional security of the county's unlimited general obligation tax pledge.