OREANDA-NEWS. Fitch Ratings has affirmed the 'A-' rating on the Chesapeake Bay Bridge and Tunnel District, VA's (CBBT) approximately \$44.4 million outstanding subordinate lien series 1998 general resolution refunding revenue bonds (GRB). The Rating Outlook is Stable.

Fitch does not rate the district's approximately \$50.5 million parity outstanding series 2010A and series 2011A variable-rate refunding GRBs. CBBT's senior lien remains open with no debt outstanding.

KEY RATING DRIVERS
The rating affirmation reflects CBBT's continued solid operational and financial performance. The facility has a mature traffic base with an exposure to cyclical commercial vehicle traffic. Construction of the parallel Thimble Shoal Tunnel will require significant additional debt that is also expected to fund a full defeasance of outstanding debt and, therefore, should not impact the financial profile of the existing bonds.

Revenue Risk-Volume: Midrange
Mature Traffic Base with Commercial Exposure: CBBT's monopolistic bridge and tunnel facility is the only link between the metropolitan Hampton Roads region and Virginia's eastern shore. Volume has been relatively stable over recent years with a negative 0.23% compound annual growth rate (CAGR) over the last decade and a more recent five-year CAGR of 0.7%. However, the facility is exposed to cyclically volatile seasonal leisure traffic and is moderately dependent on heavy truck volume, which currently generates 23% of toll revenues.

Revenue Risk-Price: Midrange
Moderate Price Flexibility: Toll rate increases occur approximately every 10 years, most recently in January 2014, and have not materially impacted the traffic profile. While the round trip toll rate is high, a lack of convenient alternatives and above-average regional demographics provide the district with moderate rate-making flexibility. The framework allows the district to set tolls at levels necessary to maintain capital assets, and the district's proposal to increase tolls 10% every five years seems reasonable.

Infrastructure and Renewal: Midrange
Substantial Future Debt Plans: The district has accelerated the design and construction of the Thimble Shoal crossing project to July 2016 with an estimated cost of \$840 million without yet having finalized the financing and funding strategy. The impact to the existing debt base will be key to credit stability. While the district is committed to maintaining the existing asset base in good condition, the tunnels are more than 50 years old and the six year capital plan (excluding the tunnel project) is approximately \$6.95 million.

Debt Structure: Midrange
Open Senior Lien: A subordinate lien of toll revenues secures the rated debt but the senior lien remains open, albeit with no outstanding debt, which constrains the score to 'midrange.'

Strong Financial Metrics:
Leverage in fiscal 2014 was among the lowest in Fitch's portfolio at 0.83x on a net debt/cash flow available for debt service (CFADS) basis, excluding reserves in the general fund. The debt service coverage ratio (DSCR) has remained above 3.0x since senior lien debt matured in fiscal 2011, and has remained above 1.5x on a combined basis since 2000. The district's cash balances are healthy at over 1,000 days cash on hand.

Peers: CBBT's peers include Florida Department of Transportation's Alligator Alley (Alligator Alley, rated 'A+'; Outlook Stable) and Mid-Bay Bridge Authority (Mid-Bay, rated 'BBB+/BBB'; Outlook Stable). Alligator Alley's toll rates are among the lowest in the nation with a similar financial profile as CBBT (high DSCR and liquidity and low leverage) while Mid-Bay is rated lower partly due to its higher than average leverage (near 14x) and dependence on future revenue growth.

RATING SENSITIVITIES
Negative: A financing structure that leaves general resolution bondholders with minimum financial cushion just above the 1.2x rate covenant could result in rating pressure.

Positive: Given the forthcoming financing, upward rating movement is not likely at this time.

CREDIT UPDATE:
Fiscal 2014 traffic and revenue increased by 1.8% (to 3.55 million) and 7.8% (to \$48.6 million), respectively relative to fiscal 2013. A 10% toll increase occurred in the middle of the fiscal year (January 2014) contributing to the toll revenue growth experienced. Approximately 9% of total traffic is commercial accounting for 23% of toll revenues, demonstrating a moderate dependence on relatively volatile commercial throughput to generate revenue.

Through the first half of fiscal 2015, traffic and revenue are up 1.3% and 16.6%. The toll rate for passenger vehicles is currently \$13 (reflecting a \$1 increase on the rate last year) while heavy trucks is \$39 (reflecting a \$4 increase) for a one way trip. The next rate increase is expected in January 2019.

Operating expenses rose 2.6% in fiscal 2014 to \$15.2 million, following a 5% increase in fiscal 2013 - excluding preservation expenses that are determined annually in advance to be the investment needed to maintain infrastructure in a good condition as determined in an independent annual inspection of the facility. Chesapeake Bay Bridge and Tunnel is more than 50 years old with two lanes in each direction except within the two tunnels where only one lane in each direction is provided and there are no alternative routes in the event of accidents. The six-year capital development budget for fiscal 2015 through fiscal 2020 is estimated at a modest \$69.5 million (excluding the parallel tunnel cost) and is expected to be funded from cash flow and reserves available in the reserve maintenance fund.

DSCR has remained above 3.0x since fiscal 2012 and reached a healthy 3.41x in fiscal 2014. The debt service profile is broadly stable through maturity in 2026, ranging from \$7 million to \$16 million. Existing leverage is very low at 0.83x on a net debt to CFADS basis (even when excluding the general fund). Current net revenues are \$38.8 million and could sustain annual 3% declines until maturity while still meeting all obligations on a 1.0x basis, taking into account liquidity, reflecting the resilience of the current debt structure.

SECURITY:
The GRBs are primarily secured by a subordinate lien on net revenues, subject to a senior lien, on which all debt raised matured on July 1, 2010; however, the lien remains open.