OREANDA-NEWS. Fitch Ratings has affirmed the 'A' rating on Cameron County, Texas' (the county) approximately \$4.6 million international toll bridge system revenue bonds. The Rating Outlook remains Stable.

In addition, the bridge system has an outstanding obligation of approximately \$12.1 million to the county relating to the bridge system's pro rata share of the county's series 2008 and series 2011 limited tax certificates of obligations. This obligation is on parity with the bridge system's revenue bonds.

The rating reflects the bridge system's relative importance to the service area, albeit susceptible to economic cyclicality. The bridge system's ability to generate revenue, despite moderate exposure to competing facilities, allows for a robust and stable operating profile and historically strong debt service coverage ratios, 4.7x in fiscal 2014. The rating is further supported by low leverage and strong liquidity levels that provide ample financial cushion for volatile traffic performance and diversion to competing bridge facilities.

KEY RATING DRIVERS

Revenue Risk - Volume: Midrange
Exposure to Volatility and Competition: The bridge system serves the sizable Brownsville-Harlingen service area with an extensive transportation network but faces some exposure to competition from neighboring international bridge facilities. Traffic and revenue are inherently susceptible to economic cycles on both sides of the border and the exposure of cross-border shopping trips to the Mexican economic and political conditions, particularly because passenger cars constitute 56% of total traffic. Total crossings increased 1.8% to 5.1 million crossings in fiscal 2014 (fiscal year ends Sept. 30) after seven consecutive years of declining traffic levels.

Revenue Risk - Price: Midrange
Moderate Economic Rate-Making Flexibility: Toll rates charged are consistent with nearby bridge crossings. However, the proximity of a competing facility does limit some rate-making flexibility of the system. Management has historically demonstrated a proactive position toward raising toll rates during periods of sustained traffic declines in order to stabilize revenue.

Infrastructure Development/Renewal: Midrange
Manageable Capital Expenditure Needs: The bridges are generally in good condition. The Cameron County Regional Mobility Authority and the county are responsible for the planning of capital projects while funding for the projects is primarily provided by the county.

Debt Structure: Stronger
Conservative Debt Structure: All outstanding debt is fixed rate, with a declining debt service schedule and sufficient legal protections. Limited tax obligation bonds have backup pledges from Cameron County and participating cities to pay debt service.

Strong Coverage, Low Leverage: The bridge system maintains strong debt service coverage ratios, projected to be no less than 4x, providing substantial cushion against traffic volatility. The bridge system's low leverage, at 0.4x net debt-to-cash flow available for debt service, reflects an ample cash balance of \$9.3 million, equivalent to 950 days cash on hand.

Peers: Cameron County's peers include similarly-rated international toll bridge systems in Texas, such as McAllen, TX (rated 'A'/Stable Outlook by Fitch) and Laredo, TX (rated 'A+'/Stable Outlook). All three bridge systems maintain minimal net leverage and robust coverage levels, often exceeding 4x, in order to weather fluctuations in traffic levels as a result of safety concerns, related to border violence, and economic cyclicality. Laredo's higher rating reflects its location along I-35, a vital international trade link, and its resilient traffic and revenue performance during the last recession.

RATING SENSITIVITIES

Negative: Sizeable declines in passenger traffic or toll revenue, driven by drug cartel-related violence, and/or a considerable contraction of the manufacturing industry and cross-border trade;

Negative: Material changes in key financial metrics such as increased leverage due to future borrowing, or significant reductions in coverage or liquidity due to management's reluctance to raise tolls as planned/needed, or their inability to control operating and maintenance expenses;

Positive: Positive rating action is unlikely in the near term given the bridge system's history of volatile traffic levels.

CREDIT UPDATE

The bridge system's traffic is showing signs of stability as total crossings increased for the first time since 2006, after seven consecutive years of crossing declines. Total crossings in fiscal 2014 increased 1.8%, to 5.1 million from 4.9 million. Passenger and commercial traffic increased slightly, at 0.6% and 0.1%, respectively, while pedestrian crossings increased 1.3%. Total revenue increased 5.5% in fiscal 2014, to \$15.6 million from \$15.2 million.

The system maintains its rate-making flexibility as toll rates are reviewed for adjustments by the county each year. Toll rates for passenger cars were increased to \$3.25, from \$3.00, at the beginning of fiscal 2014. Total crossings for the first 8 months fiscal year-to-date have increased 4.8% while revenue has increased 2.3%.

The county anticipates commercial traffic, which represents approximately a quarter of toll revenue, to improve as a result of transportation network improvements in Mexico. A new road was completed through the mountains and is expected to shift commercial traffic carrying produce from Mazatlan to Nogales, Arizona to the Pharr/Brownsville route due to better time efficiency. However, commercial traffic remains susceptible to the health of the maquiladora industry, which can be volatile.

The system's capex needs are more than manageable. The Veterans Bridge lane expansion project was recently completed on both the U.S. and Mexican sides. The new lanes separate commercial vehicles from passenger vehicles and thereby greatly reduce waiting times at the border. There are currently no other major projects in the bridge system's capital plan.

The system supports subordinated transfers to the Cameron County general fund, which equaled approximately \$7.3 million in fiscal 2014 (49% of toll revenue). Although these transfers may prevent liquidity from accumulating within the system, they pose little risk as they necessitate toll increases but, more importantly, are subordinate to payment of operating expenses, debt service and required fund deposits.

Fitch views the system's high coverage and liquidity metrics and low leverage as necessary given the volatility of the traffic base that is tied to the performance of the maquiladora industry as well as border security threats. Debt service coverage is projected to increase as the system's debt service schedule declines through 2031.

Fitch conducted base and rating case sensitivity analyses. Fitch's base case assumes a 1% reduction in traffic growth until 2019 followed by stable growth of 0.5% while maintaining an average toll rate of \$3.09 and 3.5% expense growth. Under this scenario, debt service coverage remains above 5.4x. Fitch's rating case, which assumes a 20% reduction in traffic, an average toll rate of \$3.09 and expense growth of 5%, produces debt service coverage of at least 4.0x.

The system comprises three bridges located in the greater Brownsville-Harlingen area: the Gateway Bridge, acquired in 1960; the Free Trade Bridge, opened in 1992; and the Veterans Bridge, opened in 1999. While Cameron County is the sole owner of the U.S. half of all three bridges, other local municipalities participate in the two newer bridges by sharing in initial operating deficits with the benefit of also sharing in any surpluses as specified in the inter-local agreements. The inter-local agreement between the cities of San Benito and Harlingen and the county calls for surpluses, after the payment of operations and maintenance as well as 1.4x debt service on the bridge, to be split 25% each for the cities and 50% for the county. The Veterans Bridge shares surpluses evenly between the City of Brownsville and the county.

SECURITY

The outstanding revenue bonds are secured by a net revenue pledge of the Cameron County International Bridge System and, regarding the certificates of obligation, by a backup pledge of ad valorem taxes, within the limits prescribed by law, on all taxable property located within the county.