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Fitch Rates E-470 Public Highway Authority's (CO) Series 2014A Rev Bonds 'BBB-'; Outlook Stable

January 23, 2014

CHICAGO --(BUSINESS WIRE)-- Fitch Ratings has assigned a 'BBB-' rating to the E-470 Public Highway Authority , CO's (E-470) approximately $72.6 million series 2014A senior revenue bonds. In addition, Fitch has affirmed the 'BBB-' rating on approximately $1.6 billion in outstanding parity senior lien revenue bonds. The Rating Outlook for all bonds is Stable. KEY RATING DRIVERS: --Established Traffic Base With Some Volatility: Traffic on the road is primarily commuter based, providing access to Denver International Airport and intersecting with major highways leading into Denver's metropolitan business center. Despite exhibiting some sensitivity to economic cycles, traffic is now above the previous peak fiscal year (FY) 2007 level following 3.6% transaction growth in FY 2012 and another 8.2% in FY 2013 to 58.4 million. Overall, transactions have grown at a compound annual growth rate (CAGR) of 2.5% since 2004, when the final segment of the project road became operational, yet a favourable elasticity of demand and continued and sustained traffic growth will be necessary to meet the authority's escalating debt service profile in the next 6-12 years. Revenue Risk: Volume- Midrange --Moderate Rate-Making Flexibility: Management has demonstrated a willingness and ability to raise rates. Annual increases have been established through 2021 to meet rising debt service obligations and inflationary increases are planned thereafter. The current passenger toll rates for license plate and electronic tolling customers are relatively high at $0.34 per mile and $0.27 per mile respectively, but demand has so far appeared relatively inelastic, and has therefore not constrained the needed revenue growth to date. Revenue Risk: Price- Midrange --Escalating Debt Service Profile With Limited Refinancing Risk: E-470's annual debt service obligations will increase by more than 60% by 2026 and remain elevated thereafter. Furthermore, nearly 10% of the outstanding debt remains subject to mandatory tender. While a failed tender would not trigger a term-out or a default, interest costs would be higher as a result. However, nearly all of the outstanding debt is fixed rate, and the authority has plans to further smooth and reduce its future obligations. The $128.8 million debt service reserve fund (currently sized above the $118 million requirement) provides some additional cushion. Debt Structure- Midrange --Manageable Capital Improvement Plan: E-470 has a history of delivering projects on time and under budget. The 2014-2018 capital plan is modest at $114 million and will be largely internally-funded with liquidity from the capital improvement subaccount of its surplus fund. Management has demonstrated a proactive approach to maintenance and budgets around $3.5 million of operating expenses annually for regular renewal and replacement expenses. Infrastructure Development /Renewal- Stronger --Moderate Leverage and Strong Liquidity: The authority's net debt-to-cash flow available for debt service (CFADS) is reasonable relative to peers at 11.8x. The debt service coverage ratio (DSCR) in FY 2012 decreased to 1.46x from 1.57x, and both transaction and toll rate growth, as well as continued proactive financial management, will be necessary going forward to ensure the covenant is met in the face of the escalating debt service profile. E-470's healthy liquidity, including over $150 million of unrestricted cash equating to 1,990 days cash on hand (DCOH) for FY 2012, provides some financial flexibility. RATING SENSITIVITIES: --A material change in near- to medium-term traffic and revenue growth due to heightened sensitivity of demand to further toll increases and/or an increase in O&M expenses, resulting in lower debt service coverage levels and more limited financial flexibility, could pressure the rating; --A dependence on debt defeasance in the near term, to avoid a rate covenant violation, would be considered as having a negative effect in Fitch's analysis; --A reduction in DSCR and financial flexibility resulting from a loss of the vehicle registration fee revenue stream could impact the rating. SECURITY: Senior bonds are secured by a pledge of toll revenues, excess vehicle registration fees (after vehicle registration fee bond debt service), highway expansion fees, and interest earnings after the payment of operating expenses. TRANSACTION SUMMARY: The series 2014A bonds are expected to price during the week of Feb. 3, 2014 , and the proceeds will used to refund the series 2011A senior revenue bonds, which are subject to mandatory tender with a conversion date of Sept. 1, 2014 . The series 2014A bonds will be SIFMA Index Bonds with a three-year term. E-470 transactions continue to grow, up 8.2% year-over-year for FY 2013. This represents the fourth consecutive year of traffic growth and 8% above the previous annual high set in 2007. Accordingly, net toll revenues are estimated to be nearly 11% greater for 2013 than 2012. As a result, and despite an amended operating expense budget that increased by $2.5 million , debt service coverage is estimated to have grown back to the 1.49x range, up from the 1.39x originally budgeted. In addition, the authority's strong cash position continues to increase as fund balances grow with improved performance. For additional information, see 'Fitch Rates E-470 Public Highway Authority's (CO) Ser 2007CD-2 Rev Bonds 'BBB-'; Outlook Stable', dated July 31, 2013 . Additional information is available at ' www.fitchratings.com '. Applicable Criteria and Related Research : --'Rating Criteria for Infrastructure and Project Finance' ( July 11 , 2012); --'Rating Criteria for Toll Roads, Bridges, and Tunnels,' ( Oct. 16, 2013 ). Applicable Criteria and Related Research : Rating Criteria for Infrastructure and Project Finance http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682867 Rating Criteria for Toll Roads, Bridges and Tunnels http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=720736 Additional Disclosure Solicitation Status http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=816710 ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS . IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE ' WWW.FITCHRATINGS.COM '. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Fitch Ratings Primary Analyst Jeffrey L. Lack , +1-312-368-3171 Associate Director Fitch Ratings, Inc. 70 West Madison Street Chicago, IL 60602 or Secondary Analyst Chad Lewis , +1-212-908-0886 Senior Director or Committee Chairperson Saavan Gatfield, +1-212-908-0542 Senior Director or Media Relations Elizabeth Fogerty , +1-212-908-0526 ( New York ) elizabeth.fogerty@fitchratings.com Source: Fitch Ratings


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