Aa3 RATING AFFIRMED ON APPROXIMATELY $973 MILLION OUTSTANDING SALES SURTAX REVENUE BONDS
Miami-Dade (County of) FL
Municipality
FL
Moody's Rating
ISSUE | RATING |
|---|
Transit System Bond Anticipation Notes, Series 2011 | MIG 1 |
Sale Amount | $100,000,000 |
|---|
Expected Sale Date | 09/12/11 |
|---|
Rating Description | Bond Anticipation Notes |
|---|
|
Opinion
NEW YORK, Aug 30, 2011 -- Moody's Investors Service has assigned a MIG 1 rating to the Miami-Dade County
Transit System's (MDT) $100 million Bond Anticipation Notes (BANs), Series 2011
issued by Miami-Dade County. Additionally, Moody's has affirmed the Aa3 rating
on the county's approximately $973 million of outstanding sales surtax revenue
Bonds. The outlook is revised to negative from stable. Note principal is payable
from the proceeds of the future sale of long term bonds which have already been
authorized.
SUMMARY RATING RATIONALE
The MIG 1 rating incorporates the Aa3 long term rating on the sales
surtax revenue bonds and the existing authorization of long term bonds to
refinance the BANs on or before note maturity on November 1, 2012. MDT's
outstanding long-term bonds are secured by a gross senior lien pledge of 80% of
Miami-Dade County's one-half cent public transportation sales tax. Interest on
the note constitutes a subordinate lien obligation on the sales tax revenues
that secure the MDT's revenue bonds. The Aa3 long term rating reflects the
strength of the gross sales tax pledge, recent improving collection trends, and
legal covenants including an additional bonds test (ABT) of 1.5 times. However,
debt service coverage levels have declined recently with increased issuance and
reduced sales tax receipts that were hurt by the recession. The negative outlook
reflects Moody's expectation that debt service coverage will continue to decline
given MDT's capital needs and planned debt issuance to address its substantial
fixed costs and fund a large capital plan. The negative outlook also
incorporates the transit system's narrow operations that rely on surplus sales
tax revenues after debt service, and recent problems that resulted in a
suspension of MDT's Federal Transit Administration (FTA) grants. Following
corrective measures, a portion of the federal funds have been restored and the
remainder is expected in the fall.
The BANs will be privately placed with Citibank, with a closing expected in
mid-September. Proceeds will be used to provide interim funding for improvements
to MDT transit and public works projects.
CREDIT STRENGTHS
* Satisfactory debt service coverage generated by sizable economic base
* County commitment to increase its general fund subsidy to operate the transit
system by 3.5% annually
* Oversight of "People's Transportation Plan" projects by a
quasi-independent board, the Citizens' Independent Transportation Trust (CITT)
CREDIT CHALLENGES
* Sales tax performance weakened by recession
* Debt service coverage expected to decline as sales tax is leveraged with
sizeable planned bond issuance
* Heavy reliance on the county's general fund to provide funding for transit
operations and need for additional operating funds in 2014
* Large capital program relies on significant future borrowing and would require
additional revenues to fully implement
* Somewhat weak additional bonds test (1.5 times maximum annual debt service)
for transit sector
DETAILED CREDIT DISCUSSION
DEDICATED SALES TAXES SECURE BONDS; SATISFACTORY LEGAL COVENANTS
The bonds are secured by a gross pledge of 80 percent of the
receipts attributable to a one-half cent county-wide sales tax, approved by
voters. Gross sales taxes are collected by the state department of revenue and
then deposited monthly, net of a 3% administrative charge, into the transit
system sales surtax trust fund held by the county finance director. After
satisfying debt service requirements, including the revenue bonds as well as
other special obligations of the county issued for transit purposes,
remaining sales tax receipts are used to support MDT's operating costs.
The additional bonds test is satisfactory at 1.5 times maximum annual debt
service (MADS) for senior lien debt, based on pledged revenues for twelve
consecutive months in the preceding eighteen consecutive months, and 1.25 times
for senior and subordinate debt combined. The debt service reserve fund
requirement is equal to MADS or such lesser amount which is the greatest
allowable under the federal tax code. The reserve is currently funded at MADS,
approximately $60.7 million net of federal Build America Bond subsidies for
prior issuances, with $43.2 million in cash and $17.4 million in a surety with
FSA.
The Build America Bond subsidy is pledged to the MDT's Series 2009B and 2010B
bonds and, per an indenture amendment last year, is subtracted from MDT's
calculation of debt service, weakening the additional bonds test. This exposes
the county to additional payments should the federal subsidy not be received.
However, the county has built a six-month lag into the cash flows to guard
against delayed receipt of the federal subsidy.
DEBT SERVICE COVERAGE PROJECTED TO DECLINE FOLLOWING INCREASED ISSUANCE
In fiscal 2008, pledged revenues covered sales surtax bonds MADS by a strong
5.06 times. However, as sales tax receipts declined during the recession and
debt service costs increased with additional bond issuance, MADS coverage
dropped in half to 2.49 times in fiscal 2009. With the planned issuance of
approximately $500 million next year to refinance the BANs and provide needed
capital funds, MADS costs are estimated to increase to $101.3 million, before
the federal subsidy. Based on Moody's calculation of debt service coverage, with
the federal subsidy added to revenues rather than subtracted from debt service,
MADS coverage would decline to 1.63 times in fiscal 2012, based on a forecast of
4.5% sales tax growth in fiscal 2012, following estimated 5.3% growth in fiscal
2011. While debt service coverage remains satisfactory, absent new revenues the
current rating level may be unsustainable if the county continues to
aggressively issue new surtax-backed debt.
MDT has no variable rate debt or swaps although it does have exposure to ten
lease in-lease out (LILO) agreements. The county is negotiating with the
investor to resolve four of the agreements that are in technical default due to
the downgrade of guaranteed investment contracts (GICs). A total of $38 million
could be required if MDT has to fully collateralize the transactions.
OPERATIONS HEAVILY SUBSIDIZED BY THE COUNTY'S GENERAL FUND
MDT is the 14th largest transit system in the nation and the largest in Florida,
providing bus, rail, an automated guide-way system in downtown Miami
(Metromover) and para-transit service. In common with most transit systems
across the country, MDT's ridership has been negatively affected by the economic
recession. Ridership declined by 9% in fiscal 2009 and 5.8% in 2010
after moderate annual increases of 5.3%, 1.7%, and 3.2% in fiscal years 2006,
2007, and 2008, respectively.
MDT is owned and operated by Miami-Dade County (G.O. bonds rated Aa2 with a
negative outlook). The system relies heavily on transfers from the county's
general fund to support operations. These transfers account for approximately
one-third of the system's operating revenues. The county has committed to
increasing its "maintenance of effort" contribution by 3.5%
annually. The county also transfers a portion of its Local Option Gas Tax
revenues, which amounted to $17.2 million in fiscal 2010, and state subsidies
totaled $27.6 million in fiscal 2010. A fare increase of 50 cents was imposed in
2009 and the county has approved future increases based on increases in the CPI
every three years. However fares cover a relatively low percentage (about 20%)
of total operating expenses, before depreciation.
Last year, the Federal Transit Administration (FTA) suspended about $180 million
in grants to MDT following allegations of material weakness in its financial
controls. Corrective actions have been identified and taken or are in progress.
As of July 1, 2011, approximately $63 million in 2010 grants have been restored
along with $17 million in federal stimulus funds that were also withheld. MDT is
still waiting to receive about $103 million in 2011 grants and expects those
funds later in the fall. The suspension of the federal funds had no impact on
the flow of sales tax revenues to debt service or operations, and no operating
cuts or service reductions were necessary as a result of the action. However,
the suspension did reveal the need for the Miami-Dade County's transit
department to improve its financial procedures and delayed the receipt of an
important resource for the transit system.
SALES TAX RESULTS IMPROVE BUT REMAIN BELOW PRE-RECESSION PEAK
Pledged sales tax revenues increased 2.3% in fiscal 2010, after declines of 2.5%
and 7.4% in fiscal years 2008 and 2009. Sales tax transfers to MDT peaked at
$153 million in fiscal 2007. Pledged revenues include the sales tax on
transactions up to $5,000, which would exclude most car sales. As a result,
MDT's sales tax trends have been less volatile than other systems supported by
sales taxes that include higher priced items negatively affected by the
recession.
Fiscal 2010 results came in higher than expected and the most recent
estimate for fiscal 2011 indicates 5.3% growth in fiscal 2011. Year-over-year
results through May 2011 are 7.3% higher than last year. MDT projects sales tax
revenue growth of 4.5% per year, but sales tax performance would likely be
negatively affected if the economic recovery is delayed or is weaker than
expected.
COUNTY-WIDE SALES TAX SUPPORTED BY SIZABLE AND DIVERSE ECONOMIC BASE
The pledged sales tax, approved by voters in November 2002 by a margin of two to
one, is a county-wide one-half cent sales and use tax on all transactions up to
$5,000. Collection of the tax began in January 2003. Total revenues are net of
an up to 3% state collection fee and pledged revenues are net of a 20%
distribution to cities in the county with transit projects.
The county's sizeable economic base is an important southeast center
with established international ties and a broad-based economy fueled by tourism
and international trade. While long-term expansion should be supported by the
county's diversified base of tourism, trade, banking, and manufacturing
industries, the local economy contracted during the recession. Unemployment
remains high at 13.7% in May 2011, above the state (10.5%) and the nation
(8.7%), both of which declined over the past year while the county's rate
climbed.
Tourism, the county's primary economic component, was hurt by both domestic and
international travel. International trade has taken on an increasingly important
role in the economy, fueled by the county's airport and seaport operations. The
county's real estate market, which had been bolstered by low interest rates
and international investment, experienced a material slowdown underscored by a
steep decline in building permits, high foreclosure rates, and a falloff in
construction activity. However, there are signs of economic stabilization.
According to Moody's Economy.com (July 2011), recovery of the Miami economy is
gathering momentum with expansion of the service sector and growth in both
single and multi-family housing permits. Long term, Miami's economy is expected
to outperform the nation due to its growing infrastructure, strong international
trade ties, and stature as an attractive international tourism destination.
SIZEBABLE CAPITAL PROGRAM FOR NEW PROJECTS AND SERVICE IMPROVEMENTS
MDT's sales surtax bonds provide funds for projects under the
"People's Transportation Plan" (PTP) overseen by a quasi-independent
board, the Citizens' Independent Transportation Trust (CITT). The PTP includes
new capital projects and service improvements to both transit and roadway
infrastructure. Transit projects include bus and rail facility improvements,
fare collection system replacements, vehicle rehabilitation and replacements,
and improvements to the rapid transit corridor. Public Works projects include
major roadway as well as neighborhood improvements. Funding for the capital
plan to date totals $1 billion. Additional financing through 2016 totals a
substantial $1.48 billion. The MDT has demonstrated its ability to successfully
complete projects ahead of schedule and on budget.
Outlook
The negative outlook reflects Moody's expectation that debt service
coverage will decline as the transit system continues debt issuance plans to
support its capital program. The outlook also incorporates the transit system's
narrow operations and the suspension of MDT's FTA grants due to weak financial
controls.
What would change the rating - UP
* Higher-than-expected debt service coverage, despite MDT's significant
borrowing plans
* Voter approval of an additional sales tax to better support transit operations
and lessen MDT's reliance on transfers from the county's general fund
What would change the rating - DOWN
* Lower debt service coverage resulting from a continued economic downturn or
continued aggressive issuance of new debt, absent new revenues
* Diminished ability of the county's general fund to provide support for the
transit enterprise as a result of budgetary pressures
* Downgrade of Miami-Dade County's rating
KEY STATISTICS
Miami-Dade Transit:
Change in pledged sales taxes, fiscal 2009: -7.4%
Change in sales taxes, fiscal 2010: 2.3%
Projected coverage of current MADS by estimated fiscal 2011 pledged
revenues: 2.25x (Moody's calculation)
Projected coverage of MADS (including 2012 planned issuance) by estimated fiscal
2011 pledged revenues: 1.56x (Moody's calculation)
Total passengers transported, 2010: 97.5 million
Change in ridership, 2010: -5.8%
Miami-Dade County:
Estimated population, 2010: 2.56 million
Unemployment rate, 5/11: 13.7% (vs. 10.5% State)
RATING METHODOLOGY
The current rating assignment on the Miami-Dade County Transit System Bond
Anticipation Notes and Sales Surtax Revenue Bonds was assigned by evaluating
factors we believe are relevant to the credit profile of the issuer, such as i)
the business risk and competitive position of the issuer versus others within
its industry or sector, ii) the capital structure and financial risk of the
issuer, iii) the projected performance of the issuer over the near to
intermediate term, iv) the issuer's history of achieving consistent operating
performance and meeting budget or financial plan goals, v) the debt service
coverage provided by such revenue stream, vi) the legal structure that
documents the revenue stream and the source of payment, and vii) the
issuer's management and governance structure related to the payment.
These attributes were compared against other issuers both within and outside of
the Miami-Dade County Transit Enterprie's core peer group and the Miami-Dade
County Transit System Bond Anticipation Notes and Sales Surtax Revenue bond
ratings are believed to be comparable to ratings assigned to other issuers of
similar credit risk.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt, this
announcement provides relevant regulatory disclosures in relation to each rating
of a subsequently issued bond or note of the same series or category/class of
debt or pursuant to a program for which the ratings are derived exclusively from
existing ratings in accordance with Moody's rating practices. For ratings issued
on a support provider, this announcement provides relevant regulatory
disclosures in relation to the rating action on the support provider and in
relation to each particular rating action for securities that derive their
credit ratings from the support provider's credit rating. For provisional
ratings, this announcement provides relevant regulatory disclosures in
relation to the provisional rating assigned, and in relation to a
definitive rating that may be assigned subsequent to the final issuance of the
debt, in each case where the transaction structure and terms have not
changed prior to the assignment of the definitive rating in a manner that
would have affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
Information sources used to prepare the rating are the following: parties
involved in the ratings, public information, confidential and proprietary
Moody's Investors Service information, and confidential and proprietary Moody's
Analytics information.
Moody's considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing a rating.
Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.
Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.
Analysts
Nicole Johnson
Analyst
Public Finance Group
Moody's Investors Service
Baye B. Larsen
Backup Analyst
Public Finance Group
Moody's Investors Service
Contacts
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Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
USA
MOODY'S REVISES OUTLOOK ON MIAMI-DADE COUNTY TRANSIT SYSTEM SALES SURTAX BONDS TO NEGATIVE FROM STABLE AND ASSIGNS MIG 1 RATING $100 MILLION BOND ANTICIPATION NOTES SERIES 2011
