Unusually severe damage to Houston-area toll roads is likely in the aftermath of Hurricane Harvey, though each road in and out of the city has numerous cushions and safeguards in place to weather most of the financial disruption, according to Fitch Ratings.
The damage incurred for each of the main roadways may lead to a higher than typical degree of financial weakening from demand dislocation and the balance sheet impact of financing repairs. Short-run revenues also will be lower as most operators temporarily waived tolls or closed their roads. However, insurance coverages, state and federal assistance programs and, as applicable, strong financial positions will help to stem the expensive cost of repairs and lack of revenue being generated from road passage.
Fitch publicly rates four issuers with facilities located in and around Harris County, Texas, located near the epicenter of the storm and subjected to severe flooding. These include:
- Harris County Toll Road Authority (HCTRA)
- Fort Bend County Toll Road Authority (Fort Bend)
- Grand Parkway Transportation Corporation (Grand Parkway)
- Blueridge Transportation Group, LLC's SH-288
Fitch also spoke with management of facilities in and around Austin, Dallas, Fort Worth, San Antonio, Laredo, and McAllen who indicated their facilities were far enough from the flooding that no material degree of damage was sustained. Taking all these factors into account, 'Hurricane Harvey will cause toll roads to shut down for some time and will necessitate some costly repairs. However, most toll roads have the financial capacity to weather the storm,' said Director Tanya Langman.
HCTRA (senior toll revenue bonds rated 'AA' with a Stable Outlook) has not yet had the opportunity to assess the degree of damage incurred by its toll road system and believes it will require several more days to do so given the amount of water on its West Beltway. However, Fitch believes HCTRA may have sustained some significant damage by virtue of its extensive network of roads and bridges in and around Houston. What's more, portions of the system remain underwater a week after the storm began. Although the magnitude of road damage has not yet been determined, HCTRA enjoys significant mitigating features.
To the extent tolled facilities are shut down and should they remain shuttered for some time, this weakness is offset by HCTRA's very high senior debt service coverage ratio (DSCR) of over 5x and unrestricted cash balances of $922 million as of fiscal year end 2016. To the extent capital repairs will need to be made, state and federal assistance and insurance should mitigate the total un-reimbursable costs. Additionally, HCTRA's low leverage of 1.9x leaves some capacity for additional debt issuances. Finally, HCTRA enjoys a broad, strong and growing catchment area with robust pricing power that will help drive future revenues should they need to be increased moving forward to finance repairs.
Fort Bend County (senior lien toll revenue bonds rated 'A+' with a Stable Outlook) has not yet provided a detailed impact statement about its two tolled facilities, located on the western edge of the Houston MSA. Tolling on the Fort Bend Westpark Tollway and Fort Bend Parkway was suspended but was expected to be restored just prior to publication, thus resulting in a total of 11 days of lost tolls. Similar to HCTRA, Fort Bend enjoys strong financial metrics in combination with insurance coverages that will somewhat mitigate the impact of prolonged closures or additional debt issuances, should either transpire. In fiscal 2016 senior DSCR was high at 3.2x and liquidity was strong at over 1,700 days cash on hand. Although total DSCR was substantially lower at 1.4x, the subordinate bonds have a backup pledge of the county's unlimited taxing power, resulting in a rating of 'AA+'.
Grand Parkway Transportation Corporation (GPTC) (first-tier toll revenue bonds and second-tier TIFIA loan both rated 'BBB+' with a Stable Outlook) was unable to confirm the condition of its roads. However, Fitch believes it is possible the asset sustained some damage by virtue of its size and location within the hard-hit Houston region, though to what degree remains too soon to tell. What is known is that system tolls were suspended as of 6 a.m. on Aug. 27. Positively, however, GPTC has set aside adequate funds to pay all required debt service and budgeted expenses for operations and maintenance for the entire fiscal year 2018, beginning Sept. 1, 2017. Further, in addition to other reserves, the GPTC maintains a $100 million rate stabilization fund that provides liquidity for such interruptions and self-insurance for property damage and other needs, if necessary. Though the system is still in its infancy, early performance is exceeding management's forecasts thus far. Total coverage and leverage are projected to be much softer than first- and second-tier, though the subordinate lien toll revenue bonds benefit from a toll equity loan agreement (TELA). As part of the TELA, TxDOT allows for a loan in the event the revenues of the project are insufficient to satisfy debt service on the TELA-supported bonds, certain operation and maintenance costs and certain major maintenance costs. Fitch rates these subordinate bonds 'AA' with a Stable Outlook given the TELA enhancement.
The SH-288 project (PABs and TIFIA loan rated 'BBB-' with a Stable Outlook) consists of two managed lanes now under construction that extend 10.3 miles within the SH-288 corridor, which is south of Houston. The project sponsor has not yet had the opportunity to assess the condition of their facility so it remains unclear whether the facility sustained material damage. To the extent the facility may have sustained enough damage to substantially delay its final completion, Fitch expects that such event would likely trigger a force majeure clause under its concession agreement and applicable insurance coverages that would provide a substantial degree of protection to bondholders.
Fitch will continue to monitor the aftermath of Hurricane Harvey and will incorporate its findings into its ratings as applicable.
