KBRA Affirms BBB Rating for Riverside County Transportation Commission’s Toll Revenue Bond, 2017 TIFIA Series
23 May 2024 | New York
KBRA affirms the BBB rating for the Riverside County Transportation Commission’s (RCTC) Toll Revenue Bond, 2017 TIFIA Series. The Outlook is Stable.
Key Credit Considerations
(+) Strong Year-Over-Year Performance
Total annual average daily transactions (AADT) in 2023 were 74,470, up 13.2% from 2022. Toll revenues were also higher, rising 18.3% year-over-year (YoY). Leakage also improved during 2023, representing 2% of total traffic, compared to 2.5% in 2022. The average toll rate in 2023 (already accounting for leakage) at $1.20 was up 4.5% YoY, and also exceeded the sponsor’s budget, mainly due to outperformance in certain sectors of the express lanes.
Compared to KBRA’s original projections, total gross revenues (toll and non-toll) in 2023 were 47.5% higher than our expectation for the year, while operating expenses were 30.4% lower than our forecast.
(+/-) No Mandatory Debt Service Until December 2025
Interest payments on the loan will commence on December 1, 2025, and will be paid semiannually, while principal payments will commence on June 1, 2031, and will be paid annually until fully repaid by the maturity date of June 1, 2055. As of December 2023, the TIFIA loan has capitalized approximately $17.2 million of interest payments, reaching an outstanding balance of $169.4 million.
Rating Sensitivities
A rating upgrade could occur if traffic ramp-up and toll revenues are significantly and consistently higher than KBRA’s projections.
Traffic volumes that are consistently below KBRA’s projections and lead to debt service coverage ratios below 1.50x could lead to a downgrade.
ESG Considerations
Environmental Factors
California has set ambitious goals for carbon reduction, including the goal of achieving carbon neutrality by 2045. Traffic on the project corridor is heavily commuter based; regulation or policies that discourage single occupancy vehicles typically used by commuters could impact traffic levels and tolling revenues.
Social Factors
The project is expected to reduce congestion for motorists using I-15 and traveling between Inland Empire and Los Angeles and Orange counties. Project revenues are reliant on traffic volumes which can be influenced by a multitude of social factors including employment levels and household income. The project benefits from a diversified local economy with higher than national average GDP per capita, median household incomes, and higher than national average population growth.
Governance Factors
Funding for the I-15 Express Lanes is provided by various state and federal programs. Changes to the regulatory or political environment and related policies and strategies could impact the project or the borrower’s ability to receive further funding at a later date, if necessary. Further, one of the differentiating factors of this transaction compared to similar project financings is that the borrower is not a single-purpose vehicle. Instead, RCTC is the sole borrower of the transaction and its operational history and position as a public entity is viewed favorably. Policy changes or a lack of transparency could negatively impact the project.
Rating Rationale
The project has shown a strong performance over the first 2.5 years of operations, and KBRA expects this performance to continue as it reaches mature operational phase. A KPRS of Strong and an average aggregate DSCR of 3.42x through the term of the debt are sufficient to support a BBB rating on the loan.
Outlook
The Stable Outlook reflects the project’s strong operating performance. Mandatory interest and principal payments are not due until December 2025 and June 2031, respectively, when the project should be entering a more mature and stable period in terms of traffic and revenue. A rating upgrade could occur if toll revenues and transactions are consistently above KBRA’s rating case expectations. A rating downgrade could occur if traffic and revenues trend considerably below KBRA’s rating case due to proven shift in motorists’ preferences.
To access rating and relevant documents, click here.