Each year, the Fitch credit-ratings firm issues a report on debt backed by tolls collected on Miami’s Rickenbacker Causeway, the bridge system connecting downtown to the shores of Key Biscayne.
On Thursday, Fitch debuted a new cash-flow concern for the Rickenbacker. “Given its location,” Fitch analysts wrote, “the causeway is exposed to extreme weather events in relation to rising sea levels and vulnerable to traffic and revenue disruptions.”
The newly spelled-out hazard about rising seas didn’t hurt the debt rating for the county-owned causeway, which Fitch still considers a reasonably safe credit risk with a BBB+ score.
In fact, rising seas get less attention from Fitch than do more immediate factors influencing Rickenbacker toll revenues. That includes the loss of Key Biscayne’s two-week Miami Open tennis tournament and the fact that March’s three-day Ultra music festival wasn’t long enough to make up for the lost traffic.
But the brief mention of sea level rise in relation to the financial future of a Miami-Dade toll expressway captures the shift underway on Wall Street as investors demand more scrutiny and skepticism about how local governments are going to weather climate change.
Last month Moody’s, a Fitch competitor, purchased a research firm focused on modeling physical risks from climate change. Four Twenty Seven, based in Berkley, California, predicts future costs to borrowers from floods, wildfires, torrential rain and other hazards made worse by a warming climate. Moody’s said it plans to use the data to judge how climate change might hurt a borrower’s chances of repaying long-term debt.
In May, Fitch rolled out a new scoring system that includes estimates on environmental risks. It was a higher ranking on that score that triggered Fitch’s rising-sea commentary on the Rickenbacker report, which covers about $30 million worth of debt held by bond holders.
“This asset is more exposed to sea level rise than most of the other Florida assets are,” said Fitch analyst Anne Tricerri. “Investors are interested in how we evaluate these different factors. We get asked about it frequently.”
Last week, Moody’s executives met with members of Miami’s finance division about the new need for resiliency disclosures. “One of their performance measures is going to be how a city addresses sea-level rise, climate change and so on,” said Sandra Bridgeman, the city’s chief financial officer.
In July 2018, Miami-Dade began including disclosures about climate change risks in the regulatory documents it must file for investors in county bonds.
“The State of Florida is naturally susceptible to the effects of extreme weather events and natural disasters including floods, droughts and hurricanes,” the county wrote in a May report on $494 million worth of bonds sold to Wall Street investors, who are being paid back with revenue from Miami International Airport. “Such effects can be exacerbated by a long-term shift in the climate over several decades (commonly referred to as climate change), including increasing global temperatures and rising sea levels.”
The report goes on to tick off the county’s steps to address climate change, an analysis of long-term vulnerability of critical government buildings and infrastructure systems and how to protect them.
Adding the language “was a result of ratings agencies dinging other issues for disclosing this,” said Arlesa Wood, head of the county’s bonds division. Ed Marquez, the county’s chief financial officer, said the disclosures are in all county bond documents now “in anticipation of inquiries from everywhere.”
Built in 1947, the four-mile Rickenbacker system includes two bridges, Bear Cut and William Powell. It connects with the mainland in Miami’s Brickell neighborhood, and connects with Crandon Boulevard on Key Biscayne.
Tricerri and other Fitch analysts said the main concern from climate change for the Rickenbacker is more disruption from hurricanes. Storms shut down bridges, pausing toll revenue. The damage a hurricane can bring to tourist attractions in the Key Biscayne area, including the Miami Seaquarium and Crandon Park, can cripple demand for day visits to the island.
Though a lifeline for Key Biscayne residents, the bridge depends on leisure traffic for 90 percent of the $12 million it generated in tolls last year, according to Fitch and a county financial report. The bridge generates more than enough toll revenue to cover debts, with about two dollars available for every one dollar needed for debt payments in 2018.
Miami-Dade plans to spend $2.5 million next year on a two-year analysis on the future of the bridges on the Rickenbacker, with a focus on the lower Bear Cut structure. A budget summary says the study will help create long-range plans “to address sea-level rise and Bear Cut bridge replacement.”
Fitch’s current Rickenbacker rating includes a grim scenario for the Rickenbacker and severe weather. It assumes traffic will be flat and annual toll revenue will eventually decline, a scenario that accounts “for the causeway’s heightened exposure to extreme weather events.” Analysts said the scenario isn’t a prediction, but a kind of worst-case scenario to check the Rickenbacker is generating enough money to handle significant disruption.
“Our rating case is very conservative,” said Fitch analyst Jennie Mu. “The idea is, even if there is a hurricane event, it wouldn’t lead to a ratings change because that’s something we’ve accounted for.”