Fitch Ratings has affirmed the 'A' rating on approximately $22.3 million of outstanding Buffalo and Fort Erie Public Bridge Authority (authority or Peace Bridge) toll bridge system revenue refunding bonds. The Rating Outlook is Stable. KEY RATING DRIVERS Summary: The rating reflects the bridge's role as a vital international link serving both commercial and passenger traffic between the U.S. and Canada. Bridge traffic faces exposure to shifting consumer behaviours, economic conditions, border security, and population deterioration in the Buffalo area- all of which contribute to declines in both commercial and passenger volumes, which are offset in part by the authority's full rate-setting ability and historically low elasticity to rate increases. The authority further benefits from manageable capital needs and high liquidity levels. An average rating case debt service coverage ratio (DSCR) of 1.9x and average leverage of 3.4x are both in line with the criteria's indicative rating range. Revenue Risk - Volume: Midrange Important and Commercially Dependent Crossing: The Peace Bridge plays an important role in U.S. and Canadian trade and attracts regional passenger and truck traffic, as the bridge connects northern New York interstates to the Queen Elizabeth Way in Ontario through to Toronto. Wait times are a major competing factor at regional bridge crossings, and though wait times for truck traffic are generally higher compared to nearby crossings, the bridge currently maintains the highest commercial inspection capacity between Buffalo and Fort Erie, Ontario. Growth prospects are limited and traffic is largely influenced by discretionary passenger trips and economic conditions given the importance of commercial volume, which accounts for 72% of toll revenues. Historical toll increases also reflect very low elasticity and have not materially impacted the bridge's traffic profile. Revenue Risk - Price: Stronger Full Rate-Making Flexibility: The authority has full legal ability to increase tolls when necessary, with little historical evidence of political pushback. The authority has approved a toll increase on passenger vehicles beginning fiscal 2018, and expects the increase to have little or no impact on traffic. Infrastructure Renewal & Replacement: Midrange Developing CIP: The authority's five-year $184.6 million capital improvement plan (CIP) is manageable and largely financed by current cash reserves and future revenues. Projects include a major bridge re-decking project, potential expansion of U.S. inspection capacity, building renovations, and other minor projects and purchases. The authority expects to issue about $75 million in additional bonds in mid-2017 to help fund the capital plan. Debt Structure: Stronger Strong Conservative Debt Structure: All bonds are senior, fixed-rate and fully amortizing to a final maturity in 2025. Security features include a 1.25x backward or forward-looking additional bonds test (ABT) and a cash-funded debt service reserve fund (DSRF) at maximum annual debt service (MADS). Healthy Financial Metrics: Fitch positively views the authority's history of conservative financial planning, the practice of maintaining high liquidity (2,283 days cash on hand in fiscal 2016), and a strong track record of expense management. DSCR remained above 4x in 2016 and leverage is well below most toll bridge facilities. PEER GROUP Peers include three U.S.-Mexico bridge border crossings in Cameron County ('A'/Outlook Stable), Laredo ('A+'/Outlook Stable), and McAllen ('A'/Outlook Stable), Texas. Similar to the other three bridges, Peace Bridge provides an important service supporting both commercial and leisure traffic. However, it is not exposed to the same level of security concerns as the Texas crossings, and its largest exposed risks are to economic conditions and discretionary traffic decisions. Peace Bridge also has the lowest average rating case DSCR and highest average leverage of its peers, at 1.9x and 3.4x, respectively. RATING SENSITIVITIES Negative: Dilution of coverage ratios and financial flexibility due to the authority's planned sizable bond issuance or continued deterioration in traffic performance, resulting in DSCR falling below 1.8x for a sustained period, may lead to rating pressure. Negative: The rating could be pressured by material changes in federal policy that would negatively affect leisure crossings, trade with Canada and/or the bridge's revenue growth prospects. Positive: The rating may migrate upwards with sustained traffic and revenue performance resulting in coverage being maintained above 2.0x, after the authority's planned debt issuance, thus providing comfortable financial cushion. Performance Update 2016 vehicle volumes dropped again across all border bridges between Ontario and the U.S. due to various factors including security, changes in consumer behaviour and the continued weakening of the Canadian Dollar (CAD) compared to the U.S. Dollar (USD), making travel to the U.S. more expensive for Canadians. As a result, total traffic decreased 1.4% on Peace Bridge in 2016. The bridge continues to carry more passenger autos (77% of total traffic) than trucks (23% of total traffic) but carries 62% of the region's commercial traffic despite charging higher tolls, as the bridge offers the fastest route to and from the Buffalo area. The authority has also approved a toll increase for passenger vehicles only beginning 2018, but does not expect the increase to have an impact on traffic levels. Toll rates remained unchanged in fiscal 2016. Toll revenues fell 1% to $21.3 million as a result of the lower traffic volume. Non-operating revenues, which include grants and rental income, grew 4% due to increased rental income from duty-free stores and U.S. government agencies. Operating expenses (net of depreciation) fell 5% due to a one-time installation of radiation portal monitors which occurred in 2015. Expenses are expected to stabilize going forward. The authority's five year CIP totals $184.6 million, and focuses on the bridge re-decking project. Since last review, the Canadian approach widening project, which precedes re-decking, was completed in September 2016, and the re-decking project commenced the following October. The bridge is inspected annually and the overall structural condition is generally satisfactory to good with no immediate repairs identified. The authority plans to issue at maximum $75 million of new debt in mid-2017 to help fund the capital plan. Debt service coverage remained strong in 2016, growing to 4.4x due to high cash flow and relatively low debt service. Leverage is significantly low at -4.7x due the authority's minimal outstanding debt and healthy liquidity of 2,283 days cash on hand (DCOH). Fitch Cases Fitch's base case assumed annual traffic declines from 2017-2019 for re-decking construction, followed by minor declines and generally flat growth thereafter. The 2018 toll increase was incorporated with no other increases assumed, and non-operating revenues are held flat. Expenses grow 2.5% annually, and the proposed $75 million debt issuance is assumed in 2017. The resulting profile produced adequate metrics with a 10-year average DSCR of 2.2x and average net leverage of 2.9x. Fitch's rating case is similar to the base case but assumes additional stressed traffic declines in 2018 and 2019, followed by minor declines and flat traffic growth thereafter. Resulting metrics still remained in line with the criteria's indicative rating range, with 10-year average DSCR at 1.9x, and average leverage of 3.4x. Asset Description Buffalo & Fort Erie Public Bridge Authority owns and operates the Peace Bridge which provides one of four tolled crossings over the Niagara River between Buffalo, NY, and Fort Erie, Ontario (Canada). Security The bonds are secured by pledged net revenues of the Peace Bridge.