Fitch Ratings has assigned an 'A' rating to the New Jersey Turnpike Authority's (the authority) approximately $142 million in series 2012A bonds which will refund the outstanding series 2004C-1 bonds.
In addition, Fitch has affirmed the 'A' rating on approximately $7.72 billion in outstanding turnpike revenue bonds. Fitch does not rate turnpike revenue bond series 1991D, 1992B, 2009A-D (totals $558.7 million).
The Rating Outlook is Stable for all bonds.
KEY RATING DRIVERS:
--Strategic Importance: The New Jersey Turnpike is a critical inter- and intra-state transportation link with a mature traffic profile.
--Strong Rate-Making Flexibility: Considerable economic flexibility exists to increase toll rates but may be constrained by a politicized operating environment.
--Moderate Financial Metrics: Leverage is currently high at approximately 14 times (x). Using Fitch's Base Case net cashflow available for debt service in 2018, coverage of maximum annual debt service (MADS) on outstanding and future debt equals a healthy 1.23x.
--Large Debt Plans Support Well-Defined Capital Plan: The authority has a $7 billion 10-year capital improvement plan (CIP) and expects to issue $4.4 billion in additional fixed-rate debt through 2018.
--Subordinate Transfers: The authority provides annual transfers to the state from surplus revenues resulting in lower liquidity and a dependence on future borrowing to fund a large part of its capital plan; while the significant level of transfers are viewed as a risk, all resolution requirements of the authority are senior to the transfers.
WHAT COULD TRIGGER A RATING ACTION:
--Erosion of debt service coverage in the medium term below 1.5x for a sustained period due to lower-than-anticipated revenue yields from approved toll increases or higher-than-anticipated expense growth.
--Increases in leverage beyond the authority's planned $4.4 billion in debt to fund the balance of the 10-year, $7 billion CIP.
--Increased transfers to the state to support transportation projects without commensurate toll increases.
SECURITY:
The turnpike revenue bonds are secured by a lien on pledged revenues, which are defined as all tolls, revenues, fees, rents, charges, and other income derived from operating the turnpike (including Build America Bond subsidies), proceeds from business interruption insurance, amounts deposited in the revenue fund from the construction/special project reserve/or general reserve funds, and revenues from qualified swaps and investments. The outstanding bonds have a final maturity in 2041.
TRANSACTION SUMMARY:
The proceeds of the series 2012A bonds will be used to refund and legally defease the currently outstanding series 2004C-1 bonds maturing on Jan. 1, 2031 and Jan. 1, 2035 for interest savings of about 8%. The authority is currently evaluating the issuance of several additional series of bonds to possibly refund and defease the series 1991D, 2003A, 2005C, and/or the 2009E bonds.
The authority's current debt load is about $8.23 billion, nearly 20% of which is variable rate that is synthetically fixed. The authority anticipates a series of new borrowings totaling approximately $4.4 billion between 2013 and 2018 to fund the balance of the 10-year, $7 billion capital plan. The plan will be entirely debt-funded and anticipates improvements to both the turnpike and parkway. Debt service coverage (DSC) dipped slightly in 2011 to 1.58x from a solid 1.66x in 2010 and a low of 1.17x in 2008. The authority expects to maintain DSC at 1.5x. The CIP is currently on-time and on-budget and approximately 49% of the CIP has been committed or spent.
The authority's system includes the 148-mile New Jersey Turnpike and its two extensions, and the 173-mile Garden State Parkway. About 1.7 million toll transactions occur on the system each day. Traffic was down in 2011 by 1.04% over 2010 while toll revenues were essentially flat (down 0.30%). On Dec. 2, 2008 the authority implemented the first of two approved toll increases with the second increase taking effect on Jan. 1, 2012. Tolls for a peak-hour full-length trip on the turnpike and parkway rose 53% and 50%, respectively. Year to date for 2012 (through March), traffic is down an additional 0.22% but toll revenues are up 52.4%.
For additional information, please see Fitch's press release 'Fitch Rates New Jersey Tpke Auth's Tpke Rev Bonds 'A'; Affs Outs. Bonds; Outlook Stable' dated Nov. 17, 2011, available at 'www.fitchratings.com'.
Additional information is available at www.fitchratings.com. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Rating Criteria for Infrastructure and Project Finance,' (Aug. 16, 2011);
--'Rating Criteria for Toll Roads, Bridges, and Tunnels,' (Aug. 5, 2011).
Applicable Criteria and Related Research:
Rating Criteria for Infrastructure and Project Finance
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648832
Rating Criteria for Toll Roads, Bridges, and Tunnels
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=646421
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