Fitch Ratings assigns an 'AA-' underlying rating on the
following Pennsylvania Turnpike Commission (PTC) revenue bonds:
-- $125,000,000 turnpike fixed-rate revenue bonds, series A of 2006,
-- $125,000,000 turnpike multi-modal revenue bonds, series B of 2006
-- $125,000,000 turnpike multi-modal revenue bonds, series C of 2006.
In addition, Fitch affirms its 'AA-' rating on PTC's outstanding $1.4 billion turnpike revenue bonds. The Rating Outlook on the bonds is Stable.
Bonds proceeds will be used to finance the Commission's Ten-Year Capital Plan, fund necessary reserves to the extent required, pay the premium for the Bond Insurance Policy and pay the costs of issuance of the 2006 bonds.
The fixed-rate series A bonds are scheduled to sell via negotiation by a Mesirow Financial, Inc. led syndicate during the week of May 29. The series B and series C bonds are expected to sell via negotiation by PNC Capital Markets, LLC and RBC Capital Markets during the week of June 12. Fitch expects to assign short-term and long-term ratings to the series B and C multi-modal bonds. Short-term ratings are expected to be based upon liquidity support, in the form of a standby bond purchase agreement, to be determined to closer to the sale date. Additionally, the long-term rating on each series of bonds is expected to be based on a municipal bond insurance policy from a monoline bond insurer, whose financial strength is rated 'AAA' by Fitch. Related to the issuance of the series A fixed-rate bonds, PTC will execute a fixed-to-floating rate swap for the total notional amount equal to the bonds.
The 'AA-' rating reflects PTC's vital role in serving the state's major population centers as well as its stable historical traffic and revenue growth, its financial performance that covers all operating and capital needs of the existing mainline facilities, and its economic ratemaking flexibility. The rating also incorporates the significant debt-funded portion of PTC's proposed $4.5 billion capital improvement plan (CIP) and the risk that the mainline revenue bond security may not be fully insulated from completion risks associated with the Mon/Fayette Expressway and Southern Beltway projects.
The primary credit concern facing the PTC is the risk that mainline revenues could be diverted to close the funding gap for non-mainline and new expansion projects, including the Mon/Fayette and Southern Beltway projects. Total project costs have escalated from $3.0 billion to almost $4.3 billion over the past few years due to construction-related inflation, inclusion of essential toll and maintenance facilities, and egress roads and ramps that were not included in the original estimate. The PTC anticipates that the Mon/Fayette and Southern Beltway projects will continue to be funded by non-toll sources, which currently include certain vehicle registration fees and oil franchise taxes. The gap between non-toll sources and total project costs is currently $2.5 billion.
A toll increase of approximately 42.5%, comparable with inflation since the last toll increase in 1991, went into effect on Aug. 1, 2004. As a result, fiscal 2005 gross revenues grew by 33% to $545.2 million from $408.7 while traffic decreased only 1.2%. Total traffic for fiscal 2005 equaled 185.8 million vehicles as compared to 188.0 million vehicles in 2004. Since 1995, total traffic has grown at an average annual rate of 4.8%. The 2004 toll increase has allowed for the acceleration of the reconstruction of the original mainline turnpike section. Approximately $3.7 billion of the total $4.3 billion capital plan will go towards this effort. PTC expects to reconstruct roughly 16 miles a year. This new objective is expected to be accomplished with a continued mix of debt issuance and pay-go funding.
PTC's solid financial performance is a significant credit strength. Net income (the operating surplus after paying for operating costs and debt service on the toll revenue bonds) has remained strong, ranging between 38% of gross income in 1999 and 41% of gross income in 2005, which is high for a toll road. PTC's strong historical and current cash position of $105 million provides further enhancement to the overall credit and offers bondholders additional comfort in the event of any type of disruption in traffic flows. In 2004 and 2005, PTC's net revenues produced debt service coverage of 2.7 (x) times and 3.9x, respectively. The higher coverage level in 2005 is attributable to the 2004 toll increase. Fitch expects debt service coverage to decline as the Commission issues additional debt to finance the 10-year capital plan, but remain at least 2x. A key challenge for the Turnpike will be to contain the rate of operating expense growth, which has increased at an annual rate of 6.4% since 1999.
The Pennsylvania Turnpike is the nation's oldest turnpike. It serves Pennsylvania's mature economy, including the cities of Philadelphia and Pittsburgh, which anchor each end of the state. The turnpike also provides a strategic link in the system of turnpikes that stretches from Chicago to Boston. Not surprisingly, toll revenues benefit from a high proportion of commercial traffic. While this introduces some susceptibility of commercial revenues to economic cycles, the sizable boost to revenues in up-cycles softens the negative financial impact in down-cycles. In addition, the presence of a moderate amount of surplus cashflow for pay-as-you-go capital spending provides the flexibility to adjust to changing environments without meaningful impact to bondholders.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
-- $125,000,000 turnpike fixed-rate revenue bonds, series A of 2006,
-- $125,000,000 turnpike multi-modal revenue bonds, series B of 2006
-- $125,000,000 turnpike multi-modal revenue bonds, series C of 2006.
In addition, Fitch affirms its 'AA-' rating on PTC's outstanding $1.4 billion turnpike revenue bonds. The Rating Outlook on the bonds is Stable.
Bonds proceeds will be used to finance the Commission's Ten-Year Capital Plan, fund necessary reserves to the extent required, pay the premium for the Bond Insurance Policy and pay the costs of issuance of the 2006 bonds.
The fixed-rate series A bonds are scheduled to sell via negotiation by a Mesirow Financial, Inc. led syndicate during the week of May 29. The series B and series C bonds are expected to sell via negotiation by PNC Capital Markets, LLC and RBC Capital Markets during the week of June 12. Fitch expects to assign short-term and long-term ratings to the series B and C multi-modal bonds. Short-term ratings are expected to be based upon liquidity support, in the form of a standby bond purchase agreement, to be determined to closer to the sale date. Additionally, the long-term rating on each series of bonds is expected to be based on a municipal bond insurance policy from a monoline bond insurer, whose financial strength is rated 'AAA' by Fitch. Related to the issuance of the series A fixed-rate bonds, PTC will execute a fixed-to-floating rate swap for the total notional amount equal to the bonds.
The 'AA-' rating reflects PTC's vital role in serving the state's major population centers as well as its stable historical traffic and revenue growth, its financial performance that covers all operating and capital needs of the existing mainline facilities, and its economic ratemaking flexibility. The rating also incorporates the significant debt-funded portion of PTC's proposed $4.5 billion capital improvement plan (CIP) and the risk that the mainline revenue bond security may not be fully insulated from completion risks associated with the Mon/Fayette Expressway and Southern Beltway projects.
The primary credit concern facing the PTC is the risk that mainline revenues could be diverted to close the funding gap for non-mainline and new expansion projects, including the Mon/Fayette and Southern Beltway projects. Total project costs have escalated from $3.0 billion to almost $4.3 billion over the past few years due to construction-related inflation, inclusion of essential toll and maintenance facilities, and egress roads and ramps that were not included in the original estimate. The PTC anticipates that the Mon/Fayette and Southern Beltway projects will continue to be funded by non-toll sources, which currently include certain vehicle registration fees and oil franchise taxes. The gap between non-toll sources and total project costs is currently $2.5 billion.
A toll increase of approximately 42.5%, comparable with inflation since the last toll increase in 1991, went into effect on Aug. 1, 2004. As a result, fiscal 2005 gross revenues grew by 33% to $545.2 million from $408.7 while traffic decreased only 1.2%. Total traffic for fiscal 2005 equaled 185.8 million vehicles as compared to 188.0 million vehicles in 2004. Since 1995, total traffic has grown at an average annual rate of 4.8%. The 2004 toll increase has allowed for the acceleration of the reconstruction of the original mainline turnpike section. Approximately $3.7 billion of the total $4.3 billion capital plan will go towards this effort. PTC expects to reconstruct roughly 16 miles a year. This new objective is expected to be accomplished with a continued mix of debt issuance and pay-go funding.
PTC's solid financial performance is a significant credit strength. Net income (the operating surplus after paying for operating costs and debt service on the toll revenue bonds) has remained strong, ranging between 38% of gross income in 1999 and 41% of gross income in 2005, which is high for a toll road. PTC's strong historical and current cash position of $105 million provides further enhancement to the overall credit and offers bondholders additional comfort in the event of any type of disruption in traffic flows. In 2004 and 2005, PTC's net revenues produced debt service coverage of 2.7 (x) times and 3.9x, respectively. The higher coverage level in 2005 is attributable to the 2004 toll increase. Fitch expects debt service coverage to decline as the Commission issues additional debt to finance the 10-year capital plan, but remain at least 2x. A key challenge for the Turnpike will be to contain the rate of operating expense growth, which has increased at an annual rate of 6.4% since 1999.
The Pennsylvania Turnpike is the nation's oldest turnpike. It serves Pennsylvania's mature economy, including the cities of Philadelphia and Pittsburgh, which anchor each end of the state. The turnpike also provides a strategic link in the system of turnpikes that stretches from Chicago to Boston. Not surprisingly, toll revenues benefit from a high proportion of commercial traffic. While this introduces some susceptibility of commercial revenues to economic cycles, the sizable boost to revenues in up-cycles softens the negative financial impact in down-cycles. In addition, the presence of a moderate amount of surplus cashflow for pay-as-you-go capital spending provides the flexibility to adjust to changing environments without meaningful impact to bondholders.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.