Fitch Ratings affirms its 'A+' rating on $162.4 million in outstanding Massachusetts Turnpike Authority (the turnpike, or the authority) Western Turnpike Revenue Bonds 1997 Series A. The Rating Outlook is Stable. The bonds are secured by a senior lien on net toll and other revenue generated by the Western Turnpike.
The 'A+' rating reflects the Western Turnpike's stable demand, strong debt service coverage on a net revenue basis, adequate reserves that allow for pay-as-you-go capital, moderate operating and facility reinvestment needs and a level debt service profile. While the Western Turnpike retains economic rate making flexibility, the ability to raise rates, if needed to accommodate additional reinvestment needs or greater than expected cost growth, is politically constrained given a prior history of removing tolls and the intention to eliminate existing tolls once outstanding debt is retired or defeased. The Authority last raised tolls in 1990 when the average toll was raised 32%. In 1996, passenger car tolls were eliminated for movements between interchanges 1 and 6, bringing toll rates to approximately $0.02 per mile. The rating also incorporates the continued separation of the Western Turnpike from the financial obligations of the authority's Metropolitan Highway System (senior and subordinated bonds rated 'BBB+' and 'BBB', Rating Watch Negative, respectively by Fitch).
The Western Turnpike, which is part the nation's system of turnpikes extending from Chicago in the west to Boston in the east, has a stable and mature market base, serving a combination of commuter trips, longer distanced auto travel and commercial truck traffic. Western Turnpike toll revenues grew at an average annual growth rate (AAGR) of 3.2% between fiscal 2000 and 2004, but have remained flat from 2004 to 2007. Similarly, traffic grew at an AAGR of approximately 2.6% between fiscal 2000 and 2004, and has remained flat from 2004-2007. Year to date toll revenues through June 2008 remain flat, despite the average 3.5% declines that Fitch has observed for turnpikes. For more information on this, see Fitch's special report "U.S. Transportation Assets: Facing a Temporary Decline or a Permanent Change?" dated August 20, 2008. Net revenue coverage against debt service has been strong at more than 2.0 times (x) since fiscal 2000. The authority's forecast incorporates a conservative 1.2% annual growth rate for toll revenues and does not assume a toll increase, while annual operating expenses are projected to increase by a reasonable 4.0%. From 1997 through 2007, operating costs have grown by an average annual rate of 3.5%. Net revenues are expected to cover debt at around 1.8x-2.0x over the life of the bonds under the authority's financial forecast.
Annual capital reinvestment in Western Turnpike is expected to be approximately $30 million annually on average through 2017 when the bonds mature and is expected to be funded on a pay-as-you-go basis from the general fund. Based on this level of investment and without additional revenues, the general fund balance is expected to be drawn on increasingly until the bonds are retired. If capital and operating expenditures increase significantly more than revenue growth, a toll increase could be needed to maintain credit quality.
The Massachusetts Turnpike Authority, a public instrumentality of the Commonwealth of Massachusetts, is responsible for the operation of the Western Turnpike and the Metropolitan Highway System (MHS). The finances of the Western Turnpike, which includes the portion of the turnpike from the New York border in the west to its intersection with Route 128 in the east, are under a separate system from the MHS, which includes the Boston extension, the Sumner and Callahan tunnels, the Central Artery/Tunnel (CA/T) and the Central Artery North Area.
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.
