Fitch Ratings assigns an 'A+' rating to the Pennsylvania Turnpike Commission's (PTC) senior turnpike revenue bonds, Series 2011D and 2011E. Fitch also assigns an 'F1+' to the 2012 maturity of the 2011D bonds. In addition, Fitch affirms PTC's $2.9 billion outstanding senior lien turnpike revenue bonds at 'A+', $3.2 billion outstanding subordinate lien turnpike revenue bonds at 'A-', and outstanding 2011B bonds at 'F1+'..
The Rating Outlook on all bonds is Stable.
KEY RATING DRIVERS:
Route essentiality: PTC plays a vital role in serving the state's major population centers and benefits from a strategic location for commercial traffic, evidenced by its stable historical traffic and revenue growth.
Ratemaking flexibility: PTC benefits from economic ratemaking flexibility, and traffic has demonstrated relatively low elasticity through toll increases since 2005. Revenue has had an average annual growth rate of 6% from 1990 - 2010. However, there may be political risk associated with implementing higher toll rates in the event of lower traffic, higher costs, or increased debt service requirements.
High leverage but strong financial performance: PTC's leverage is currently approximately 12.5 times (x) (net debt to cash flow available for debt service [CFADS]) and is expected to remain at this elevated level for some time. Financial performance is expected to continue covering all operating and current capital needs of the existing mainline facilities with senior debt service coverage ratios at or above 2.0x and subordinate debt service coverage ratios at or above 1.3x. Fitch expects PTC to have sufficient excess cash flow to fund approximately 20% of annual mainline capital expenditure on a pay-go basis.
Prudent management policies: It is management's policy to maintain senior and subordinate debt service coverage ratio (DSCR) at 2.0x and 1.3x, respectively, regardless of traffic levels, and PTC's policy to meet Motor License Fund (MLF) debt service obligations at 1.2x times. As leverage continues to increase, management will need to balance expense management and rate increases to continue to achieve these coverage targets.
Sizable capital program with growing debt burden: The need for an additional $5.3 billion in senior lien debt to fund the PTC's mainline capital improvement plan (CIP) for fiscal 2012 to 2021, and increasing leverage to subsidize highway and bridge projects across the commonwealth, as well as subsidize transit operations under Act 44, put pressure on the Pennsylvania Turnpike. However, Fitch views favorably the focus on mainline capital spending for reconstruction and renewal, somewhat mitigating deferred maintenance concerns.
WHAT COULD TRIGGER A RATING ACTION:
Resilience of traffic levels,
particularly commercial traffic, in the face of expanded obligations of
the PTC and associated toll increases and to the extent there is a
prolonged weak economic recovery.
Management's ability to control expenses and manage its sizable capital program while meeting acceptable debt service coverage levels on senior and subordinate lien bonds and subordinate lien MLF bonds.
Given the size and scope of the updated capital program for the next 10 years and beyond, the burden on the subordinate lien from continued Act 44 obligations could very well pressure debt service coverage ratios to a level requiring a rating change.
SECURITY:
The senior revenue bonds are secured by revenues
consisting of tolls, charges, fines and other revenues and income
derived from vehicular use of the Turnpike, net of operating and
maintenance expenses. The subordinate revenue bonds are secured by
commission payments consisting of turnpike revenues after all
obligations under the senior lien indenture have been satisfied.
TRANSACTION SUMMARY:
PTC is issuing $52 million in variable rate
turnpike revenue bonds, series 2011D, and $109 million in turnpike
revenue bonds, series 2011E. Both series are refunding bonds, and are
being issued on the senior lien. The 2011D Bonds are being issued to
current refund the 2011 maturity of the Turnpike's 2009C floating rate
notes; the notes will be rolled into a new floating rate note with one,
two, and three year maturities. The 2011E bonds are fixed rate bonds,
and are being issued to current refund all or a portion of the
Turnpike's outstanding 2001R bonds.
Please see Fitch's press release dated Oct. 17, 2011 for more information on the Turnpike and its operations.
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).
For information on Build America Bonds, visit www.fitchratings.com/BABs.
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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Contacts:
Fitch Ratings
Primary Analyst:
Emma W. Griffith, Director,
+1-212-908-9124
Fitch, Inc.
One State Street Plaza
New
York, NY 10004
or
Secondary Analyst:
Chad Lewis,
Director, +1-212-908-0886
or
Committee Chairperson
Mike
McDermott, +1-212-908-0605
Managing Director
or
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