At closing, the Authority will have has $6.128 billion of First Lien debt outstanding and total debt of $7.725 billion on all liens
New York, May 11, 2012 -- Moody's Rating
Issue: First Tier Current Interest Bonds, Series 2012A;
Rating: A2; Sale Amount: $24,050,000;
Expected Sale Date: 5/21/12; Rating Description: Revenue:
Government Enterprise
Issue: First Tier Current Interest Bonds, Series 2012B;
Rating: A2; Sale Amount: $1,000,000;
Expected Sale Date: 5/21/12; Rating Description: Revenue:
Government Enterprise
Issue: First Tier Current Interest Bonds, Series 2012C;
Rating: A2; Sale Amount: $326,335,000;
Expected Sale Date: 5/21/12; Rating Description: Revenue:
Government Enterprise
Opinion
Moody's Investors Service has assigned an A2 rating to North Texas Tollway
Authority (NTTA) System First Tier Revenue Refunding Bonds consisting
of First Tier Current Interest Bonds, Series 2012A, 2012B
and 2012C in the approximate total amount of $351 million.
Concurrently, Moody's affirms the A2 rating on the $
5.825 billion of outstanding First Tier debt, the A3 on the
$1 billion Second Tier Debt outstanding, and the Baa3 on
the $400 million of deeply subordinated Capital Improvement Fund
debt outstanding. The rating outlook on the bonds remains stable
based on our expectation that the NTTA will be able to maintain its debt
service coverage ratios (DSCRs) at least at current levels with moderate
traffic growth over the medium to long term and that it will achieve notable
improvement in the collection of non-toll tag transaction revenues,
given that these have become an important challenge for the agency
SUMMARY RATINGS RATIONALE
The A2 rating incorporates NTTA's high leverage position which results
from the expansion of its system in recent years, and which is tempered
by what should be very manageable maintenance investment for the in-system
assets in the foreseeable future and limited to no investment for new
system projects. Construction and ramp-up risk is no longer
credit risk given that all road assets currently in the system are in
the operating phase. Traffic and revenue continue to increase at
levels that allow the system to maintain healthy operating and debt service
coverage margins. Additionally, an important credit factor
is NTTA's toll setting mechanism which every two years in July applies
an annually compounded increase of 2.75% on all facilities
of the system and is key to the revenue generation capacity and to the
ability to adequately meet the growing debt service schedule. The
system is not without challenges, the most notable of which perhaps
are those related to the conversion to all electronic tolling (AETC) at
the end of 2010 and the associated difficulties of collecting non-toll
tag user (ZipCash) toll revenue. We view current leakage levels
to be high for the industry and reducing leakage is key to the NTTA being
able to adequately capture revenue associated with the increased usage
of its road infrastructure as well as to maintain financial health.
Governance issues related to the Board of Directors continues on the path
to stabilization with the implementation of certain controls and practices.
STRENGTHS
• Regional economy remains strong with population and employment
growth that is leading that of the country
• Toll transactions have experienced positive changes in the last
year in part to the opening of PGBTT EE and the change over to AETC,
which encourages more users on the roads.
• Consistent history of meeting or exceeding revenue and traffic
growth projections, which however have recently restated downward
more than once by the traffic consultant; we expect that projections
will be met going forward
• Implementation of toll reset mechanism every two years demonstrates
willingness and ability to increase toll rates. Toll rates remain
relatively competitive and provide margin for increase
• Historically adequate DSCRs; projections show continued DSCRs
on First Tier Bonds above 1.5 times
• Strong levels of liquidity;
• No construction risk for current system with the opening of the
last two sections of SRT and PGBT EE in 2011
CHALLENGES
• Lower than anticipated toll tag penetration and collections for
the video tolling or ZipCash transactions will become a growing credit
concern if not addressed and mitigated
• Increasing debt service profile through 2037 is dependent on meeting
projected increases in traffic and escalating toll rates
• Expanding service area will sustain pressure for additional and
capital improvements, though NTTA has opted out of several TXDOT
projects and would likely fund additional projects through the SPS which
is outside the NTTA System revenue pledge
• Off-system funding now being used for two additional projects
under the SPS, which could require NTTA to step up for construction
or operating cost overruns, though unlikely given these projects'
support through TXDOT Toll Equity Loan Agreements (TELA)
What could change the rating -- UP
The rating is well placed in its rating category given the elevated levels
of leverage, a growing debt service schedule, and high leakage
on AETC and would be unlikely to change upwards in the near to medium
term.
What could change the rating -- DOWN
Lower than currently forecasted traffic levels would put negative pressure
to this rating, given the dependence on such growth to meet its
rising debt service costs. In addition, ongoing disturbances
in revenue collections and cumulative increases in receivables could also
strain the creditworthiness of the issuer. Future funding for new
in-system projects could strain the debt metrics given that with
current debt levels DSCR is at the around 1.5 times target for
senior debt, and close to sum sufficient coverage when including
all other debt and deposits into the construction maintenance fund.
By the same token, if the NTTA had to step up for any Special Project
System (SPS) construction or operating costs or support the SPS with additional
or ongoing equity contributions, the financial flexibility of the
system would likely be compromised.
Outlook
The outlook for the ratings on NTTA system debt is stable, incorporating
the resilience of the system during the economic recession, which
leads us to believe that traffic and revenue will grow along the predicted
lines and be sufficient to meet DSCR of at least 1.5 times for
senior debt and in the range of 1.15 times on all debt including
the deeply subordinated Intermodal Surface Transportation Efficiency Act
(ISTEA) loan and Capital Improvement Fund (CIF) bonds. The outlook
takes into account the difficulties faced in collections of revenue associated
with ZipCash transactions and incorporates the expectation that the implementation
of several management tools designed to address the revenue leakage will
start to demonstrate success in the current year.
The principal methodology used in this rating was State and Local Government-Owned
Toll Facilities in the United States published in March 2006. Please
see the Credit Policy page on www.moodys.com for a copy
of this methodology.
REGULATORY DISCLOSURES
The Global Scale Credit Ratings on this press release that are issued
by one of Moody's affiliates outside the EU are endorsed by Moody's
Investors Service Ltd., One Canada Square, Canary Wharf,
London E 14 5FA, UK, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that has issued a particular Credit Rating is available on www.moodys.com.
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
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Laura Barrientos
VP - Senior Credit Officer
Public Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Maria Matesanz
Senior Vice President
Public Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
MOODY'S ASSIGNS A2 TO THE NORTH TEXAS TOLLWAY AUTHORITY SYSTEM FIRST TIER REVENUE REFUNDING BONDS, SERIES 2012A, 2012 B and 2012C
