TURNPIKE HAS $6.4 BILLION TURNPIKE REVENUE BONDS OUTSTANDING
New York, October 27, 2011 -- Moody's Rating
Issue: Variable Rate Turnpike Revenue Bonds, Series D of 2011;
Rating: MIG 1; Sale Amount: $17,480,000;
Expected Sale Date: 11/02/2011; Rating Description: Revenue
Issue: Turnpike Revenue Bonds, Series E of 2011; Rating:
Aa3; Sale Amount: $108,695,000; Expected
Sale Date: 11/02/2011; Rating Description: Revenue
Issue: Turnpike Revenue Bonds, Series D of 2011; Rating:
Aa3: Sale Amount: $34,950,000; Expected
Sale Date: 11/02/2011; Rating Description: Revenue
OPINION
Moody's Investors Service assigns a Aa3 rating and negative outlook to
the turnpike commission's 2013 and 2014 maturities of the Series D of
2011 and Series E of 2011 senior lien bonds and a MIG 1 rating to the
2012 maturity of the Series D of 2011. We also have affirmed the
Aa3 rating for outstanding parity senior lien bonds. The rating
outlook is negative.
SUMMARY RATINGS RATIONALE
The negative outlook on the long term rating for the senior bonds reflects
Moody's expectation that the senior lien will be assuming an additional
$1.2 billion in debt under the amended 2012 Act 44 financial
plan, ultimately issuing up to $5.3 billion of additional
senior lien debt over the next 10 years. The senior bond rating
continues to reflect strong 2.0 times forecasted debt service coverage
ratios (DSCRs) under management's base case as well as under a reduced
revenue growth scenario of 5% annual revenue growth. Lower
revenue growth rates would yield below 2.0 times DSCRs for the
senior lien and could exert downward rating pressure. We also expect
that the subordinate lien will be heavily leveraged to make payments to
the Pennsylvania Department of Transportation (PennDOT) as required under
Pennsylvania Act 44 of 2007.
The ratings also incorporate the possibility that the turnpike could be
further tapped to shoulder the state's unfunded transportation infrastructure
needs at the expense of turnpike customers and investors. However,
there are no proposals at this time to do so. This leveraging of
the turnpike revenue stream for non-turnpike investments will exert
significant pressure on the turnpike's customer base. Moody's also
notes that there may be adverse developments outside of the commission's
control that would limit its ability to increase toll rates, including
changes in user elasticity, further economic softening or volatile
fuel prices that could converge to undermine the turnpike's leverage strategy,
which is reliant on annual toll increases coupled with key assumptions
regarding steady traffic volume growth.
The system is an essential east-west transportation corridor in
the eastern U.S. with a long history of well-managed
financial operations, consistently strong senior DSCRs and supportive
liquidity. The ratings also reflect assumptions regarding the relatively
stable traffic and revenue growth expected to continue over the long-term;
historically inelastic demand evidenced by traffic growth despite recent
toll increases and the recession as well as strong historical and forecasted
DSCR above 2.0 times for senior bonds and 1.3 times for
subordinate bonds under management's base case.
OUTLOOK
The negative outlook reflects the possibility that larger than currently
forecasted toll rate increases will be necessary to maintain sound financial
operations and targeted debt service coverage levels. The outlook
also incorporates the possibility that the turnpike could be tapped to
pay for more of the state's growing unfunded infrastructure needs.
What Could Change the Rating - UP
While unlikely, the ratings could rise if the commission's traffic
growth and revenues significantly exceed current expectations, toll
increases are implemented as planned and financial and debt service coverage
margins are greater than projected.
What Could Change the Rating - DOWN
The ratings could be lowered if toll increases are not implemented as
planned or traffic, revenues, or liquidity levels fall short
of expectations. Changes to future payment transfers to the State
could also exert negative rating pressures.
STRENGTHS
- System is an essential east-west transportation corridor
in eastern U.S. with a long history of well-managed
financial operations, consistently strong senior lien debt service
coverage and satisfactory liquidity
- Relatively stable traffic and revenue growth are expected to
continue over the long-term; inelastic demand evidenced by
steady traffic growth despite recent toll increases and the recession
- Strong historical and forecasted DSCR above 2.0 times
for senior bonds; adequate forecasted DSCR above 1.3 times
for subordinate bonds and above 1.2 times for subordinate and special
revenue bonds under management's base case
- Flexibility to delay or scale back portions of the capital improvement
program and reduce borrowing amounts, though no flexibility to reduce
annual Act 44 payments below $450 million
- The commission has the exclusive right to set and collect tolls
and has regularly increased toll rates. Toll rates were increased
25% in January 2009; 3% in January 2010 and 3%
in January 2011 (10% for cash customers), 10% for
cash customers approved for January 2012 and with subsequent 3%
annual increases currently expected, though larger increases may
be need to achieve forecasted DSCRs
CHALLENGES
- The amended Act 44 financial plan increases the turnpike's 10-year
capital improvement plan (CIP) by 37% to $6.4 billion
with $5.3 billion to be debt-financed
- Risk of political opposition to future, larger than forecasted
toll increases and of traffic diversion stemming from the confluence of
toll increases, volatile fuel prices and slow economic recovery
may impact usage
- On-going construction risk associated with the need to
completely reconstruct major portions of the roadway
- Act 44 payments to Penn DOT result in a substantial increase
in total debt, though payments are subordinated obligations that
fall below senior debt; subordinate debt is not secured by lien on
toll revenues
- Increasing political risks that the turnpike could be tapped
to shoulder more of the state's growing unfunded transportation infrastructure
needs
- Exposure to variable rate demand debt and derivatives remains,
though this has moderated in the last 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 considered EU Qualified
by Extension and therefore available for regulatory use in the EU.
Further information on the EU endorsement status and on the Moody's office
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For ratings issued on a program, series or category/class of debt,
this announcement provides relevant regulatory disclosures in relation
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rating action for securities that derive their credit ratings from the
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this announcement provides relevant regulatory disclosures in relation
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Maria Matesanz
Senior Vice President
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
Dan Aschenbach
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 MIG 1 AND Aa3 RATINGS TO PENNSYLVANIA TURNPIKE COMMISSION'S SERIES 2011 D AND 2011 E TURNPIKE REVENUE REFUNDING BONDS
