Authority has $6.134 Billion of Senior Debt Outstanding
New York, November 03, 2011 -- Moody's Ratings
Issue: North Texas Tollway Authority System First Tier Revenue Refunding
Bonds, Series 2011B; Rating: A2; Sale Amount:
$266,000,000; Expected Sale Date: 11/14/2011;
Rating Description: Revenue Refunding Bonds
Opinion
Moody's Investors Service has assigned an A2 rating to the North Texas
Tollway Authority (NTTA) System First Tier Revenue Refunding Bonds,
Series 2011B, in the approximate amount of $266 million.
The rating outlook has changed to stable from negative, based on
the steadiness of traffic growth even through the recessionary period
and spurred by what has proven to be fairly inelastic demand for the toll
road assets. The stable outlook is also based on our expectation
that the NTTA will be able to maintain its target debt service coverage
ratios (DSCRs) with moderate traffic growth over the medium to long term.
Alongside the traffic growth, NTTA's toll setting mechanism which
every two years in July applies an annually compounded increase of 2.75%,
is key to the revenue generation capacity of the system and to its ability
to adequately meet the growing debt service schedule.
SUMMARY RATINGS RATIONALE
The A2 rating incorporates credit fundamentals such as NTTA's substantial
debt associated with the growth of its system in the last couple of years
and the expectation for continued capital investment to keep up with growth
in the north Texas region, even if additional in-system projects
are some years away. Construction and ramp-up risk is diminishing
given that all current projects will be completed and in operation by
January 2012. The system is not without challenges, some
of which include those related to the conversion to all electronic tolling
(ETC) and the associated collections, as well as governance issues
related to the Board of Directors, both of which appear to be starting
a trend towards stability with the implementation of certain controls
and practices.
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 1.15 times on all debt including the deeply subordinated
Intermodal Surface Transportation Efficiency Act (ISTEA) loan and Capital
Improvement Fund (CIF) bonds.
What could change the rating - Up
The rating is well placed in its rating category given the high levels
of leverage, relatively tight DSCR, and growing debt service
schedule and would be unlikely to change upwards in the near to medium
term. Nonetheless, significantly better than forecasted traffic
and revenue growth that contributes to greatly improved all-in
debt service coverage could place positive pressure on the ratings.
What could change the rating - DOWN
Lower than currently forecasted traffic and revenue would bring negative
pressure to this rating, given the dependence on such growth to
meet its growing debt service costs. In addition, future
funding for new in-system projects could also strain the debt metrics
given that with current debt levels DSCR is at the 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.
STRENGTHS
- Regional economy remains strong with population and employment
growth that is leading that of the country. Median household income
also trends above that of the state and nation for the service area around
SRT and DNT corridors;
- Revenue and transaction growth has experienced positive trends
and recession had minimal impact on growth given the opening of new segments
during this time;
- Consistent history of meeting or exceeding revenue and traffic
growth projections; 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;
- Solid levels of liquidity;
- Four-county service area of strong credit quality;
- Construction risk for current system roads is minimal with the
upcoming opening of the last two sections of SRT and PGBT EE.
CHALLENGES
- Expanding service area will sustain pressure for additional and
capital improvements;
- Increasing debt service profile through 2037 is dependent on
meeting projected increases in traffic and escalating toll rates;
- Off-system funding now being used for two additional projects
under the Special Projects System (SPS). Though unlikely given
these projects' support through Texas Department of Transportation (TXDOT)
Toll Equity Loan Agreements (TELA), the NTTA system is legally responsible
for operating costs overruns once the roads are in operation.
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
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Laura Barrientos
VP - Senior Credit Officer
Public Finance Group
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Maria Matesanz
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Moody's assigns A2 to the North Texas Tollway Authority System First Tier Revenue Refunding Bonds, Series 2011B; Outlook changed to stable
