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MOODY'S ASSIGNS A2 TO THE FIRST TIER REVENUE REFUNDING BONDS, SERIES 2010, OF THE NORTH TEXAS TOLLWAY AUTHORITY.

Global Credit Research - 05 Nov 2010

Toll Roads
TX

Moody's Rating

ISSUE

RATING

System First Tier Current Interest Revenue Refunding Bonds, Series 2010

A2

  Sale Amount

$500,000,000

  Expected Sale Date

11/15/10

  Rating Description

First Tier Revenue Refunding Bonds

 

Opinion

NEW YORK, Nov 5, 2010 -- Moody's Investors Service has assigned an A2 rating to the North Texas Tollway Authority System First Tier Current Refunding Bonds, Series 2010 expected to be issued in an amount approximating $500 million. Concurrently, we affirm A2 rating on the North Texas Tollway Authority's (NTTA or authority) $5.5 billion of outstanding First Tier Revenue Bonds, the A3 rating on the $1 billion of Second Tier bonds, and the Baa3 on the $400 million Capital Improvement Fund subordinate lien revenue bonds. The rating outlook for the NTTA bonds remains negative.

The rating incorporates credit fundamentals such as NTTA's substantial debt associated with the growth of its tollway system in the last couple of years, and the expectation for continued capital investment needed to keep up with growth in the north Texas region; modest construction and ramp-up risk associated with the various projects still coming on line, and adequate debt service coverage ratios These factors are balanced by the strength of the usage of the system roads which sustained a period of severe economic stress and NTTA's demonstrated willingness to implement toll increases as necessary to maintain financial stability and its toll policy that incorporates multi-annual increases.

USE OF PROCEEDS: The funds will be used to refund the Series 2008H-1 ($200m) and Series 2008L-1 ($120m) Put Bonds with long-term fixed rate bonds, refund the Series 1997A ($43.3m) and portions of the Series 1998 ($ 22) bonds that allow for debt service savings, and refund of the Series 2008J Index Floating Rate Bonds ($100m) with long term fixed rate bonds.

Concurrent with this transaction, NTTA is establishing a new commercial paper (CP) program to replace the $200 m CP program which expires at the beginning of 2011. The program is expected to be replaced with one of equal size and with the same bank, Bank of America/Merrill Lynch. Additionally, the CP obligation is moving to second tier from third tier, as allowed in the master trust agreement.

LEGAL SECURITY: NTTA's bonds are secured by net system revenues. The rate covenant in the amended and restated trust agreement dated April 1, 2008 under which these bonds are issued requires net revenues to provide at least 1.35 times coverage of first tier debt service requirements; 1.2 times coverage of outstanding first tier and second tier debt service and 1.0 times coverage on all outstanding obligations secured by net revenues, including third tier bonds. The first tier bonds are additionally secured by a debt service reserve fund equal to average annual debt service. Second and third tier reserves may be provided pursuant to supplemental agreements authorizing the bonds and a debt service reserve of one-half average annual debt service was funded for the benefit of second tier bondholders with the issuance of second tier bonds in July 2008.

The restated master trust agreement provides the authority with the option to move funds out of first tier Debt Service payment account to fund to lower tier debt service accounts if the timing of the maturity on the lower lien bonds is prior to that of more senior debt. The move requires a certification from NTTA CFO that there will be sufficient funds to replenish the more senior account by year's end. In Moody's view, this provision is a weakness compared to other rated structures at this rating level. However, because the interest and principal of all of NTTA's debt is due on January 1 and June 1, the probability of such occurrence is null. However, if in the future, new lower tier debt has debt service payment dates different than that of senior tier debt, Moody's will reassess the effect that this event could have on the credit quality of the first tier bonds.

INTEREST RATE DERIVATIVES: The NTTA has outstanding variable rate bonds in the amount of $178 million, or 2.6% of total debt. Additionally, after this sale, it will have 'soft' put bonds outstanding in the amount of $699 million with put dates January 1, 2012, January 1, 2013, and January 1, 2016. Plans are to fund these puts with fixed rate debt in advance of maturity. A failed conversion and remarketing does not constitute an event of default, and instead results in a step-coupon rate of 12% per annum. There is no liquidity facility provided to cover such an event.

The NTTA also has two interest rate swaps outstanding with Citibank and JP Morgan Chase. Pursuant to the swap agreement with JP Morgan Chase the NTTA could be obligated to post collateral if the rating on FGIC and the Authority's First Tier Bonds are rated below A3 by either of the two agencies rating the bonds. Though FGIC is now below the rating trigger, the NTTA's First Tier Bonds are rated above the threshold. Based on the negative mark-to-market as of September 30, 2010, the maximum collateral due in the event that the NTTA rating was to go below the trigger would be $17.2 million.

STRENGTHS

-Strong regional economy experiencing continued population and employment growth; high per capita income

-Revenue and transaction growth has been strong due to regional population growth

-Consistent history of exceeding revenue and traffic growth projections, which may be softening and is now meeting, not exceeding, projections

-Strong tolling policy requires increases which grow based on set annual rates and demonstrated willingness and ability to increase toll rates. Toll rates remain relatively competitive and provide margin for increase

-Historically strong debt service coverage; projections show continued debt service coverage on first tier bonds above 1.5x

-Solid levels of liquidity

-Strong management and long term planning being put in place

-Four-county service area of strong credit quality (pop growth 2.6% annual 1970-2000; 2% forecasted 2000-30)

CHALLENGES

-Expanding service area will sustain pressure for additional and expensive capital improvements

-Increasing debt service profile currently through fiscal year 2037 to be supported by projected increases in traffic and escalating toll rates

-Relatively weak legal covenant regarding the possible movement of funds to pay for lower tier debt before prior lien debt

-Construction risks continue as system continues to expand and has exposure to commodity and labor costs

RECENT DEVELOPMENTS

Traffic in FY 2010 through September has so far proven to be on the rise compared to the same period in 2009. Overall vehicles traveling on system roads increased 6.2% driven primarily by the ramp up of traffic on the Sam Rayburn Tollway (SRT) and increased use of the Dallas North Tollway (DNT). Real traffic is however right in line with projections which were fairly aggressive in these first few years of ramp up of several of the system's new roads or expansions of existing ones, such as the expansion of the President George Bush Eastern Extension. The opening of the Lake Lewisville Toll Bridge at the beginning of the year also adds to the difference when compared to last year, though traffic on the bridge has fallen significantly short of the expected traffic due to an access road, not the responsibility of NTTA, not being completed as expected. We anticipate that current traffic patterns will remain through year end and the ratios to last year's and the programmed vehicles will hold.

Toll revenue through September of the current year is up a significant 38% due to the toll increase that was implemented on September 1, 2009 and which was significant 32% (to 14.5c/mile from 11c/mile for two axle vehicles) on the DNT and President George Bush Turnpike (PGBT). Actual revenues compared to the budget are slightly above the target.

Traffic and revenue projections indicate that the debt service coverage ratio (DSCR) at the end of FY2010 will be in the range of 1.7x for first tier debt. The results are supported by NTTA's savings on the operating and maintenance side, which as of September showed to be at approximately 90% of the budgeted amount. The entire NTTA system is in line for the conversion to all electronic tolling by the end of the current year, a move which will also result in personnel savings in the future.

NTTA has a series of committed projects which will require additional capital commitments in 2011 and 2012. The most significant at this time among all of the projects include the eastern extension of PGBT which will add 9.9 miles of road. Additional debt of $150M is expected in the next two years to complete the project. The DNT Extension (Phase 4) is a 13.5 mile extension of DNT. The financial forecasts however include $420 million, the net of which may not be issued.

The NTTA has developed a special projects system to fund two projects that will be outside of the NTTA system and financed as a separate system with just these two 'off-system' roads. These include (1) the PGBT Western Extension, which is an 11.5 mile extension of PGBT from SH 183 to IH 20, providing access to new Dallas Cowboy Stadium and Ballpark in Arlington and (2) the Southwest Parkway/Chisholm Trail Parkway south of Forth Worth in Tarrant and Johnson County. The first part of the road (Southwest Parkway) is expected to be completed and operating in 20123. NTTA will contribute $400 m of equity towards these two projects and expects to fund the remaining costs of PGBT Western Extension with approximately $1.1 billion of debt this year through a combination Transportation Infrastructure Finance and Innovation Act Loan (TIFIA) and revenue bonds and the remaining costs of Southwest Parkway/Chisholm Trail Parkway with approximately $670 million of debt next year through revenue bonds. All debt issued for these projects will be obligations of the Special Projects System and not obligations of the NTTA System.

These projects are supported by a Toll Equity Loan Agreement (TELA) from the Texas Department of Transportation (TxDOT) which covers potential amounts related to predetermined revenues, level of debt service, operating and maintenance, and capital expenditures. Any future O&M or capital cost overruns that cannot be covered with toll rate increases or the TELA will be the responsibility of the NTTA system. Moody's believe this to be a remote possibility given the experience of NTTA as operator and the willingness in recent past to raise tolls as necessary. Once these projects are operational, Moody's will closely monitor their performance and what effects their expenses could have on the NTTA system.

Key Data/Indicators

Type of Toll Road Single asset, multi-segment

Transaction Traffic Volume (2009) 457,583,343

-Year-to-date August 2010: 322,825,796 (unaudited)

-% change from same time 2009: 8.1%

Annual Toll Revenue (2009) $309,258,905

-Year-to-date September 2010: $295,929,237 (unaudited)

-% change from same time 2009: 38%

Toll Transactions, 5-year CAGR (2001-2009): 7.9%

Debt Ratio (2009): 93.7%

Debt Service Coverage, FY 2009 (bond ordinance): 1.56 x

Average 10 year projected debt service coverage, first tier only 1.65 x

Average 10 year projected debt service coverage, all current and planned debt (including required deposits into Reserve Maintenance Fund): 1.16x

Lowest projected first tier debt service coverage: 1.53x

Lowest projected total debt service coverage, current and planned debt (including required deposits into Reserve Maintenance Fund): 1.12x

The principal methodology used in rating North Texas Tollway Authority (TX) was State and Local Government-Owned Toll Facilities in the United States rating methodology published in March 2006. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service's information and confidential and proprietary Moody's Analytics' information.

Moody's Investors Service considers the quality of information available on the credit satisfactory for the purposes of assigning/maintaining a credit rating.

Outlook

Outlook:

Moody's maintains a negative outlook on the NTTA ratings. The negative outlook was assigned on July 30, 2009 and reflects the authority's highly leveraged position, and a debt profile characterized by increasing debt service in the out years to fiscal year 2037, which depends heavily on continued traffic growth. Moody's recognizes that traffic has proven resilient through the economic recession and is up from the previous year, along with significant revenue growth. However, traffic and revenue levels are right in line with projections for the year, which while a positive indicator of planning acumen also expose the system to possible shortfalls relative to projections which are fairly aggressive. Additionally, the system still faces some construction risk as on-going system projects continue to come on line, and there are some unknowns about the possible pressures on operating costs brought on by the 'off-system' President George Bush Tollway Western Extension (formerly known as SH161). Operating expenses above the projected amounts covered under the TXDOT Toll Equity Loan Agreement levels would be the NTTA's responsibility.

What could change the rating - Up

The rating is well placed in its rating category. Nonetheless, significantly better than forecasted traffic and revenue that contributes to improved all-in debt service coverage could place positive pressure on the ratings.

What could change the rating - DOWN

A sustained decline in projected traffic and revenue or significant increases in bond-funded capital needs, interest costs that put first tier debt service coverage below 1.5x or all inclusive debt service coverage below 1.0x would negatively affect the rating. Additionally, Moody's will monitor the effects of the system's planned off-system debt to analyze whether once in place the operation of the off-system roads puts pressure on the system.

MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY'S is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

Analysts

Laura Barrientos
Analyst
Public Finance Group
Moody's Investors Service

Maria Matesanz
Backup Analyst
Public Finance Group
Moody's Investors Service

Contacts

Journalists: (212) 553-0376
Research Clients: (212) 553-1653


Moody's Investors Service
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New York, NY 10007
USA

MOODY'S ASSIGNS A2 TO THE FIRST TIER REVENUE REFUNDING BONDS, SERIES 2010, OF THE NORTH TEXAS TOLLWAY AUTHORITY.
No Related Data.

 

© 2014 Moody's Corporation, Moody's Investors Service, Inc., Moody's Analytics, Inc. and/or their licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

 


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