Baa1 RATING APPLIES TO $494.3 MILLION OF REVENUE DEBT OUTSTANDING
NEW YORK, Mar 16, 2011 -- RATINGS RATIONALE
Moody's Investors Service has downgraded the underlying rating of the South
Jersey Transportation Authority's (SJTA) Transportation System Revenue Bonds,
Series 2009A-1, A-2, A-3, A-4 & A-5 to Baa1 from A3 and has affirmed the
Baa1 rating on the Subordinate Lien Revenue Bonds, Series 2009. The total
outstanding debt amount is $494.3 million, of which only $18.3 million is
subordinate debt. The rating outlook is stable. The downgrade is based on
several years of traffic decline, low liquidity compared to Moody's toll road
median, and the negative pressures in the service area. In Moody's view the
rating is stable at the Baa1 rating level.
The SJTA owns and operates a number of transportation related assets
and projects in Southern New Jersey including the Atlantic City Expressway (ACE)
and the Atlantic City International Airport.
LEGAL SECURITY: The bonds are backed by a pledge of the authority's net
consolidated revenues. Net airport revenues to cover a portion of debt service
payments related to the airport. Net revenues should be equal to the greater of
a)1.20 times debt service or b) 1.00 times debt service and the amount necessary
for R&R costs, state payments, subordinate debt, general project expenses
and other required fund deposits.
INTEREST RATE DERIVATIVES: The authority is a party to two swap transactions
with Bank of America, N.A.(Aa3, negative) and Wachovia Bank, N.A. (Aa2,
negative) respectively. Under the swap agreements, the authority pays to the
swap counterparties a fixed rate of 4.70% and receives from the swap
counterparties a variable rate equal to 75% USD-LIBOR-BBA on an aggregate
initial notional amount of $88 million. In 2005, the authority received an
upfront cash payment of $7.6 million, net of all fees and expenses. The upfront
proceeds from the swaption were deposited into a revolving fund for capital
expenditures that are expected to be reimbursed by future federal grant monies
and if needed, to make payments in connection with the swaption
transaction. Scheduled payments under the swap are on parity with senior lien
debt while those related to termination are subordinate.
* Essential road to the service area
* Air service is expected to increase at the airport
* Expected future debt financing needs remain fairly limited
* Decreased traffic transactions since 2008 and low forecasted growth
* Low debt service coverage, both current and projected, when compared to peer
* Increased competition in the gaming industry which is highly related to the
operations of Atlantic City Expressway
* Toll revenues subsidize weaker performing facilities owned by the authority,
placing pressure on authority's liquidity
* Exposure to variable rate debt and derivative contracts places an additional
stress on the authority's below average liquidity
On August 4, 2009, the South Jersey Transportation Authority (SJTA) issued
Transportation System Revenue Bonds (variable rate demand bonds); Series 2009
A-3 in the amount of $44,000,000 and Series 2009 A-4 in the amount of
$44,795,000. The A-3 bonds are currently secured by a letter of credit
provided by Bank of America, NA. In May 2009, SJTA also issued Series 2009 A-1
and A-2 Revenue bonds in the amount of $101 million, $96 million in Build
America Bonds, and Subordinate Lien of $19 million.
The Authority is replacing the existing letter of credit with a
substitute letter of credit provided by Wells Fargo Bank, N.A. The pricing and
term of the existing letter of credit with Wells Fargo on the A-4 bonds will be
amended with the same terms as the substitute letter of credit on the A-3 bonds.
MARKET POSITION: INCREASED COMPETITION IN THE GAMING INDUSTRY COULD LIMIT
The South Jersey Transportation Authority's primary asset is the
47-mile Atlantic City Expressway (ACE) extending 10 miles east of
Philadelphia to Atlantic City (GO rated Baa1/Negative), passing through
Gloucester (GO rated Aa2), Camden (GO rated Aa2) and Atlantic (GO rated
Aa2) counties. In addition to the toll facility, the authority also owns and
operates the Atlantic City International Airport as well as various parking
facilities in the area.
The Atlantic City Expressway is a vital entry point for the visitors for the
Atlantic City's casinos and beaches which make the road exposed to the volatile
nature of discretionary traffic. Traffic volumes vary significantly between the
winter base level and the summer peaks. Between 2000 and 2009, ACE had an
average transaction growth rate of 1.6% annually. Over the same period,
the road's toll plazas (Egg Harbor and Pleasantville), which are located near
Atlantic City, experienced lower average transaction growth rate of 1% annually.
These historical figures tie into our expectation that ACE's traffic growth
could be further hampered by Atlantic City's increased competition from Delaware
and Pennsylvania's gaming industries going forward.
In 2009, ACE's traffic declined 12.7%, followed by a 5.6% decline in 2010 due to
overall economic conditions, tourism and the seasonal traffic fluctuations. For
the first two months of 2011, the traffic was down 2.2% which was affected by
the extreme weather conditions in January 2011. Based on the traffic
consultant's assumptions, ACE is expected to finish 2011 with a 1% decline and
will start to recover with 1.6% growth in 2012 reaching an annual growth rate of
2.5% going forward. Moody's anticipates that while the road is essential to the
service area, expected limited growth will dampen actual results from these
somewhat aggressive growth assumptions.
FINANCIAL POSITION AND PERFORMANCE: LOW COVERAGE AND LIQUIDITY LEVELS ARE
EXPECTED IN NEAR TO MEDIUM TERM
Despite declines in traffic, overall toll revenues grew 30% in 2009 due to the
50% toll rate increase that became effective in November 2008. However, actual
un-audited 2010 financial results show a 3.66% decrease in toll revenues from
$82.2 million in 2009 to $78.9 million. Fiscal year 2011 budget shows expected
further decline in revenues to $77.5million. Toll revenues are estimated to
grow at 2.5% after 2012 based on the traffic consultants report, which Moody's
considers somewhat aggressive given the actual transaction performance in recent
history. The authority revised its forecast based on these assumptions which is
also reflected on the debt service coverage ratios.
The airport continued its growth through 2009 and reached its peak of 1.4
million passengers at the end of 2010. January and February 2011 numbers also
show a year over year increase of 5% in passenger growth. Spirit Airlines (not
rated) and Airtran Holdings (Caa1, ratings under review for possible upgrade)
are currently the only airlines that serve the airport and have 16 daily
flights. Despite this growth in activity, the airport subsidy has been
increasing and continues to cut into the authority's liquidity position.
While the subsidy is subordinate to debt service payments on the
transportation revenue bonds, it has continued to be a credit concern.
With 278 days cash on hand, liquidity is still below the sector median of 601
days for A rated toll facilities. The $40.7 million in unrestricted cash and
investments and discretionary reserves bears the additional risks of interest
rate, basis, and counterparty risk due to the addition of variable rate debt to
the SJTA portfolio and the 2005 swaption. The risk is limited given that these
agreements have reasonable provisions and the swap counterparties are
relatively strong, but it remains a consideration.
The authority's liquidity is also weakened by the agreement it has with the
State of New Jersey, where the authority is required to pay $2.5 million
annually to the state. After the 2008 toll rate increase, on June 30, 2009 the
State of New Jersey requested an additional $8 million payment from the SJTA. In
return for this payment, SJTA received a $4 million transportation grant from
the Casino Reinvestment Development Authority (CRDA) to support the cost of some
of SJTA's capital projects. The state then asked for $400,000 in 2011, which is
already incorporated into the authority's budget. While all payments to the
state are obligations deeply subordinate to debt service payments and subject
to budget approval, SJTA's history of providing subsidy payments to the State
makes this an on-going credit concern.
Un-audited financials show that, for 2010, the SJTA had 1.72 times senior debt
service and 1.16 times consolidated debt service coverage, on a bond ordinance
basis. The authority's forecast declines to 1.61 times coverage on its senior
debt service starting from 2011 through 2014. On a consolidated basis, coverage
is expected to be 1.07 times in 2011 and will be maintained around 1.1 times
until 2015. It is important to look at SJTA's debt service on a consolidated
basis as this method considers senior and subordinate debt service as well as
airport subsidies and payments to the state. Moody's believes that with the
projected consolidated coverage levels, SJTA is more in line in the current Baa1
Additionally, Atlantic City's rating was downgraded by Moody's on November 2010
to Baa1 with negative outlook to reflect the city's stressed financial position.
On March 2011, New Jersey Governor Chris Christie signed a rescue package for
Atlantic City, which increases the city's annual marketing budget to $30 million
from $4 million to more effectively promote the city nationally as a tourist
destination. Moody's published a special comment stating that these events are
credit positive for the challenged city, however did not change the outlook.
DEBT AND CAPITAL PROGRAM: NO ADDITIONAL DEBT IS PLANNED
In 2009, the authority started a three-phased, three-lane widening project that
will improve the road's capacity from the Garden State Parkway west to Route 73,
a large portion of the expressway's length. The proceeds from the 2009 bonds are
used to fund an approximate total of $179 million in projects at both the
expressway and the airport. SJTA's capital program for the expressway will cost
approximately $80 million for 2011 with congestions relief project being
the largest in the program by $64 million. The rest will be mostly expended on
major maintenance of roadway and bridge assets, primarily for bridge replacement
and repair. The authority is planning to use a mixture of Series 2009 proceeds
and restricted cash and investments to fund ACE's capital improvement plan for
The airport's capital improvement plan for 2011 is approximately $21.5 million,
including a $16 million airport safety and operations program. More than half of
these projects will be funded by Federal Aviation Administration Airport
Improvement Program grants and state grants. The airport is also planned to
complete a terminal expansion project that will add three additional gates by
While there is a 10-year capital improvement plan for 2011-2020, the authority
is not planning to start a major project where it would need to increase tolls
or issue additional debt and is currently not planning to do either of those.
The outlook also reflects our expectation that the authority will perform at its
current operating levels and experience narrow growth in the coming years in
terms of traffic transactions. The authority's consolidated debt service
coverage is also expected to be around 1.1 in the next several years. The stable
outlook also reflects the continued essentiality of the toll road to the service
area and the authority's sound management.
What could change the rating-UP
Significant transaction and revenue growth that produce higher consolidated debt
service coverage along with continued efforts to increase the
self-sufficiency of the airport, could lead to an upward movement in the rating.
What could change the rating--DOWN
Further drains on the authority's liquidity and reduced debt service
coverage margins due to continued traffic and revenue declines or growing
expenditures could place downward pressure on the rating.
Series 2009A-1 Transportation System Revenue Bonds, $62.015 million, Baa1
Series 2009A-2 Transportation System Revenue Bonds (Airport Bonds), $38.995
Series 2009A-3 Variable Rate Transportation System Revenue Bonds, $43.875
Series 2009A-4 Variable Rate Transportation System Revenue Bonds, $43.670
Series 2009A-5 Transportation System Revenue Bonds (BABs), $96.260 million, Baa1
Series 2006A Transportation System Revenue Bonds (Airport Bonds), $50.365
Series 2004A Transportation System Revenue Bonds, $19.460 million, Baa1
Series 2003 Transportation System Revenue Refunding Bonds, $4.205 million, Baa1
Series 1999 Transportation System Revenue Bonds, $117.085 million, Baa1
Subordinated Transportation System Revenue Bonds, Series 2009, $18.375 million,
Facility Type: Multi-asset, regional
Road length: 47 miles
Senior Debt Service Coverage FY 2010: 1.72x senior lien
Debt per roadway mile FY 2009:$8,076
O&M expense/roadway mile FY 2009:$1,100
Toll Transaction Annual Growth FY 2010: -5.61%
Toll Transaction Annual Growth FY 2009: -12.7%
Toll Transactions, 5-year CAGR, 2006-2010: -2.95%
Toll Revenues, 5-year CAGR, 2006-2010: 7.00%
Transaction Traffic Volume FY 2010: 54,977
Annual Toll Revenue, FY 2010 unaudited: $78,914
Annual Revenue Growth FY 2010: -3.66%
Toll revenue as % of total operating revenue FY 2010:71.6%
Ms. Kathleen Sharman
Director of Finance
Phone (609) 965-6060
The last rating action on SJTA was July 7, 2009 when the ratings were assigned
to the Series 2009A, A2, A3, A4 & A5 and the Series 2009 Subordinated Bonds.
The principal methodology used in rating the authority bonds was "State and
Local Government Owned Toll Facilities in the United States," which can be
found at www.moodys.com in the Credit Policy and Methodologies directory, in the
Ratings Methodologies subdirectory. Other methodologies and factors that may
have been considered in the process of rating this issuer can also be found in
the Credit Policy and Methodologies directory.
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 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 maintaining a credit rating.
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Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.
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MOODY'S DOWNGRADES SOUTH JERSEY TRANSPORTATION AUTHORITY'S SYSTEM REVENUE BONDS TO Baa1 FROM A3; RATING OUTLOOK IS STABLE
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