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Rating Update:

MOODY'S MAINTAINS DELAWARE RIVER & BAY AUTHORITY'S A1 RATINGS; OUTLOOK STABLE

07 Jul 2011

APPROXIMATELY $292 MILLION IN RATED DEBT AFFECTED

Toll Roads
DE

Opinion

NEW YORK, Jul 7, 2011 -- Moody's Investors Service maintains an A1 rating and stable outlook on Delaware River and Bay Authority's (DRBA) Refunding Bonds, Series 2008 and outstanding revenue bonds. The rating reflects the competitive nature of an essential asset and prudent fiscal management with moderate capital plans. Maintaining current levels of liquidity and debt service coverage ratios (DSCRs) are essential to maintaining the A1 rating.

LEGAL SECURITY: The authority's revenue bonds are secured by net revenues of the crossing facilities. The 2008 bonds are secured by and payable from drawings under an LC provided by TD Bank, N.A.

INTEREST RATE DERIVATIVES: None.

STRENGTHS

* Delaware Memorial Bridge is an essential link in the I-95 corridor and accounts for 73% of operating revenues

*Toll rates are lower than competing facilities and the authority has a history of timely rate increases

* Capital requirements are limited and manageable through projected toll revenues

CHALLENGES

* Revenue enhancing opportunities are generally limited to toll increases given mature traffic flow at the bridge

* Future toll increases will be required to maintain capital assets and could reduce competitiveness relative to nearby crossings

* Open flow of funds and history of supporting projects for non-core economic development projects could strain revenues

* Partial interest rate risk exposure due to variable rate debt outstanding

RATINGS RATIONALE

The authority's facilities provide crossings between Southern New Jersey and Delaware and the Delaware Memorial Bridge is an important link in the I-95 corridor of the East Coast. The bridge is the key driver of revenues for DRBA and traffic is largely stable which is reflected in the A1 rating. Over the last 10 years, the highest number of transactions reached 17.7 million in 2006 and the lowest number of transactions of 16.4 million. The last three years averaged approximately 17 million total transactions. In 2010 total transactions were 16.9 million, a 0.8% decline from the prior year period. That said, revenue enhancing opportunities are largely limited to toll increases given the generally modest fluctuation in traffic and will be necessary In order to properly maintain DRBA's core capital assets.

The competitiveness of DRBA's rates and the key I-95 corridor is also a key driver in maintaining its A1 rating compared to other toll facilities in the region. Interstate-95 is one of the largest and most convenient routes for passenger and commercial vehicles traveling along the east coast between Boston, New York and the Washington D.C. metro areas. DRBA recently approved a passenger toll increase from $3.00 per passenger car to $4.00 per passenger vehicle while commercial vehicles and trucks will see a $1.00 increase in rates to $5.00 per axle from $4.00 per axle. Both toll increases went into effect July 1, 2011 just prior to the holiday weekend in hopes of capturing a slight bump in summer traffic revenues. These rates are still below nearby crossings and this competitive advantage is likely to minimize traffic diversion to competing facilities such as Delaware River Port Authority's (DRPA) crossings near Philadelphia. We note that DRPA will also increase passenger rates from $4.00 to $5.00 per vehicle, $1.00 more than passenger vehicles at the Delaware Memorial Bridge, and two axle trucks will cost 50% more than DRBA's new rates. Commercial vehicles provide roughly 34% of DRBA's total revenues and given substantial higher costs and less expected time savings at DRPA, traffic diversion remains limited. This competitiveness in rates also leaves significant room for DRBA to increase commercial rates further if needed. In 2008 when DRBA last implemented a toll increase the following year showed no drop in traffic revenue.

While the rates have proven to be competitive, DRBA does not have full autonomy in its ability to set its rates despite a willingness to do so. The governors of New Jersey and Delaware both must approve budgets and may exercise veto rights with respect to approving budgets. In March of 2011, the governor of New Jersey implemented this right by vetoing DRBA's capital budget. The governor did not directly veto the rate increase itself, though either governor may do so. DRBA's budget was eventually approved and subsequently proposed and effectuated a toll rate increase, however, the ability to block potential necessary future toll increases is a credit weakness.

Despite three consecutive years of declines in commercial traffic, which accounts for 34% of the authority's revenues, total revenues for 2010 are slightly above 2009 figures at $106.3 million for fiscal year end 2010. Notwithstanding declines in traffic, DRBA has been able to consistently achieve debt service coverage in the 1.4x to1.6x range over the past several years owing partly to expense reductions and timely toll increases. The authority is projecting flat traffic for 2011 and coupled with the increased toll rates, expects to see approximately an $11 million increase in revenue for 2011 (taking into account only six months of the year) which is expected to cover more than half the committed 2011 capital spending requirements. The authority expects to achieve a $22 million to $25 million increase in annual revenue resulting from the toll increase which should cover nearly 70% of the 2011-2015 capital improvement plan. We note that the authority did perform in line with budget for 2010 and used part of the excess budget revenues to contribute to its unfunded pension liability.

Capital spending under 2011-2015 Capital Program is estimated at $185 million and is largely focused on the authority's crossings such as steel work, suspender rope replacement and road approaches to the bridge. Ferry capital spending is largely centered on updating and replacing an ageing vessel fleet at a total cost of $85 million, though only $44 million is dedicated through 2015. As noted in prior Moody's reports, the Capital Program has currently been cash funded and could possibly be cash funded for another year with a possible borrowing planned in 2012. As a result, days cash on hand has dropped over time from 450 days in 2006/2007 to just over 330 days.

DRBA also operates five airports that serve the general aviation community (the airports have no scheduled commercial service) in the area with airport revenues essentially breaking even with operating costs. The majority of the projects that will be pursued at the five airports will be funded at 95% from the Federal Aviation Administration's Airport Improvement Program grant funding.

DRBA has participated in a number of economic development projects in the past but has not entered into any new projects in approximately five years and does not expect to enter into any additional projects in the near term. No revenues from the airports or the other economic development projects are pledged to the bonds.

DRBA maintains a reasonably good liquidity profile with over $72 million in unrestricted investments and discretionary reserves (includes an approximate $4 million maintenance reserve) at the end of FY2010. This cash equates to 330 days cash on hand and provides the authority with good financial flexibility to manage revenue decreases or unexpected capital spending requirements. Management expects to maintain a similar year-end cash profile for 2011.

The 2008 bonds outstanding are, variable rate securities, which exposes DRBA somewhat to interest rate risk. However, Moody's believes the risk is reasonable since this only constitutes 10% of the authority's debt and is partially offset by the authority's good financial liquidity.

The principal methodology used in rating Delaware River & Bay Authority's revenue bonds was "Moody's Rating Methodology for State and Local Government Owned Toll Facilities in the United States," published in March 2006 and available on www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties 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 maintaining a credit rating.

Outlook

The stable rating outlook is based on Moody's expectation that crossing traffic and revenues will be sufficient to support debt requirements with coverage at or near current levels and transfers to non-revenue generating programs will be limited.

What could change the rating--UP

Significantly higher debt service coverage levels over a sustained period of time could result in upward pressure for this rating.

What could change the rating--DOWN

Further declines in current liquidity profile or failure to substantially realize revenue increases to maintain debt service coverage above 1.4x could result in downward rating pressure. An expansion of the authority's economic development role without traditionally maintained conservative financial parameters or an inability to pass timely rate increases to ensure adequate capital improvements could also lead to a downward revision of this rating.

KEY INDICATORS

Facility Type: Regional, multi-asset toll road

Operating Revenues, FY2010: $106 million

5-Yr CAGR (ending FY10) Total Toll Revenue: 2.5%

Total Transactions, FY2010: 16,984,000

5-Yr CAGR (ending FY10) Total Transactions: -0.7%

Commercial Traffic % of Toll Revenue: 50%

Debt Service Safety Margin: 7%

Total Debt Service Coverage: 1.4x

Debt per Roadway Mile: $50,379

Debt per Transaction: $14.83

O&M Expense per Roadway Mile: $15,856

RATED DEBT

Series 2003 Revenue Bonds, $46.8 million, A1

Series 2004 Revenue Bonds Refunding, $36.1 million, A1

Series 2005 Revenue Bonds Refunding, $179.2 million, A1

Series 2008 Revenue Bonds Refunding, $30 million, A1

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

Charles Berckmann
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, Inc.
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New York, NY 10007
USA

MOODY'S MAINTAINS DELAWARE RIVER & BAY AUTHORITY'S A1 RATINGS; OUTLOOK STABLE
No Related Data.
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