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Rating Action:

Moody's assigns A2 to North Texas Tollway Authority's, TX $341.1 million first tier Series 2014A and A3 to $142 million second tier Series 2014B revenue bonds; Outlook stable

24 Oct 2014

Authority has $7.62 billion system debt outstanding

New York, October 24, 2014 --

Moody's Rating

Issue: First Tier Bonds, Series 2014A; Rating: A2; Sale Amount: $341,100,000; Expected Sale Date: 10/30/2014; Rating Description: Revenue: 501c3 Secured General Obligation

Issue: Second Tier Revenue Bonds, Series 2014B; Rating: A3; Sale Amount: $142,000,000; Expected Sale Date: 10/30/2014; Rating Description: Revenue: 501c3 Secured General Obligation

Opinion

Moody's Investors Service assigns an A2 to $341.1 million first tier Series 2014A bonds and an A3 to $142 million second tier Series 2014B revenue bonds of the North Texas Tollway Authority (NTTA). Moody's maintains the A2 on $6.22 billion outstanding first tier, the A3 on $1 billion second tier and the Baa3 on the $400 million Capital Improvement Fund (CIF) subordinated system bonds. All bonds carry a stable outlook.

Summary Rating Rationale

The ratings are based on the NTTA's essential roadway network in a growing service area; stable financial metrics supported by automatic biennial toll increases and organic traffic growth; no currently planned additional debt; very high leverage and reasonable assumptions underpinning forecast traffic and revenue growth. The forecast is based on actual and expected population, housing and employment growth in the expanding service area and which supports the system's ability to maintain operations and debt service coverage (DSCRs) at current levels, with annual toll rate increases of 2.75%. We note that while the latest full traffic and revenue forecast in March 2014 lowered the traffic and revenue growth rates, the most recent update in connection with this bond issue revises upward the forecast based on actual traffic performance and recent economic trends in the service area. The upward forecast revision is based on better than actual forecast traffic and revenue performance in 2014 through August and on-going employment and GDP growth in the Dallas-Fort Worth service area.

At A2 and A3 the senior and junior bond ratings reflect high leverage. Debt to operating revenue of over 13.76 in FY 2013, though improved from 14.9 times in FY 2012, remains among one of the highest in the rated peer group of government-owned toll roads. Assuming no additional debt-funded project we expect NTTA's high leverage will continue to moderate in coming years with increased revenue growth from traffic and toll increases.

Outlook

The outlook for NTTA is stable, and incorporates the multi-asset nature of the system and its resilience through the economic recession. Recent trends in traffic and revenue are positive despite some remaining challenges in video toll collections. The stable outlook is based on the expectation that net revenues will be sufficient to meet DSCR of at least the management target of 1.5 times for senior debt and in the range of 1.15 times on all debt including the deeply subordinated Intermodal Surface Transportation Efficiency Act (ISTEA) loan and CIF bonds.

What Could Change the Rating Up

The rating is well placed in its rating category given its strong market position and growth. NTTA also has expansion projects planned to further support the transaction growth. These projects will be supported by system net revenues. The rating is countered by high leverage, an escalating debt service profile, and high though moderating leakage for video tolls.

What Could Change the Rating Down

Lower than currently forecasted traffic and revenues would exert negative rating pressure given the dependence on growth to meet rising debt service costs and also could be pressured by lower recoveries of video toll collections. Failure to implement planned biennial toll increases necessary to produce projected debt service coverage levels also could exert downward rating pressure.

Strengths

*Strong Dallas-Fort Worth service area economy continues to grow faster than the national average generating traffic growth, with sizeable new employers such as Toyota headquarters continuing to relocate to the area

*Traffic for FY 2013 grew 4.3% compared to the previous year, while toll revenue increased 10.2% due to the biennial toll increase of 5.5%. Through August 2014 traffic growth of 4.7% is above the March 2014 forecast

*Construction risk for system projects is minimal as all main components are open and fully operational. Current capital needs for existing roads consist mainly of system maintenance and rehabilitation and some staged lane additions or extensions

*Strong tolling policy implements increases which grow based on set annual rates and depend on willingness and ability to increase toll rates *Historically adequate DSCRs with actual results ahead of forecast with DSCRs on first tier bonds above 1.5 times

*Annual engineering report of 2014 found system to be in good repair and condition with routine maintenance covered by annual deposits to Operating and Maintenance (O&M) and Reserve Maintenance funds (RMF)

*Strong and increasing liquidity with over 859 days cash on hand in FY 2013

Challenges

*Adequate DSCR for steeply rising debt service through 2037 is dependent on achieving projected increases in traffic and annual toll rate increases

*Toll tag penetration and collections for the video tolling or ZipCash transactions continue to be relatively low, but improving

*Expanding service area could pressure NTTA to undertake additional capital improvements, though the authority has opted out of several TxDOT projects and would likely fund additional projects through a separate, stand-alone system, that is outside the NTTA System revenue pledge

The principal methodology used in this rating was Government Owned Toll Roads published in October 2012. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

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

Chee Mee Hu
MD - Project Finance
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 A2 to North Texas Tollway Authority's, TX $341.1 million first tier Series 2014A and A3 to $142 million second tier Series 2014B revenue bonds; Outlook stable
No Related Data.
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