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Rating Action:

Moody's assigns A2 to North Texas Tollway Authority's remarketed variable rate first tier Series 2011A bonds and affirms A2 on parity first tier bonds, A3 on second tier and Baa3 on the Capital Improvement Fund bonds; Outlooks are stable

Global Credit Research - 30 Mar 2014

Authority has $7.728 billion system debt outstanding

New York, March 30, 2014 --

Moody's Rating

Issue: System Tier Variable Rate Revenue Refunding Bonds, Series 2011A; Rating: A2; Sale Amount: $100,000,000; Expected Sale Date: 04-10-2014; Rating Description: Revenue: Government Enterprise

Opinion

Moody's Investors Service assigns an A2 to $100 million remarketed variable rate first tier Series 2011A bonds and affirms the A2 on parity first tier bonds, the A3 on second tier and the Baa3 on the Capital Improvement Fund (CIF) subordinated system bonds of the North Texas Tollway Authority (NTTA, or authority). All bonds carry a stable outlook.

Rating Rationale

The ratings and outlooks are based on reasonable assumptions underpinning forecast toll transaction and revenue growth based on forecast population, housing and employment growth in the service area. The forecasted transaction growth and the system's ability to maintain operations and debt service coverage (DSCRs) at current levels is supported by a service area that remains strong and diversified following a recessionary dip. We note that while the latest updated March 2014 forecast lowers the traffic and revenue growth rates, the authority has exceeded the prior more optimistic forecast over the last few years and so the base for this lower growth is actually higher.

The ratings reflect high leverage. At over 14.9 times in FY 2012 NTTA has one of the highest debt to operating ratios in the rated peer group of government-owned toll roads. However this leverage has moderated in recent years with increased revenue growth from traffic growth and toll increases. The 2012 double-digit growth in both traffic and revenue was expected following new segment openings, and toll increases, but the 2013 performance also exceeded the traffic engineer's forecast and the first month of 2014 show a continuation of this trend.

A strength of the system is the automatic toll rate increases every two years, on July 1, intended to produce an annual rate increase of 2.75%. Going forward, toll transactions are expected to increase in line with population, housing and employment growth in the Dallas MSA. The revenue growth continues to be somewhat tempered by challenges in collections of video tolling transactions, which are expected to continue to increase, given that an all electronic tolling (AETC) system is able to attract more, if infrequent, users.

Outlook

The outlook for NTTA is stable, and incorporates the resilience of the system through the economic recession and the recent trends in traffic and revenue despite some 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 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, which is countered by high leverage, an escalating debt service profile, and high though moderating leakage for video tolls as well as potential future system expansion needs, though no system-supported expansion projects are currently planned to be supported by system net revenues.

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 video toll collections. Failure to implement planned toll increases necessary to produce projected debt service coverage levels could exert downward rating pressure.

Strengths

*Strong service area continues to generate traffic growth, though economic growth has started to slow compared to other metro areas in the state, notably Houston and Austin

*Traffic for the fiscal year ending in December 2013 grew 4.3% compared to the previous year, while toll revenue increased 10.2% due to the biennial toll increase of 5.5%. The first month of FY 2014 shows continued transaction growth of 6.8%, ahead of forecast

*Construction risk for system projects is minimal as the system's main roads are fully operational. Current capital needs for existing roads consist mainly of lane additions or extensions

*Strong tolling policy imposes 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 dated September 2013 found system to be in good 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 1,000 days cash on hand in FY 2012 and close to that amount in FY 2013 (unaudited)

Challenges

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

*Anticipated toll tag penetration and collections for the video tolling or ZipCash transactions continue to be lower than originally expected, albeit improving

*Expanding service area could pressure NTTA to assume additional capital improvements, though the authority has opted out of several TxDOT projects and would likely fund additional projects through the Special Projects System (SPS), which 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 remarketed variable rate first tier Series 2011A bonds and affirms A2 on parity first tier bonds, A3 on second tier and Baa3 on the Capital Improvement Fund bonds; Outlooks are stable
No Related Data.
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