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Rating Action:

Moody's assigns A2 to the North Texas Tollway Authority System First Tier Revenue Refunding Bonds, Series 2011B; Outlook changed to stable

Global Credit Research - 03 Nov 2011

Authority has $6.134 Billion of Senior Debt Outstanding

New York, November 03, 2011 -- Moody's Ratings

Issue: North Texas Tollway Authority System First Tier Revenue Refunding Bonds, Series 2011B; Rating: A2; Sale Amount: $266,000,000; Expected Sale Date: 11/14/2011; Rating Description: Revenue Refunding Bonds

Opinion

Moody's Investors Service has assigned an A2 rating to the North Texas Tollway Authority (NTTA) System First Tier Revenue Refunding Bonds, Series 2011B, in the approximate amount of $266 million. The rating outlook has changed to stable from negative, based on the steadiness of traffic growth even through the recessionary period and spurred by what has proven to be fairly inelastic demand for the toll road assets. The stable outlook is also based on our expectation that the NTTA will be able to maintain its target debt service coverage ratios (DSCRs) with moderate traffic growth over the medium to long term. Alongside the traffic growth, NTTA's toll setting mechanism which every two years in July applies an annually compounded increase of 2.75%, is key to the revenue generation capacity of the system and to its ability to adequately meet the growing debt service schedule.

SUMMARY RATINGS RATIONALE

The A2 rating incorporates credit fundamentals such as NTTA's substantial debt associated with the growth of its system in the last couple of years and the expectation for continued capital investment to keep up with growth in the north Texas region, even if additional in-system projects are some years away. Construction and ramp-up risk is diminishing given that all current projects will be completed and in operation by January 2012. The system is not without challenges, some of which include those related to the conversion to all electronic tolling (ETC) and the associated collections, as well as governance issues related to the Board of Directors, both of which appear to be starting a trend towards stability with the implementation of certain controls and practices.

OUTLOOK

The outlook for the ratings on NTTA system debt is stable, incorporating the resilience of the system during the economic recession, which leads us to believe that traffic and revenue will grow along the predicted lines and be sufficient to meet DSCR of at least 1.5 times for senior debt and 1.15 times on all debt including the deeply subordinated Intermodal Surface Transportation Efficiency Act (ISTEA) loan and Capital Improvement Fund (CIF) bonds.

What could change the rating - Up

The rating is well placed in its rating category given the high levels of leverage, relatively tight DSCR, and growing debt service schedule and would be unlikely to change upwards in the near to medium term. Nonetheless, significantly better than forecasted traffic and revenue growth that contributes to greatly improved all-in debt service coverage could place positive pressure on the ratings.

What could change the rating - DOWN

Lower than currently forecasted traffic and revenue would bring negative pressure to this rating, given the dependence on such growth to meet its growing debt service costs. In addition, future funding for new in-system projects could also strain the debt metrics given that with current debt levels DSCR is at the 1.5 times target for senior debt, and close to sum sufficient coverage when including all other debt and deposits into the construction maintenance fund.

STRENGTHS

- Regional economy remains strong with population and employment growth that is leading that of the country. Median household income also trends above that of the state and nation for the service area around SRT and DNT corridors;

- Revenue and transaction growth has experienced positive trends and recession had minimal impact on growth given the opening of new segments during this time;

- Consistent history of meeting or exceeding revenue and traffic growth projections; we expect that projections will be met going forward;

- Implementation of toll reset mechanism every two years demonstrates willingness and ability to increase toll rates. Toll rates remain relatively competitive and provide margin for increase;

- Historically adequate DSCRs; projections show continued DSCRs on first tier bonds above 1.5 times;

- Solid levels of liquidity;

- Four-county service area of strong credit quality;

- Construction risk for current system roads is minimal with the upcoming opening of the last two sections of SRT and PGBT EE.

CHALLENGES

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

- Increasing debt service profile through 2037 is dependent on meeting projected increases in traffic and escalating toll rates;

- Off-system funding now being used for two additional projects under the Special Projects System (SPS). Though unlikely given these projects' support through Texas Department of Transportation (TXDOT) Toll Equity Loan Agreements (TELA), the NTTA system is legally responsible for operating costs overruns once the roads are in operation.

The principal methodology used in this rating was State and Local Government-Owned Toll Facilities in the United States published in March 2006. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are considered EU Qualified by Extension and therefore available for regulatory use in the EU. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

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Laura Barrientos
VP - Senior Credit Officer
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

Maria Matesanz
Senior Vice President
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 the North Texas Tollway Authority System First Tier Revenue Refunding Bonds, Series 2011B; Outlook changed to stable
No Related Data.

 

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