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Rating Action:

Moody's assigns A3 to New Jersey Turnpike Authority's Series 2015E revenue bonds; outlook remains positive

14 Oct 2015

Authority currently has $10.0 billion currently outstanding

New York, October 14, 2015 --

Moody's Rating

Issue: Turnpike Revenue Bonds, Series 2015E; Rating: A3; Sale Amount: $750,000,000; Expected Sale Date: 11-02-2015; Rating Description: Revenue: Government Enterprise

Opinion

Moody's Investors Service has assigned an A3 rating to the New Jersey Turnpike Authority's (NJTA) $750 million Turnpike Revenue Bonds, Series 2015E. Moody's maintains an A3 rating on the NJTA's outstanding bonds and the rating outlook remains positive.

SUMMARY RATING RATIONALE

The A3 rating reflects essentially inelastic demand for the authority's toll roads despite large rate increases, the economic recession and weather events (Hurricane Sandy) as well as the essential inter- and intra-state service they provide. The NJTA benefits from a very strong market position with revenues from the two major highway arteries through the State of New Jersey (A2, negative outlook), which are parts of critical transportation routes for the Eastern Seaboard and the New York City metropolitan area.

The NJTA rating faces some long term risks due to the state's current economic and fiscal situation. A continued slow economic recovery and high unemployment in New Jersey could contribute to lower traffic and revenue and lower debt service coverage ratios (DSCRs) than currently forecasted. The ability of the governor to veto all board decisions, and pre-approve toll rate increases, exposes the authority's credit to political influence which could compete with bondholder protection. The authority's limited autonomy and the siphoning of enterprise revenues for non-turnpike system purposes remain a credit concern, though a five-year executed agreement with the state caps the authority's contributions until 2016. However, additional contributions could be required in the future, particularly given the State of New Jersey's currently weak financial condition. The deepening fiscal challenges for the state increases the likelihood and magnitude of assistance the NJTA would have to provide to the state at its own expense.

OUTLOOK

The positive outlook is based on Moody's expectation that the NJTA will continue to deliver the 2009 to 2018 capital program projects on time and within budget. Upward pressure on the rating is dependent on many factors including successful capital program delivery; meeting debt service coverage projections (which will decline from current levels, but are projected to remain above 1.40 times for senior and 1.20 times according to Moody's DSCR calculation which includes state payments); transaction growth near or above 1.0%; adherence to board-set financial policies, and a limitation on the amount contributed to the state through funding agreements. Within the next 18 months we expect the CIP to be nearing full commitment of funds and also have a better understanding of the authority's future contributions to the state.

What could change the rating -- UP

• Delivery of capital projects on-time and within budget

• Maintenance of DSCRs that exceed forecasted levels. Demonstrated commitment to financial policies and clarity regarding state payments that keep debt service coverage above 1.40 times for senior debt or 1.20 times based on Moody's net revenue calculation, which includes state payments, once all planned debt is issued

• A build-up of financial liquidity above 400 days cash on hand

• Improvement of the trajectory of the state's fiscal position

What could change the rating --DOWN

• Lower than 1.4 times DSCR for senior bond or below 1.0 times based on Moody's net revenue calculation which includes payments to the state (including feeder road payments, TTF, TCP payments and any other payments) would likely result in a rating downgrade.

• Decreases in transactions due to a slowdown in the state economic recovery or shifts in user behavior

• Additional exposure to variable rate debt and interest rate derivatives, and the attendant interest rate, basis, counterparty and termination risks

• Escalation of capital construction costs that result in increased debt

OBLIGOR PROFILE

The authority is a body corporate and politic of the State organized and existing by virtue of the

Act and is a public instrumentality exercising essential governmental functions. The Authority is

empowered to acquire, construct, maintain, repair, and operate projects at locations established by law, to fix and establish tolls for the use of the Turnpike System, and to issue revenue bonds for its purposes. The turnpike system consists of the New Jersey Turnpike and the Garden State Parkway. The turnpike is a limited access toll road that serves as part of the I-95 corridor linking the major economic centers of the East Coast. It connects to a major seaport in Newark and Elizabeth, a major airport in Newark, and the major metropolitan areas surrounding Philadelphia, New York City, and other employment centers in the state. The Parkway is a 173-mile limited access toll road with connections in the south to Route 9 near

Cape May, New Jersey and in the north to the New York State Thruway at the New York-New Jersey

Border.

LEGAL SECURITY

First lien on net system revenues for the senior lien bonds. The general resolution requires a debt service reserve sized at maximum annual interest. Currently the debt service reserve requirement is 100% cash funded and if all sureties are included the reserve is greater than current maximum annual debt service; however, two of the surety providers had their credit ratings withdrawn after strong credit distress.

The rate covenant in the general resolution requires net revenue to be the greater of the sum of aggregate debt service, maintenance reserve payments, special project reserve payments, and payments to the charges fund, or 1.2 times the sum of aggregate debt service (including net swap payments and unhedged variable rate payments calculated at the maximum rate).

USE OF PROCEEDS

Proceeds from the Series 2015 E Bonds will be used to pay construction costs of various projects which are part of the authority's $7 billion capital improvement program for the Turnpike System, make a deposit into the debt reserve fund, and pay the costs of issuance of the Series 2015 E Bonds

PRINCIPAL METHODOLOGY

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.

Kurt Krummenacker
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

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 A3 to New Jersey Turnpike Authority's Series 2015E revenue bonds; outlook remains positive
No Related Data.
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