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Rating Action:

Moody's assigns Aa2 to Ohio Turnpike and Infrastructure Commission's Senior Lien Revenue Bonds, 2020 Series A and Aa3 to Junior Lien Revenue Bonds, 2020 Series A; outlook stable

10 Jan 2020

New York, January 10, 2020 -- Moody's Investors Service assigns a Aa2 rating to Ohio Turnpike and Infrastructure Commission's (OTIC) $81.3 million senior lien Turnpike Revenue Refunding Bonds, 2020 Series A (Federally Taxable) and assigns a Aa3 rating to OTIC's $376 million Turnpike Junior Lien Revenue Refunding Bonds, 2020 Series A (Federally Taxable) (Infrastructure Projects). Concurrently, Moody's maintains the Aa2 senior and Aa3 junior ratings on the outstanding bonds. The outlook is stable.

RATINGS RATIONALE

The ratings reflect OTIC's strong financial position that can absorb new debt to be issued in the near-term as well as any potential future economic shocks. The higher ratings incorporate a view that the state will no longer use the Ohio Turnpike to fund additional transportation projects. As a result, OTIC will hover at a peak leverage position for a few years before annual deleveraging begins as nearly all future capital needs are forecast to be cash funded. If there is a change in this forecast, there could be negative rating implications as the Aa ratings incorporate an expectation of deleveraging rather than maintaining the near-term higher leverage after 2020.

The Aa ratings reflect the Ohio Turnpike's established role as a critical link in the national highway system; highly developed and diversified economic base; independent toll setting authority with a demonstrated history of annually adjusting tolls in compliance with its toll rate raising policy that was reaffirmed after a legal challenge to this authority failed; growing traffic and revenue; demonstrated conservative financial management while maintaining strong financial metrics; and very minimal future debt needs for turnpike capital projects as future projects are expected to be almost entirely funded from excess cashflow.

The ratings further incorporate the expectation of annual inflation-related toll rate increases that are necessary to maintain strong financial metrics owing to low expected traffic growth coupled with a rising and back-loaded debt service amortization schedule. There may be adverse developments outside of the commission's control that could limit its ability to increase toll revenues to levels necessary to achieve its forecast financial metrics, though we expect OTIC to manage through these potential risks to maintain its financial strength. These risks include the potential revenue loss related to the partial transition to open road tolling in the next few years, the unknown impact of autonomous vehicles on traffic demand, changes in user elasticity, economic softening, volatile fuel prices, political interference to limit toll rate increases, changing demographics, and a change in the state's need for funding for transportation projects.

The one notch higher senior lien rating reflects the stronger legal security with a first lien on pledged revenues and the smaller proportion of total senior lien debt relative to the junior lien debt outstanding. This results in materially stronger senior lien debt service coverage ratios (DSCRs) compared to the total DSCRs that include the larger junior lien debt service.

The junior lien rating reflects Moody's view of OTIC's consolidated credit profile given the majority of the outstanding debt is at the junior lien level where total debt service coverage is still strong. The junior lien rating also reflects the second lien on pledged revenues and the use of the junior lien to fund OTIC's expanded mission to fund state infrastructure projects.

RATING OUTLOOK

The stable outlook reflects our expectation that OTIC will continue to effectively manage its operations to ensure that financial metrics remain strong. This willingness to actively manage revenues and expenses while cash funding nearly all future capital needs is fundamental to OTIC's credit profile as traffic growth is forecast to remain modest over the long-term.

FACTORS THAT COULD LEAD TO AN UPGRADE

- Material and sustained improvement in financial metrics with total DSCRs over 3.0x, days cash on hand over 730 days, and adjusted debt to operating revenues below 2.5x

FACTORS THAT COULD LEAD TO A DOWNGRADE

- Sustained weaker financial metrics below current forecast expectations with senior lien DSCRs below 3.5x, total DSCRs below 2.0x after 2020, days cash on hand below 500 days, and/or adjusted debt to operating revenues exceeds 6.0x

LEGAL SECURITY

The senior lien bonds are secured by a first lien and the junior lien bonds are secured by a second lien on the turnpike's net revenues plus additional system payments (intergovernmental payments and grants pledged to the bonds). Gross revenues also include other additional revenues like all service plaza concession revenues, leases, fees, and advertising revenues.

The rate covenant is 1.2x of total (senior and junior) annual debt service and includes a requirement that revenues be sufficient to cover all obligations on an annual basis. The senior lien additional bonds test is historical and requires the certification by an independent consultant that total revenues for any 12 consecutive months in the preceding 15 months were adequate to cover existing and forecast maximum annual debt service (MADS) by 1.5x. Historical revenues can be adjusted to reflect the impact of forecast toll increases. The junior lien additional bonds test is prospective and requires the certification of an independent consultant that projected revenues, including toll increases, will be adequate to cover total (senior and junior) annual debt service for the life of the junior lien bonds.

The senior lien debt service reserve fund (DSRF) requirement is cash funded and sized at MADS. The junior lien DSRF requirement is cash funded and sized at 100% of average annual debt service at the time of issuance. The master trust agreement requires that surety policies be provided by insurers with financial strength ratings in the two highest rating categories (Aaa and Aa) by at least two rating agencies. As a result, the turnpike has cash funded its two DSRF surety policies with Assured Guaranty

USE OF PROCEEDS

The 2020 Series A senior lien revenue bond proceeds will be used to refinance all or a portion of the senior lien 2013 Series A bonds. The 2020 Series A junior lien revenue bond proceeds will be used to refinance a portion of the junior lien 2013 Series A bonds. Bond proceeds will also fund cost of issuance.

PROFILE

Created through the Ohio Turnpike Act in September 1, 1949, the OTIC is responsible for constructing, maintaining, repairing and operating the turnpike system, where designated, by the state. Under the Ohio Revised Code, the commission is authorized to issue turnpike revenue bonds of the State of Ohio, payable solely from turnpike revenues.

The commission is an independent political subdivision of the State of Ohio, though six of the seven voting commissioners are appointed by the governor. The head of the Ohio Department of Transportation (ODOT) serves as an ex-officio, seventh voting member. The commission retains its independent toll setting authority, though H.B. 51 requires turnpike management to notify the governor and Legislature of any proposed toll increases.

METHODOLOGY

The principal methodology used in these ratings was Publicly Managed Toll Roads and Parking Facilities published in March 2019. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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 credit rating action on the support provider and in relation to each particular credit 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.

John Medina
Lead Analyst
Project Finance
Moody's Investors Service, Inc.
7 World Trade Center
250 Greenwich Street
New York 10007
US
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Kurt Krummenacker
Additional Contact
Project Finance
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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