New York, January 06, 2021 -- Moody's Investors Service ("Moody's") has assigned a Aa2 rating to the Ohio Turnpike and Infrastructure Commission's (OTIC) $141 million Turnpike Revenue Bonds, 2021 Series A and a Aa3 rating to OTIC's $303 million Turnpike Junior Lien Revenue Refunding Bonds, 2021 Series A (Federally Taxable) (Infrastructure Projects). Concurrently, Moody's has affirmed the Aa2 senior and Aa3 junior ratings on the outstanding bonds. The outlook is stable.
RATINGS RATIONALE
Ohio Turnpike and Infrastructure Commission's (OTIC) Aa2 senior lien and Aa3 junior lien ratings reflect the Ohio Turnpike's established role as a critical link in the national highway system with a highly developed and diversified economic base. The ratings also reflect OTIC's consistent use of its independent toll setting authority to annually adjust tolls in compliance with its toll rate raising policy to maintain strong financial metrics that will remain sound given no expected material new debt post the current 2021 issuance. These underlying strengths are key to OTIC's credit quality over the next few years as traffic and revenue recovers post the coronavirus related losses and the system continues to transition to open road tolling in some areas. The ratings further incorporate our view that the state will not use the Ohio Turnpike to fund additional transportation projects and OTIC will deleverage over the next few years rather than maintain its expected near-term higher leverage profile.
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 future capital needs to ensure deleveraging occurs is fundamental to OTIC's credit profile.
FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS
- Sustained improvement in financial metrics with total DSCRs over 3.0x, days cash on hand over 800 days, and adjusted debt to operating revenues below 2.5x
FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS
- Sustained weaker financial metrics with senior lien DSCRs below 3.5x and total DSCRs below 2.0x, days cash on hand below 500 days and 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 any firm providing a rating on the turnpikes bonds. As a result, the turnpike has fully cash funded its DSRF which had been funded with two surety policies with Assured Guaranty and Ambac.
USE OF PROCEEDS
The 2021 Series A senior lien revenue bond proceeds will be used to fund capital improvement projects, a DSRF and issuance costs. The 2021 Series A junior lien revenue bond proceeds, subject to market conditions, will be used to fund issuance costs, a DSRF and to refinance a portion of the junior lien 2013 Series A bonds for net present value savings with no extension of maturity and savings taken over the life of the bonds.
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 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1091602. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004
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