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27 Jun 2011
$972 million debt affected
New York, June 27, 2011 -- Moody's Investors Service has downgraded to Ba1 from Baa3 the underlying
rating on the Toll Road Investors Partnership II LP's (TRIP II,
or the company) Dulles Greenway Project Revenue Bonds. The rating
outlook is negative. The downgrade is based on continued traffic
declines, continued financial metric deterioration, weaker
competitive position due to increasingly expensive tolls, and our
expectation that the company will be unable to meet future minimum and
total debt service requirements through toll increases alone. These
negatives are countered by strong liquidity, a growing service area
and high resident income levels that should support some traffic growth
and toll increases over time. TRIP II's bonds are rated Baa1 based
upon the financial strength of the insurer, National Public Finance
Guarantee (NPFG, rated Baa1, formerly MBIA).
The negative outlook reflects the expected continuing trend of traffic
decline over the near term given an uncertain economic recovery and rising
gas prices. A secondary consideration is the on-going litigation
and claim for damages by the former operator, Autostrade International
of Virginia (AIV), whose contract was terminated on May 5,
Traffic has continuously declined since 2005 by an annual average rate
(AAR) of 4.9% and it is down an additional 2% through
April 2011 compared to the same period in 2010. While traffic has
declined, overall revenues have continued to increase thanks to
several toll increases. However, the pace of this revenue
growth has slowed significantly since 2007 and has not kept up with increases
in debt service, resulting in year-over-year weakening
of the minimum required debt service coverage ratio (DSCR). In
contrast, from 1999 to 2005, traffic grew at an AAR of 12.4%.
Scheduled debt service coverage declined to a relatively narrow 1.17
times in 2008, and then rose to 1.36 times in 2010 due to
toll rate increases in January 1, 2009 and July 1, 2010.
Another toll rate increase is schedule for January 1, 2012.
While mandatory debt service coverage remained stronger at 1.72
times in 2010, mandatory coverage also has declined significantly
from 2.65 times in 2006. Though failure to make the early
redemptions does not constitute an event of default, to the extent
they are not made the debt will continue to accrete interest, making
future debt service requirements that much more onerous. Moody's
notes that mandatory and scheduled debt service are heavily back-loaded,
increasing to approximately $81 million by 2034 from $44
million in 2011. Failure to keep up with early redemptions for
four consecutive years triggers an insurance event of default, but
this carries no consequences until 2036, when the bond insurer has
the right to accelerate the debt.
The impact of recent traffic declines is mitigated somewhat by the significant
flexibility built into TRIP II's debt structure. Debt service in
2010 totaled $34.8 million, of which amount $27.6
million was mandatory. The remainder constituted scheduled early
redemptions, which TRIP II is only required to make to the extent
sufficient excess cash flow is available. These early redemptions
are, however, included in the calculation of the minimum debt
service coverage ratio (DSCR), which must be met in order to allow
excess cash to be transferred to the company.
As a result of its deteriorating financial performance, the project
failed to meet its restricted payments test in 2008 and all excess cash
flow has been subject to lock up since then. While coverage in
2009 and 2010 passed the test, excess cash is not released until
the project complies with the test for at least three consecutive years.
As of December 31, 2010 the company had $15.3 million
in the Early Redemption Fund; $75.2 million in the
Early Redemption Reserve and well as $39.7 million in a
cash-funded Debt Service Reserve Fund (DSRF) and a $45 million
DSRF surety with NPFG.
Though the project has received regulatory approval for a series of additional
toll increases through 2020, Moody's believes that the ability to
continue to grow revenues through toll increases may be diminishing due
to increasing elasticity of demand. The road is currently one of
the most expensive in the US, with an average rate per transaction
of $3.73 in 2010 compared to the adjacent Dulles Toll Road's
average rate of $0.85. In 2006, the average
toll increased 29% and revenues increased 22%. Despite
an average toll increase of 21% in 2009, revenues only increased
by 13% due to a 6.5% decline in traffic. .
In 2010 the average toll increase of 6% yielded only a 2%
revenue increase. As a result, the project may be challenged
to meet its growing debt service requirements if traffic growth does not
resume natural growth shortly.
TRIP II's rating could face downward pressure if traffic declines continue
over the next couple of years. . Since the 6% toll
increase in 2010 contributed to a 4% drop in traffic, Moody's
expects the scheduled toll rate increase in 2012 to result in a 3.5%
traffic decline. Moody's assumptions result in a 1.06
times scheduled DSCR in 2012 (1.68 times mandatory). While
the rating is unlikely to be upgraded in the near-to-medium
term, the outlook could be revised to stable if growth in traffic
resumes within the next 18 to 24 months and remains sustainable over the
The last underlying rating action was on September 9, 2009 when
the Baa3 affirmed for TRIP II's Series 2005 and 1999 Bonds and the rating
outlook was revised to negative.
The principal methodology used in rating this issuer was "Operational
Toll Roads" published in December 2006.
TRIP II is a special purpose company that owns a concession to operate
the Dulles Greenway, a 14-mile long toll road extending westward
through Loudoun County, VA (rated Aaa) from Dulles Airport to the
Town of Leesburg (rated Aa1). TRIP II was acquired by Macquarie
Infrastructure Group in September of 2005.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Moody's considers the quality of information available on the issuer satisfactory
for the purposes of maintaining a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Senior Vice President
Project Finance Group
Moody's Investors Service, Inc.
Chee Mee Hu
MD - Project Finance
Project Finance Group
Moody's Investors Service, Inc.
Moody's Investors Service, Inc.
Moody's downgrades Toll Road Investors Partnership II's rating to Ba1 from Baa3; outlook remains negative
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