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09 Feb 2009
$960 million debt affected
New York, February 09, 2009 -- Moody's Investors Service has revised the outlook on Toll Road Investors
Partnership II LP's (TRIP II) underlying rating to negative.
TRIP II's bonds, which are rated Baa1 based upon the financial
strength of the insurer, MBIA, currently have an underlying
rating of Baa3. The negative outlook reflects the recent trend
of declining traffic at the road, which is expected to continue
in the coming year.
Following robust growth averaging 6.4% from 2002-2005,
traffic has declined by an annual average of 3.7% in the
three years since then and it is expected to drop by another 7%
in 2009. While traffic has declined, overall revenues have
continued to increase thanks to several toll increases. However,
the pace of this revenue increase has slowed significantly since 2007
and has not kept up with increases in debt service, resulting in
weakening financial metrics.
The impact of recent traffic declines is mitigated somewhat by the significant
flexibility built into TRIP II's debt structure. Debt service
in 2008 totaled $35.6 million, of which amount $21.6
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. Scheduled debt service
coverage declined from 1.56x in 2006 to a relatively narrow 1.15x
in 2008 (net of reserve deposits but including investment income),
but mandatory coverage remained solid at 1.9x, notwithstanding
an even sharper decline from 2.5x. Though failure to make
the early redemptions does not constitute an event of default, to
the extent they are not made they will continue to accrete interest,
making future debt service requirements that much more onerous.
As it is, both mandatory and scheduled debt service are heavily
backloaded, increasing to $70 million and $81 million
respectively by 2034. Failure to be current on early redemptions
for four consecutive years triggers an insurance event of default,
but this carries no consequences until 2036, after which it provides
the bond insurer, MBIA, the right to accelerate the debt.
As a result of its deteriorating financial performance, the project
failed to meet its restricted payments test in 2008 and all excess cash
flow was subject to lock up. Thanks to a significant toll increase
implemented this January 1, however, scheduled debt service
coverage is projected to rebound somewhat to 1.3x, bringing
the project back into compliance with the restricted payments test,
but mandatory coverage will continue to decline to 1.7x.
Nevertheless, the excess cash from 2008 will remain locked up until
the project complies with the test ratio for at least three consecutive
Though the project has received regulatory approval for a series of additional
toll increases through 2020, Moody's believes the project's
ability to continue to grow revenues through toll increases may be diminishing
due to increasing elasticity of demand. In 2006, the average
toll increased 29% and revenues increased 22%. Despite
an average toll increase of 22% in 2009, revenues are only
expected to increase by 13% due to a 7% decline in traffic
expected to result from the toll increase. As a result, the
project may be challenged to meet its growing debt service requirements
if traffic growth does not resume shortly.
TRIP II's rating could face downward pressure if traffic declines
this year exceed 7% or if traffic continues to decline next year.
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 remain sustainable over the
The last underlying rating action was on February 28, 2005 when
a Baa3 rating was assigned to TRIP II's Series 2005 Bonds and the
Baa3 rating and stable outlook on TRIP II's Series 1999 Bonds was
affirmed. The principal methodology used in rating this issuer
was "Operational Toll Roads", which can be found at
www.moodys.com in the Credit Policy & Methodologies
directory, in the Ratings Methodologies subdirectory. Other
methodologies and factors that may have been considered in the process
of rating this issuer can also be found in the Credit Policy & Methodologies
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 A1). TRIP II was acquired by Macquarie
Infrastructure Group in September of 2005.
Vice President - Senior Analyst
Infrastructure Finance Group
Moody's Investors Service
Moody's revises Toll Road Investors Partnership II's outlook to negative
Chee Mee Hu
Senior Vice President - Team Leader
Infrastructure Finance Group
Moody's Investors Service
No Related Data.
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