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Rating Action:

Moody's upgrades the Delaware Transportation Authority's senior revenue bonds to Aa1 from Aa2; also upgrades subordinate debt; outlook stable

09 Aug 2019

New York, August 09, 2019 -- Moody's Investors Service has upgraded to Aa1 from Aa2 the rating on the Delaware Transportation Authority's outstanding transportation system senior revenue bonds. Moody's has also assigned a Aa1 rating to the authority's approximately $146 million Transportation System Senior Revenue Bonds, Series 2019. The authority anticipates pricing the bonds the week of August 26.

Moody's has also upgraded to Aa3 from A1 the rating on the authority's outstanding US 301 Project Revenue Bonds, Series of 2015 and upgraded to Aa3 from A2 the rating on the authority's outstanding Transportation Infrastructure Finance and Innovation Act (TIFIA) Series 2015 bond. Moody's has also affirmed the A1 rating on the authority's outstanding Grant Anticipation Bonds (GARVEEs), Series 2010. The outlook on all ratings is stable.

RATINGS RATIONALE

The upgrade of the transportation system senior revenue bonds to Aa1 reflects the strong performance in revenue deposited in the state's Transportation Trust Fund, on which bondholders have a senior claim. The upgrade incorporates an expectation that coverage of debt service will remain very healthy even with planned borrowing according to the authority's current capital plan. These credit features mitigate an additional bonds test that is lower than similarly rated special tax bonds. The rating further incorporates the role of the State of Delaware (Aaa stable) in dedicating certain revenue to the Transportation Trust Fund from which bond payments are made. The state's pledge of these revenues to the trust fund is now supported by a recent constitutional amendment.

The upgrades of the US 301 project revenue bonds and TIFIA bond to Aa3 are similarly based on the strong performance in trust fund revenue and an expectation of healthy debt service coverage. The US 301 project revenue bond rating incorporates its claim to the Transportation Trust Fund that is subordinate both to the transportation system senior revenue bonds and an unused junior lien on the trust fund. The TIFIA bond is further subordinated to the US 301 project revenue bonds, but the rating incorporates the springing nature of the TIFIA bond's lien to a basis on parity with the US 301 project revenue bonds upon the occurrence of a bankruptcy-related event.

The affirmation of the A1 GARVEE rating reflects strong debt service coverage provided by the pledged revenues consisting solely of federal highway aid grant revenues, a direct payment structure with set asides, and a strong additional bonds test. The rating further incorporates credit challenges related to GARVEE bonds, including the short duration of federal highway funding reauthorizations, the possibility that more frequent reauthorizations could disrupt or reduce the funds available to pay the bonds, and the large structural imbalance of the federal Highway Trust Fund, which further increases programmatic risks for GARVEEs.

RATING OUTLOOK

The stable outlook of the transportation bonds, including the Series of 2015 bonds and TIFIA bond, incorporates the stable outlook assigned to the State of Delaware as well as an expectation of stability in the trend of pledged revenue and the maintenance of strong debt service coverage on all bonds of the authority.

The stable outlook of the GARVEEs is based on the reauthorization of the federal aid highway program through federal fiscal year 2020 via the Fixing America's Surface Transportation (FAST) Act. The rating and outlook incorporate the possibility of an interruption in grants provided it does not affect debt service payments.

FACTORS THAT COULD LEAD TO AN UPGRADE

- Greater constraints on leveraging pledged revenue

- Additional factor for the US 301 bonds and TIFIA bond: strong performance in pledged toll revenue that mitigates the obligations' position in claims to the Transportation Trust Fund

- Additional factor for the GARVEEs: a return to multi-year authorization of Highway Trust Fund grants or the addition of a sustainable and dedicated revenue source to the Highway Trust Fund

FACTORS THAT COULD LEAD TO A DOWNGRADE

- Material decline in revenue deposited in the pledged Transportation Trust Fund

- Significant drop in debt service coverage

- A downgrade of the state's general obligation rating

- Additional factor for GARVEEs: a change in federal transportation policy that reduces or interrupts highway aid

LEGAL SECURITY

The Series 2019 bonds and outstanding transportation system senior revenue bonds are secured by a senior claim on certain revenue deposited into the State of Delaware's Transportation Trust Fund. The state dedicates certain taxes and fees to the trust fund, from which the authority pays the bonds. The bonds are also secured by a debt service reserve.

The Series of 2015 US 301 Project Revenue Bonds are secured by a senior claim on tolls collected along US 301 as well as a claim to the Transportation Trust Fund that is subordinate to the transportation system senior revenue bonds, an unused junior lien on the same revenue, and operating costs of the Delaware Turnpike. The bonds are also secured by a debt service reserve.

The 2015 TIFIA bond is secured by a claim on all revenue pledged to the US 301 Project Revenue Bonds, but subordinate to the US 301 Project Revenue Bonds. Upon occurrence of a bankruptcy-related event, the TIFIA bond's claim on pledged revenue springs to a basis on parity with that of the US 301 project revenue bonds. There is no claim, however, on the project revenue bonds' debt service reserve and the TIFIA bond is not secured by its own debt service reserve.

The GARVEEs are secured by the authority's receipt of federal highway grants. The Federal Highway Administration (FHWA) processes the grants out of revenues from the federal Highway Trust Fund, which is funded by federal fuel taxes and, in recent years, transfers from the federal general fund. The authority's bonds are "direct" GARVEEs, meaning that the FHWA has agreed to make payments for principal and interest costs associated with specific approved projects. Pursuant to a financing agreement, the authority has instructed the FHWA to transfer, on a monthly basis, one-sixth of each the next interest and principal payment on the bonds to the trustee.

USE OF PROCEEDS

The authority will use proceeds of the Series 2019 bonds to finance projects according to the Department of Transportation's capital plan.

PROFILE

The Delaware Transportation Authority is a component of the Delaware Department of Transportation. The authority was established in state statute by the General Assembly of Delaware to implement plans for the creation of a unified transportation system in the state.

Delaware is the sixth-smallest state, based on its estimated population of just over 960,000. The state's gross domestic product, currently about $75 billion, ranks 41st among states. Delaware's personal income per capita in 2018 was $51,500, or 96% of the national level.

METHODOLOGY

The principal methodology used in these ratings was US Public Finance Special Tax Methodology published in July 2017. 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.

Matthew Butler
Lead Analyst
State Ratings
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

Genevieve Nolan
Additional Contact
State Ratings
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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