NEW YORK--(BUSINESS WIRE)--Fitch Ratings affirms the Oklahoma Turnpike Authority's (OTA or the authority)'AA-' rating on approximately $1.035 billion of outstanding second senior revenue bonds. The Rating Outlook remains Stable.
KEY RATING DRIVERS:
RESILIENT TRAFFIC DEMAND: The Oklahoma Turnpike system consists of 10
turnpikes. The turnpike system plays a critical role for in-state
traffic and serves as a transportation crossroads with U.S. Interstates
35, 40, and 44 intersecting within Oklahoma. The lack of competition in
Oklahoma for long-distance travel and the system's essentiality
contribute to an established and stable traffic demand base. The
system's diverse mix of interstate and commuter traffic has grown at a
combined favourable 2.8% compound annual growth rate (CAGR) since 2003.
Revenues Risk- Volume: Stronger
CONSIDERABLE RATE-MAKING FLEXIBILITY: Management has the authority to
raise rates without legislative approval. The OTA has raised rates eight
times, most recently in 2009 by 16%. Toll rates remain competitive
compared to Fitch's rated portfolio with an average toll per transaction
of $1.49 and demand has been observed to be relatively inelastic to past
toll increases. Further, should revenues be insufficient to cover debt
service, the OTA is entitled to a portion of motor fuel excise taxes
(MFET) collected on the turnpikes.
Revenue Risk- Price: Stronger
VARIABLE-RATE DEBT SYNTHETICALLY FIXED: Approximately 30% of bonds
outstanding are variable rate debt that is synthetically fixed through
swap agreements with Goldman Sachs and JP Morgan. Debt service schedule
is flat to declining. No additional debt issuance is anticipated to
support the capital program in the near-to-medium term.
Debt Structure: Midrange
PROACTIVE CAPITAL IMPROVEMENT PLAN (CIP): The 2014-2018 CIP totals $341
million and focuses mainly on rehabilitation of the turnpike system. The
plan will be funded by the general and reserve maintenance fund. The OTA
has annual system maintenance evaluations to determine the minimum
spending amounts. As a result, the pavement condition index for the
entire OTA system is on the border of excellent condition (the highest).
Infrastructure Development and Renewal: Stronger
STRONG FINANCIAL METRICS: The OTA's healthy financial performance has translated to annual debt service coverage (including MFET) of at least 1.96 times (x) since 2003. Coverage per the Trust Agreement for fiscal 2013 is 2.13x and is forecast to remain strong throughout the forecast period as debt service obligations slightly decreases following maximum annual debt service (MADS) in 2013. The authority is moderately leveraged at 3.7x net debt to cash flow available for debt service. The authority also has $77.9 million of unrestricted cash equivalent to 379 days cash on hand and 822 days when including the Turnpike Trust Fund and Reserve Maintenance Fund.
MATERIAL DECLINES IN TRAFFIC: Unexpected decreases in commercial traffic and/or failure to raise rates or increased elasticity of demand to toll rate increases could pressure financial flexibility and negatively affect debt service coverage.
CHANGES TO DEBT STRUCTURE: Increased debt-related risks due to either capital funding or additional variable-rate issuances, which are not currently anticipated, could pressure the rating. Fitch notes, however, that continued reductions to variable rate exposure could warrant positive rating action.
REDUCTION OR ELIMINATION OF MFET APPORTIONMENT: Improvements to fuel standards, declines in traffic, and/or legislative acts which negatively impact MFET apportionments could impact the rating.
The authority's revenue bonds are secured by revenues of the system after the payment of operating expenses in addition to the MFET apportioned to the OTA for deposit to the credit of the Turnpike Trust Fund.
The turnpike system has a mature and stable traffic base. Traffic in the
turnpike system has increased year over year since 1983 with the
exception of 2011 which decreased by 2.3%. Fiscal 2013 transactions
increased by 0.6% to 156.2 million following a 3.1% increase in fiscal
2012. However, revenues decreased slightly in fiscal 2013 by 0.3% as a
result of on-going construction of the John Kilpatrick and Creek
Turnpikes and severe winter conditions at year end. The share of
commercial traffic is modest and has remained constant at 8.7% of system
transactions and 38.9% of toll revenues.
The OTA has the ability to raise rates without legislative approval and has demonstrated a historical willingness, raising rates eight times since opening. The current average toll of $1.49 is consistent with other turnpikes in Fitch's rated portfolio. The authority has no further plans to raise rates at present.
Coverage ratios remain strong at 2.13x in fiscal 2013 and 1.70x when excluding MFET. The authority's financial forecast is based on reasonable underlying assumptions including average annual traffic growth of 1.3% in the near-to-medium term with no additional toll increases and average annual expense growth of 4.3%. Coverage ratios under the authority's forecast are expected to improve to 2.34x by 2022 and 1.81x when excluding MFET. Fitch also conducted sensitivity analysis conservatively assuming flat traffic growth in the near term followed by annual traffic growth of 0.5% and higher expense growth of 5% per annum. Under this scenario, coverage ratios are expected to remain above 1.91x through 2022 but the turnpike may have some difficulty complying the second covenant (which requires net revenues excluding MFET to cover 1.05x debt service obligations and 1x deposit to the reserve maintenance fund). However, Fitch notes that the authority has considerable economical rate making flexibility and can raise rates if necessary to comply with rate covenant or maintain healthy coverage ratios.
Lane expansion projects for the Creek and John Kilpatrick turnpikes have
been completed in the fourth quarter of 2013 and significantly below
budget. The 2014-2018 CIP totals $341 million and will be funded by the
reserve maintenance and general fund. Uses comprise mostly of
rehabilitation of the existing turnpike system, PIKEPASS refurbishment
and purchases, improvement to headquarters facility and safety projects.
The program is focused on keeping the existing turnpike system in good
condition and extending the useful life of the turnpikes which is
critical considering that the Turner Turnpike has been in operation for
60 years and the Will Rogers for 56 years. The authority has a
responsible approach to maintaining the facility, planning for repairs
before assets become too costly to maintain or replace.
Additional information is available at www.fitchratings.com.
Applicable Criteria and Related Research:
--'Rating Criteria for Infrastructure and Project Finance' (July 12, 2012);
--'Rating Criteria for Toll Roads, Bridges and Tunnels' (Oct. 16, 2013).
Applicable Criteria and Related Research:
Rating Criteria for Infrastructure and Project Finance
Rating Criteria for Toll Roads, Bridges and Tunnels