NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the 'AA-' rating on approximately $412 million of outstanding Maine Turnpike Authority (MTA or the authority) revenue bonds and the 'A-' rating on the authority's approximately $11 million of outstanding special obligation bonds.
The rating affirmations reflect stable traffic performance on the turnpike. The toll rate increase in November 2012 of 28% provides strong coverage ratios and sufficient revenues for the authority to meet needed capital requirements over forthcoming years.
KEY RATING DRIVERS:
Mature and Stable Asset: The Maine Turnpike is a mature asset and serves as the primary travel corridor through the southern portion of Maine. It also provides access for leisure travelers to the coastal areas, whilst serving as an essential artery for commercial vehicles. Commercial traffic represents approximately 10% of total traffic and 34% of total toll revenues. Traffic has historically remained stable, even through the most recent economic downturn - in 2008 and 2009 traffic decreased just 2.5% and 2.8% respectively. Since then, traffic has been relatively flat reflecting the impact of toll increases in 2009 and 2012.
Revenue Risk- Volume: Midrange
Demonstrated Rate-Making Ability: Toll rates are competitive by national standards. Management has demonstrated a willingness to increase revenues through periodic toll rate increases to ensure the funding of capital needs and to maintain financial flexibility. The most recent toll increase is expected to generate sufficient revenues to fund the bulk of the authority's long term capital needs.
Revenue Risk- Price: Stronger
Conservative Debt Structure: All bonds outstanding are fixed rate and mature in 2043, and annual debt service requirements are declining. The authority plans to issue $26.8 million of special obligation bonds in 2014.
Debt Structure: Stronger
Manageable Capital Program: Management maintains the ability to fund a significant portion of capital needs on a pay-as-you-go basis and its 10-year capital program of approximately $502 million is manageable.
Infrastructure Development and Renewal: Stronger
Low Leverage and Strong Coverage: Overall financial metrics remain healthy - current leverage, defined as net debt to cash flow available for debt service (CFADS), is moderate at 4.2x, while debt service coverage ratios (DSCR) of 2.7x for the senior lien and 1.67x for the subordinate lien provide the authority with a strong financial cushion against downturn or extraordinary costs.
RATING SENSITIVITIES:
--Management's continued ability to maintain DSCRs above 2.0x are supportive of the current rating - if turnpike expense growth outpaces that of revenue and management allows financial margins to decline, credit quality could be negatively affected.
SECURITY:
The turnpike revenue bonds are primarily secured by the net toll revenues of the MTA after the payment of operating expenses. The special obligation bonds are secured by a pledge of all special obligation revenues, which are defined as those monies which are transferred by the authority out of the Department of Transportation provision account into the general reserve fund and on deposit with the trustee pursuant to the special obligation resolution for the payment of debt service. Per the resolution, the authority has covenanted to transfer amounts sufficient to pay debt service.
CREDIT UPDATE:
The authority increased toll rates by 28% in 2012, causing a traffic decline of 0.5% but a revenue increase of 16.6% in 2013. Traffic on the turnpike has historically remained stable, even during the 2008-2010 downturn - traffic decreased by 5.2% from 2007 to 2009 and has been relatively flat at 72.8 million vehicles since 2009. Traffic is now 5.0% from its peak level in 2007, while revenues have grown 44.1%. At the same time, operating expense for 2013 was reduced by 4.5% on the previous year.
The authority continues to generate solid financial metrics, recording over 2.0x DSCR since 2005. For 2013, DSCR was 2.7x for the senior lien and 1.4x when including deposits to the reserve maintenance fund and the special obligation lien.
In affirming the rating, Fitch analyzed several sensitivity scenarios. Fitch's rating case, which assumes a conservative downside scenario of a 5% traffic decrease followed by a 1% traffic increase thereafter along with moderate expense growth, sees DSCRs remaining strong at above 2.4x for the senior lien and 1.4x for the subordinate lien. Fitch believes that the recent toll increase will support strong coverage ratios in the longer term.
The 2014-2023 capital improvement plan (CIP) is estimated at approximately $502.3 million and focuses on bridge replacement and improvements as well as interchange renovations. Funding for the CIP is derived from surplus revenues and debt issuance - the authority currently expects to issue the aforementioned $26.8 million of special obligation bonds in 2014.
Under the amended Enabling Act, the authority is to allocate 5% of its operating revenues (based on a three-year rolling average) to department projects that are jointly determined by the MTA and MDOT. Per the authority, the debt service on the planned special obligation bonds will represent a portion of the authority's obligation under this amendment. With the proceeds of the special obligation bonds, the authority will purchase from MDOT a portion of I-95 that connects New Hampshire with the turnpike and the authority will assume maintenance responsibilities for this section of roadway. Management estimates that the issuance of the special obligation bonds along with assuming the maintenance responsibilities will fulfill their obligation to MDOT for the next 20 years.
The Maine Turnpike Authority is a body corporate and politic, empowered under its enabling act to construct, maintain, reconstruct and operate the turnpike. The Maine Turnpike extends 109 miles from a point in Kittery, ME in the south to a point in Augusta, ME in the northeast.
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
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682867
Rating Criteria for Toll Roads, Bridges and Tunnels
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=720736
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=826237
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