NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an 'A' rating to New Jersey Turnpike Authority's (NJTA or the authority) $1 billion 2014A series turnpike revenue bonds, and has affirmed the existing 'A' rating on its approximately $9 billion existing turnpike revenue bonds.
The Rating Outlook is Stable.
Fitch does not rate turnpike revenue bond series 2009A, 2009B, 2012G, 2013B or 2013G, which total $397 million in aggregate.
The 'A' rating reflects continued stable traffic and revenue performance on both the New Jersey Turnpike (the turnpike) and Garden State Parkway (the parkway), NJTA's continued prudent operating cost management, and its ability to deliver significant capital improvements as per its current $7 billion plan running to 2018 ahead of time and on budget. Additional debt of $1.9 billion is expected to be raised over 2015-2018 and should be affordable without a significantly detrimental effect on metrics, given toll increases implemented ahead of the capital plan. Furthermore, Fitch views the authority as having sufficient economic flexibility to increase toll rates over the next few years if required to bolster its financial position.
KEY RATING DRIVERS
--Mature Traffic Profile Serving Key Commuter and Interstate Routes: The turnpike forms a vital link in the key I-95 interstate route, providing important commercial links between New York City, Philadelphia, Baltimore and Washington D.C. At the same time, the turnpike and parkway serve major, wealthy, established and stable commuter populations in New Jersey and suburbs of New York City, accounting for the bulk of toll revenue generated by the system. Revenue - Volume: Stronger.
--Economic Rate-Making Flexibility Constrained by Political Authority: Fitch views toll rates on both the turnpike and parkway of $0.11 per mile and $0.04 per mile, respectively, as moderate, and considers future toll increases in the near and medium term as affordable if required. Nevertheless, some doubt remains as to the level of political support any such toll increases would have within the state. Revenue - Price: Mid-Range.
--Well-Defined Capital Plan Largely Debt-Funded: NJTA's $7 billion 2009-2018 capital investment plan (CIP) is on schedule and on budget, with additional works having been included as a result of savings made in the original plan. However, it is largely debt-funded, with an additional $2.9 billion of debt, including the $1 billion currently being issued, required over the remainder of the CIP. State transfers made after debt service constrain the authority's ability to build up cash reserves to fund future infrastructure investment, implying future renewal works will require additional debt funding. Infrastructure and Renewal Risk: Mid-Range.
--Swaps Hedge Variable Rate But Create Basis Risk: NJTA maintains around 15% of its debt profile as variable rate debt, almost entirely hedged with fixed-floating interest rate swaps with counterparties of adequate financial strength. However, the use of LIBOR-linked swaps to hedge SIFMA-indexed debt with respect to 60% of swaps creates a mismatch that can distort the authority's cash flows. Separately, NJTA should soon have removed reliance on sureties to support liquidity entirely, with cash funding of the debt service reserve to covenant levels expected following the upcoming $1 billion expected debt issuance. Debt Structure: Mid-Range.
--Moderate Leverage and Liquidity: Net debt-to-cash flow available for debt service (CFADS), reflecting only the debt service reserve balance as cash deducted from gross debt, is relatively high at approximately 7.7x, expected to rise further over the next few years to around 8.5x in the Fitch base case. Despite this, debt service coverage ratios (DSCR) should remain robust, falling no lower than around 1.5x. Furthermore, Fitch views the authority as having the ability to increase tolls in the medium term in order to support its financial profile, although it understands that NJTA has no plans to do so for the moment.
--Erosion of DSCRs in the medium term below 1.5x for a sustained period would put pressure on the rating.
--Additional debt materially beyond the planned $2.9 billion to fund the balance of the current CIP causing NJTA's leverage metrics to widen significantly would strain the authority's credit quality.
--Increased transfers to support state transportation projects without commensurate toll increases to ensure system preservation would pressure the rating.
--Conversely, a material reduction in leverage that results in a sustained improvement in NJTA's coverage profile could result in positive rating action.
Turnpike revenue bonds are secured by a first lien on pledged net revenues, which are defined as all tolls, revenues, fees, rents, charges, and other income derived from operating the turnpike (including Build America Bond subsidies), proceeds from business interruption insurance, amounts deposited in the revenue fund from the construction/special project reserve/or general reserve funds, and revenues from qualified swaps and investments.
NJTA is issuing the $1 billion 2014A series bonds as part of the funding plan for its 2009-2018 $7 billion CIP.
For more information, please see Fitch's press release ' Fitch Affirms New Jersey Turnpike Auth's Turnpike Revs 'A'; Outlook Stable'; dated April 25, 2014 and available at 'www.fitchratings.com'.
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