Fitch Rates Maine Turnpike Auth's Series 2015 Turnpike Revenue Refunding Bonds 'AA-'; Outlook Stable

NEW YORK--()--Fitch Ratings has assigned 'AA-' rating to approximately $139.3 million of Maine Turnpike Authority series 2015 turnpike revenue refunding bonds. Fitch also affirms $392.3 million of outstanding senior turnpike revenues at 'AA-' and $36.5 million of special obligation bonds at 'A-'. The Rating Outlook for all bonds is Stable.

The 'AA-' rating reflects a long history of stable traffic and revenue performance on the turnpike providing robust coverage ratios and sufficient revenues to fund capital requirements in forthcoming years. The 'A-' rating reflects the aforementioned traffic and revenue attributes but reflects a weaker security pledge compared to the 'AA-' rating.

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, while 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 (6.4 cents per mile for passenger vehicles). 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 implemented in November 2012 is expected to generate sufficient revenues to fund the authority's long-term capital needs.

Revenue Risk- Price: Stronger

Conservative Debt Structure: All bonds outstanding are fixed rate and mature in 2042, and annual debt service requirements are declining. The series 2015 senior turnpike refunding bonds will refund series 2005, 2007, and the 2009 bonds for interest savings and the maturity will be the same the existing amortization profile.

Debt Structure: Stronger/Midrange

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 $501 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 low to moderate at 4.2x, while debt service coverage ratios (DSCR) of 2.57x for the senior lien and 1.62x for the subordinate lien provide the authority with a strong financial cushion against downturn or extraordinary costs. The authority has approximately $17.7 million of unrestricted cash equivalent to 176 days cash on hand.

Peer Analysis: Other toll facilities in the 'AA-' rating category include Oklahoma Turnpike Authority and Illinois State Toll Highway which have similarly high coverage ratios and toll ratemaking flexibility, but also have greater liquidity.

RATING SENSITIVITIES

Negative:

Declining Debt Service Coverage: Management's inability to maintain DSCRs above 2.0x.

Financial Flexibility: Increases in leverage beyond historical levels as well as an inability to actively control operating expenses along with costs related to its work program would reflect a weakened credit profile.

Positive:

Limited Positive Upward Mobility: While the near-term financial profile is robust, given the peers at 'AA', positive rating movement is unlikely in the near term.

TRANSACTION SUMMARY

The authority expects to issue $139.3 million of series 2015 turnpike revenue refunding bonds to redeem series 2005, 2007 and 2009 bonds. The refunding is expected to save $1.2 million to $2.2 million annually through 2030 providing some uplift in DSCR.

Traffic in 2014 increased 3.4% to 75.6 million transactions while net revenues increased at a slightly lower rate of 1.5% to $123.6 million. The lower revenue growth is due to ramp-up of a new volume based discount program which provides discounts for accounts over 30 and 40 trips per month (replaced the commuter plan in November 2012). Traffic levels on the turnpike were relatively flat in the last decade growing at a compound annual growth rate (CAGR) of 0.08% while revenue growth has increased at a CAGR of 6.57% with toll increases implemented in 2005, 2009, and 2012. Operating expenses grew 6.6% in 2014 mainly attributed to a harsh winter season.

In fiscal year (FY) 2014, the authority generated strong DSCR at 2.57x for the senior lien and 1.62x when including special obligation debt service after making repair and rehabilitation (R&R) deposits. An updated traffic and revenue forecast provided by traffic consultant CDM Smith expects traffic to increase 2% in 2015 then tapering down to 1% by 2026. Under this scenario, senior debt service coverage is projected to be 2.73x in 2015 and increasing to 3.27x by 2019 in the authority's forecast.

Fitch conducted several sensitivity analyses. Fitch's base case assumes 1% traffic growth in the near term (through 2020) then tapering down to 0.5% growth along with moderate expense growth of 3%. Under this scenario, senior debt service coverage is expected to remain above 2.6x and 1.4x when including special obligation debt service after making R&R deposits. Revenues generated will be sufficient to cash fund the capital program. Fitch's rating case scenario assumes greater sensitivity with a 5% decrease in transactions in 2015 followed by 0.5% annual growth and greater expense growth of 4% per annum. Under the rating case, senior debt service coverage remains above 2.4x consistent with what that Fitch would expect for the 'AA-' rating level. Coverage when including special obligation debt service after deposits to the R&R fund is low at 1.2x. However, Fitch recognizes that the authority has the flexibility to manage deposits to the R&R fund and the economic rate making flexibility to adjust tolls.

The Maine Turnpike Authority is a body politic and corporate that is empowered under the enabling act to construct, maintain, 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, Aug. 20, 2014.

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=758708

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=980348

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Contacts

Fitch Ratings
Primary Analyst
Raymond Wu
Associate Director
+1-212-908-0571
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Chad Lewis
Senior Director
+1-212-908-0886
or
Committee Chairperson
Saavan Gatfield
Senior Director
+1-212-908-0542
or
Media Relations
Elizabeth Fogerty
+1-212-908-0526
New York
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Raymond Wu
Associate Director
+1-212-908-0571
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Chad Lewis
Senior Director
+1-212-908-0886
or
Committee Chairperson
Saavan Gatfield
Senior Director
+1-212-908-0542
or
Media Relations
Elizabeth Fogerty
+1-212-908-0526
New York
elizabeth.fogerty@fitchratings.com