Fitch Affirms New Hampshire Turnpike System Revenue Bonds at 'A+'; Outlook Stable

NEW YORK--()--Fitch Ratings has affirmed the State of New Hampshire's $408.7 million of outstanding turnpike revenue bonds at 'A+'. The Rating Outlook is Stable.

The affirmation reflects New Hampshire Turnpike System's (NHTS) continued stable traffic and revenue performance generating strong debt service coverage ratio (DSCR) of 2.09x in fiscal 2015. Fitch expects coverage to remain above 1.7x for the duration of the debt tenor. The turnpike's 10-year capital improvement plan (CIP) is manageable at $314 million and is funded entirely within the current revenue structure without the need for toll increases or additional bonding.

KEY RATING DRIVERS

Important Transportation Link [Revenue Risk - Volume: Stronger]: The mature service area and strong competitive position of the turnpike system supports a stable traffic and revenue base for several major New Hampshire population centers. Annual traffic has been relatively flat since 2004, growing at a compound annual growth rate (CAGR) of 0.20%. Revenues have grown at a CAGR of 6.20% following toll increases in 2007 and 2009, offset by economic recession and the opening of the Manchester airport access road in 2011. The turnpike maintains considerable economic rate-making flexibility with an average toll of $1.07, which is comparable to other turnpike facilities in Fitch's rated portfolio.

Moderate Rate Making Ability [Revenue Risk- Price: Midrange]: The turnpike is fully owned by the State of New Hampshire Department of Transportation (DOT). Rate increases require approval from the commissioner of the DOT along with the governor and executive council and may legally be raised to comply with bond covenants although it may face some political challenges. The turnpike has a demonstrated history of raising rates to maintain financial flexibility. No additional toll hikes are anticipated at this time.

Capital Improvement Plan Funded Primarily with Pay-Go Capital: [Infrastructure Development and Renewal: Midrange]: The 2015-2024 CIP is manageable at $314 million and focuses mostly on rehabilitation and widening projects. The turnpike is generally in good condition based on the latest renewal and replacement assessment by the independent engineer. The CIP is fully funded within the current cash-flow structure.

Conservative Debt Structure [Debt Structure: Stronger]: Debt structure is conservative with fixed-rate, fully-amortizing bonds maturing in 2043. The debt service schedule will be level at $42.1 million through 2021 and then decreases to $34.5 million in fiscal 2022 following the maturity of 2015 Series A bonds. Debt service ramps downward thereafter.

Overall Financial Margins Remain Solid: DSCR remains stable at 2.09x for fiscal 2015 with all-in coverage at 1.75x. Net debt to CFADS (cash flow available for debt service) de-escalates to 2.47x by 2020. The turnpike has $47.9 million of unrestricted cash at fiscal year-end 2015 equivalent to 394 days cash on hand.

Peers Analysis: Maine Turnpike ('AA-'/Outlook Stable) and Metropolitan Highway System-Western Turnpike (MassDOT) ('AA-'/Outlook Stable) are comparable peers to New Hampshire Turnpike System which have higher coverage ratios and comparatively lower leverage reflective of the higher rating level.

RATING SENSITIVITIES

Pricing Flexibility (Negative): Inability to raise toll rates may pressure the rating should traffic not materialize as forecasted.

Traffic and Revenue Performance (Negative): Volatile traffic and/or revenue performance over a sustained period, beyond Fitch's expectations, may pressure the rating.

Positive: Continued strength of metrics and availability of detailed future capital plan could lead to positive rating action.

CREDIT UPDATE

Traffic in fiscal 2015 increased slightly by 0.74% to 112.3 million transactions while revenues increased 2.11% to a peak $120.4 million. Traffic levels have been mostly flat in recent years following toll increases in 2007 and 2009 along with the economic recession and opening of the free Manchester Airport Access Road in November 2011. The first six months of fiscal 2016 are showing an increase of 4.4% transaction growth and 5% increase in toll revenues over the same period in 2015. The growth is primarily driven by increased commercial traffic attributed to decreased gas prices and a mild winter, but partially offset by legislative directive to discontinue tolling at Bedford Road exit 12 ramp plaza in July 2014. The most recent traffic and revenue forecast provided by traffic consultant Jacobs in May 2015 anticipates toll revenues growing at a five-year CAGR of 1.5% through 2019.

Operating expenses in fiscal 2015 slightly exceeded expectations increasing modestly by 4.4% to $44.3 million. Expenses are down 4.4% in the first quarter of fiscal 2016. The turnpike system has been successful in keeping expense growth low in recent years by implementing a 'lean staffing model' to reduce staffing hours for toll operations and the implementation of open road tolling.

DSCR for fiscal 2015 remains strong at 2.09x, exceeding traffic consultant projections. Under the base case scenario, which assumes traffic consultant projections on traffic and revenue and 3% annual growth in operations and maintenance (O&M) expenses, coverage averages 2.52x through fiscal 2025 with a minimum of 1.86x. Coverage averages 2.16x through fiscal 2025 when factoring in renewal & replacement (R&R) obligations. Net debt to CFADS falls to 2.47x by fiscal 2020.

Under the Fitch rating case scenario, which assumes a 4% traffic and revenue stress in fiscal 2017 followed by a modest recovery and 4% increase in O&M expenses, coverage remains strong averaging 2.16x through 2025 and 1.84x including R&R obligations. Minimum coverage is 1.69x and 1.37x, respectively, well above financial covenants.

With no expected toll increases on the horizon, scenarios did not assume rate increases. However, Fitch would expect NHTS to raise rates if coverage were to become strained. The turnpike has legal and economic flexibility to raise rates, partially offset by political challenges, and has a demonstrated recent history of doing so when there has been a decline in debt service coverage.

The turnpike is a Bureau within the State Department of Transportation. Segments of the New Hampshire Turnpike System began operations in 1950. The turnpike consists of the Central Turnpike and Eastern Turnpike. The Central Turnpike (also known as the F.E. Everett) is a 39.5-mile segment that extends from the Massachusetts state line to Nashua, NH through Manchester and up to Concord, the state capital. The Eastern Turnpike consists of the Blue Star Turnpike and Spaulding Turnpike segments. The Blue Star Turnpike is a 15-mile segment of U.S. Interstate 95 from the Massachusetts state line to Portsmouth, NH. The Spaulding Turnpike is a 33.2-mile segment extending from Portsmouth to Milton.

Additional information is available on www.fitchratings.com

Applicable Criteria

Rating Criteria for Infrastructure and Project Finance (pub. 28 Sep 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=870967

Rating Criteria for Toll Roads, Bridges and Tunnels (pub. 29 Sep 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=870170

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Contacts

Fitch Ratings, Inc.
Primary Analyst
Saavan Gatfield
Senior Director
+1-212-908-0542
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Tanya Langman
Director
+1-212-908-0716
or
Tertiary Analyst
Robert Hirtle
Analyst
+1-212-908-0132
or
Committee Chairperson
Gregory Remec
Senior Director
+1-312-606-2339
or
Media Relations
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings, Inc.
Primary Analyst
Saavan Gatfield
Senior Director
+1-212-908-0542
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Tanya Langman
Director
+1-212-908-0716
or
Tertiary Analyst
Robert Hirtle
Analyst
+1-212-908-0132
or
Committee Chairperson
Gregory Remec
Senior Director
+1-312-606-2339
or
Media Relations
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com