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Fitch Ratings gives turnpike bonds stable outlook

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The Pennsylvania Turnpike Commission is issuing $250 million in bonds to finance various capital expenditures, and Fitch Ratings has given them and all of PTC's other bonds a stable outlook.

he $250 million will be used for the following: reconstruction of roadbeds and roadways; widening, replacing and redecking of bridges; rehabilitation of interchanges; and funding required reserve deposits and capitalized interest.

Fitch noted that the passing of Act 89 -- Pennsylvania’s transportation funding bill -- last year affected PTC’s financial arrangements. PTC still owes PennDOT an aggregate annual payment of $450 million through fiscal year 2022, but as of July 1, 2014, none of that payment will be dedicated to highways and bridges.

“Instead, all $450 million will be allocated to support transit capital, operating, multimodal and other nonhighway programs,” Fitch said. “As a result, the Commonwealth’s Motor License Fund will no longer be available to cover the highway/bridge related portion of the payments. This means that while Act 89 provides long-term debt relief to PTC, in the short term it requires additional leverage on the subordinate lien, as PTC expects to finance most of this obligation with subordinate revenue bond proceeds.”

In all, Fitch said, PTC is projected to issue a total of $10 billion in debt between 2014 and 2023. As PTC’s leverage continues to increase over the next decade, management will need to balance expense management and rate increases, Fitch said.

“Traffic has demonstrated relatively low elasticity through toll increases since 2005,” Fitch said. “Revenue has had an average annual growth rate of 6.3 percent from 1990-2013. However, there may be political risk associated with implementing toll rates above inflation for multiple years, as is expected in PTC’s updated financial plan.”

Fitch said PTC’s traffic was down by 0.6 percent for the fiscal 2013, as compared to flat growth for fiscal 2012 and a 1.3 percent increase for fiscal 2011. Traffic has largely been flat in fiscal 2014 year to date through February. Net toll revenues increased 3.9 percent for fiscal 2013 and 6 percent for fiscal 2014 year to date, reflecting toll increases and reductions in commercial discounts, and building on 5.6 percent and 6.6 percent revenue increases in fiscal 2012 and fiscal 2011.

“Continued revenue growth coupled with stable traffic volume demonstrates PTC’s resilience despite five consecutive years of toll increases,” Fitch said. “As a result of the most recent toll changes in January 2014, the average cash toll equals 11.6 cents per mile, and the average E-ZPass toll is 8.3 cents per mile (up from 7.4 cents per mile for both cash and E-ZPass after the first increase in 2009). This reflects a full-length trip on the Turnpike Mainline, and is considered to be competitive with other major domestic, seasoned toll facilities.”

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