Fitch says Penn Pike's financial plan may fail requiring larger than promised toll increases - debt downrated

Fitch raters say the Pennsylvania Turnpike Commission's financial plan under Act 44 may fail and higher than the promised toll increases may be needed:

"After a thorough analysis of the PTC's plan, using PTC assumptions, Fitch believes that there are reasonable scenarios under which planned toll increases may be insufficient to meet the annual obligations under Act 44 in the medium term and additional leveraging and/or higher toll rates may be needed," they say in a report released today.

The Commission has promised to keep toll increases to an initial 25% hike then to annual increases of 3% thereafter. However despite Turnpike Commission suggestions these are contractual or legal limits it is free to make larger toll increases.

The Fitch Ratings report says that "base and stress case scenarios indicate that both significantly higher leveraging and toll increases above 3% annually may be needed earlier to meet debt service coverage and its obligations under Act 44."

This they say "could exacerbate political risks."

Fitch notes that while missing an Act 44 payment would not trigger an I-80 lease termination, the state is anticipating the contracted revenue stream for its wider transportation program.

They do say the risks are reduced by provisions of Act 44 providing for lower annual payments to the state if I-80 cannot be tolled. And they say under most reasonable scenarios senior lien debt coverage "would be robust."

Bonds downrated

Fitch have downgraded the rating on the Pennsylvania Turnpike Commission's senior lien turnpike revenue bonds from A+ to AA-. They say the downrating reflects:

- the higher leverage or borrowing that they say could reach $13b to $14b over the next 12 years

- the fact that senior lien bondholders are not fully insulated from debt being issued under Act 44 payments to the state

- the "mission change" from a self-supporting entity to one operated to subsidize statewide functions

- delays and uncertainty over whether I-80 will be tolled

Fitch says: "Given the significant increase in financial obligations and overall leverage the PTC is now dependent upon regular toll increases for obligations outside of the preservation of the turnpike system.

"Prior to this change, excess toll revenues were maintained within the PTC, mitigating the lack of structured operating and capital reserves. With no covenant requiring specific cash set-asides for necessary rehabilitation efforts there is the potential that capital projects can be deferred to meet Act 44 obligations, resulting in delayed and more expensive capital projects in the medium-to-long-term."

see http://www.fitchratings.com

TOLLROADSnews 2008-04-11