New Jersey Turnpike outlook "Stable," but more toll increases may be needed - Fitch

Fitch Ratings after a review of the New Jersey Turnpike have reaffirmed the 'A' rating for the big toller's revenue bonds, and say its overall outlook rating is Stable, a change from the Negative outlook they had before the recent toll increase. However Fitch say the current economic environment could detract from the Authority's ability to deliver on the capital plan by cutting revenues below anticipated levels, and they see continuing political constraints on toll rate setting. (REVISION: In a first report we misread the Fitch statement as a revision of outlook from Stable to Negative. Editor)

Traffic in 2008 is likely to be 3% lower they say than 2007.

"Ongoing credit concerns include narrow levels of financial margin to deal with slower revenue growth, a high debt burden compared with other turnpikes, a complex and back-loaded debt structure, and a politicized operating environment."

Fitch say "meaningful toll increases" may be needed after the Dec 1 2008 and Dec 1 2012 increases to support the announced capital plan. The Turnpike Authority's recent toll and capital plan provides for stable dollar toll rates for the next nine years - 2012 to 2021.

They add: "Given the authority's history political risk remains a concern as action to (raise tolls) may not be timely."

Fitch project that 2009 net revenues will provide 1.20x to1.30x maximum annual debt service (MADS) coverage including proposed new debt.

They say: "Fitch's 'A' rating incorporates the authority's representations that it will manage its finances to maintain at least 1.40x debt service coverage. In Fitch's view, meaningful additional toll increases may be necessary after the planned 2012 increase to maintain this level of flexibility."

The Turnpike Authority plans borrowing about a billion dollars a year in the coming years to fund roadway widenings, bridge reconstruction and interchange improvements on the Turnpike and the Garden State Parkway plus a contribution of $1.25b for an additional rail tunnel under the Hudson River into Penn Station in New York City.

Fitch see some short-term financing challenges in $400m in auction-rate securities that it plans to refinance over the next six months, and $335m in bond anticipation notes (BANs) which it would like to take out long-term senior lien revenue bonds in the first half of 2009.

The authority's current debt, Fitch notes, is $4.8b split 70/30 between fixed and variable debt. Current debt service cost of $319m will rise substantially.

Toll rates even after approx 50% increases this December and again in 2012 will remain low on the Parkway by comparison with most US tollroads and average on the Turnpike proper, Fitch notes, providing the opportunity for rate increases to raise extra revenue... politics allowing.

TOLLROADSnews 2008-11-06 REVISION 2008-11-07 10:40