Fitch Ratings issue blistering remarks on Mass Pike toll wimps, place on Negative watch

Fitch Ratings have put Massachusetts Turnpike Authority's metro highway bonds on a "Rating Watch Negative" and made blistering remarks following the Authority's Monday wimp-out from an announced toll increase March 29. This was, Fitch said "a course of action uncharacteristic of mature transportation facilities in very strong economic areas like the MHS." (MHS stands for Metropolitan Highway System which is the urban section of the Turnpike east of I-95/MA128, the Sumner and Ted Williams Tunnels and the untolled Big Dig I-90 and I-93 for which the Turnpike is responsible.)

The Fitch raters expressed skepticism about promises by the state governor and legislative leaders to raise gasoline/diesel fuel tax revenues to generate funds to allow the Turnpike to meet their debt coverage covenants and to fund rehabilitation of the turnpike system. Years of debate on this subject have passed, Fitch noted, and there are still no specifics of a workable alternative plan.

Meanwhile the bonds being secured to toll and other known revenues, rating agencies have to rate against those known revenues.

The backdown on the March 29 toll increases is just one act in a long history of unwillingness to impose adequate tolls and, quoting the Fitch statement, "further underscores the continued challenges faced by the Authority to act decisively and reliably to protect the interests of bondholders and users of the facility."

If the Turnpike Authority welshes on the July 1 toll increases also, Fitch noted, then it will likely draw on more cash reserve funds and "edge closer to potential default, whereby more severe negative rating action is likely."

Raters were clearly disappointed that Turnpike chief executive Alan LeBovidge, previously eloquent about the need for immediate action to raise tolls turned tail, Monday, and voted with two others to form a majority to cancel the scheduled toll hike, and to further run down reserves.

Full text: Fitch Places Massachusetts Turnpike Authority's Metro System Revs on Watch Negative
25 Mar 2009 3:16 PM (EDT)

Fitch Ratings-New York-25 March 2009: Fitch Ratings has placed on Rating Watch Negative the following Metropolitan Highway System (MHS) revenue bonds for the Massachusetts Turnpike Authority (MTA):
--$1.2 billion 1997 series A (senior) 'BBB+';

--$89.1 million MHS 1997 series C (senior) 'BBB+'.

--$194.7 million 1997 series B (subordinate) 'BBB';

--$764.9 million 1999 series A (subordinate) 'BBB'.

Fitch affirmed and removed the MTA's senior and subordinate lien bonds from Rating Watch Negative on March 5 following a vote by the Turnpike Authority Board for a two-phased toll increase, the first phase of which was scheduled to take place on March 29 increasing tolls by $0.25 on the Boston Extension and $2.00 at the Ted Williams and Sumner tunnels. The second phase was scheduled to occur on July 1, 2009 and would raise tolls by an additional $0.25 and $1.50 on the Boston Extension and the tunnels bringing the total tolls to $2.00 and $7.00, respectively.

The Turnpike board on Monday voted to delay the March 29 toll increase and instead raise tolls to the previously stated amounts on July 1, 2009. In doing so, the MTA will likely have to use cash reserves to meet the upcoming June debt service payments and essential capital spending, a course of action uncharacteristic of mature transportation facilities in very strong economic areas like the MHS.

Alternate plans are being proposed separately by the Senate and Governor of Massachusetts for a more comprehensive reform of surface transportation agencies in Massachusetts that may rely on an increased gas tax to generate additional revenue needed by the MTA to meet its rate covenant and fund major capital rehabilitation on the facility. However, after years of debate on transportation funding, specific details on a workable plan have yet to emerge. Fitch's credit analysis currently centers on the current status of the bonds as separately secured obligations of the authority with some Commonwealth support.

The latest reversal is another decision in a long history of resistance to toll increases and further underscores the continued challenges faced by the Authority to act decisively and reliably to protect the interests on bondholders and users of the facility. If the July 1, 2009 toll increase is not implemented or additional sources of revenue are not provided, this credit will likely draw on more cash reserve funds and edge closer to potential default, whereby more severe negative rating action is likely.

Additionally, it is important to note that despite the previously planned toll increases, Fitch placed a Negative Outlook on the bonds on March 5 due to the need for increased revenues to fund long-deferred capital and maintenance expenditures to rehabilitate deteriorating parts of the facility, increasing debt service obligations, and significantly heightened basis risk as a result of exercised swaptions, all of which will likely necessitate the need for further toll increases beyond the immediate near term. Additional information is available in Fitch's March 5 press release ('Fitch Affirms MA Turnpike Authority's Metro Highway System Sr Revs at 'BBB+'& Jr Revs at 'BBB''), available at 'www.fitchratings.com'.

The Massachusetts Turnpike Authority, a public instrumentality of the Commonwealth of Massachusetts, is responsible for the operation of the Metropolitan Highway System and the Western Turnpike. The finances of the MHS, which includes the Boston extension, the Sumner and Callahan tunnels, the CA/T and the Central Artery North Area, are under a separate system from the Western Turnpike, which includes the portion of the turnpike from the New York border in the west to its intersection with Route 128 in the east. END text of Fitch statement

TOLLROADSnews 2009-03-25