TEXT-Fitch affirms Maine Turnpike Authority rev bonds at 'AA-'
Jan 28 - Fitch Ratings affirms the 'AA-' rating on approximately $425.7 million of outstanding Maine Turnpike Authority revenue bonds and the 'A-' rating on the authority's approximately $13 million of outstanding special obligation bonds. The Rating Outlook is Stable. SENSITIVITY/RATING DRIVERS --Proven Asset: The mature service area supports a stable traffic and revenue base with moderate exposure to leisure travel. --Demonstrated Rate-Making Ability: Toll rates are competitive by national standards. While no future toll increases are currently planned, management has demonstrated a willingness to maximize revenue through periodic toll rate increases to ensure the funding of capital needs and to maintain financial flexibility. --Low Leverage and Liquidity Levels: Overall financial metrics remain healthy although the authority retains little excess cash after meeting all reserve deposit amounts and obligations and has limited ability to build unencumbered liquid reserves. The authority retains a relatively low debt burden at approximately 5.3x net debt-to-cash flow available for debt service. --Manageable Capital Program: Management maintains the ability to fund a significant portion of capital needs on a pay-as-you-go basis and its six-year capital program of approximately $457 million is manageable. What Could Trigger a Rating Action: --Management's continued ability to pace additional leverage for capital with periodic toll increases and produce debt service coverage levels above the 2.0x would support current credit quality. --Should management continue to lever or expand its assistance to the Maine Department of Transportation (MDOT) without commensurate toll increases, credit quality could suffer. --If turnpike expense growth outpaces that of revenue and management allows financial margins to decline, credit quality could be negatively affected. Security: The turnpike revenue bonds are primarily secured by the net toll revenues of the MTA after the payment of operating expenses. The special obligation bonds are secured by a pledge of all special obligation revenues, which are defined as those monies which are transferred by the authority out of the Department of Transportation Provision account in the general reserve fund and on deposit with the trustee pursuant to the special obligation resolution for the payment of debt service. Per the resolution, the authority has covenanted to transfer amounts sufficient to pay debt service. Credit Update: Traffic levels in 2012 grew by approximately 0.5% over 2011 levels. Traffic growth was averaging 1.5% above 2011 levels through October when the authority's most recent toll increase took effect on Nov. 1, 2012. Fitch expects traffic to decline in 2013 by a moderate amount as a result of the full impact of the toll increase. Traffic has been relatively stable during the recent recession, with a compound average annual decline of 0.3% since 2008. Authority traffic in 2012 was only 4% off of its peak transactions level from 2007. The authority's split between passenger vehicles and commercial vehicles has remained relatively consistent, with passenger vehicles contributing approximately 69% of the total revenue base and commercial vehicles contributing approximately 31%. The authority continues to generate solid financial metrics, recording over 2.0x debt service coverage since 2005. For 2012, senior lien debt service coverage is projected to be 2.5x, up slightly from 2.25x in 2011. On an all-in-basis, including the authority's special obligation lien and deposits to a reserve maintenance fund, debt service coverage is estimated to be 1.5x in 2012 and has traditionally been at 1.10x or above. In 2013, the authority expects senior lien coverage to be at 2.6x, which is in-line with historical results. Going forward, Fitch projects coverage levels from 2013 through 2017 are expected to remain solid at no less than 2.1x, even with factoring in approximately $30 million in additional subordinated debt in 2014. The estimated healthy coverage levels reflect the authority's recent 20.5% average toll adjustment implemented in November 2012, slightly earlier than previously expected, which is in line with the average toll increase implemented in 2009 of approximately 25%. Over time, Fitch believes periodic toll increases will allow for the authority to continue to produce healthy financial metrics and operate above sum sufficiency. Over the near to medium term, Fitch expects gradual traffic recovery and debt service coverage to remain near or above 2.0x and 1.0x times on an all-in-basis. The 2012-2019 capital improvement plan (CIP) is estimated at $457 million and focuses on bridge replacement and improvements and interchange renovations. Funding sources for the CIP are derived from surplus revenues and debt issuances. The authority currently expects to issue the aforementioned $30 million in subordinate debt in 2014 and approximately $40 million in senior revenue bonds around 2018. In the response set forth by the Office of Program Evaluation and Government Accountability (OPEGA), which was focused on conducting an audit on the authority's operations and management, the Enabling Act was amended in June 2011 to eliminate the operating surplus transfer from MTA to MDOT. Under the new amendment, the authority will allocate 5% of its operating revenues (based on a three-year rolling average) to department projects that are jointly determined by the MTA and MDOT. Per the Authority, the debt service on the planned subordinated bonds will represent a portion of the Authority's obligation under this amendment. With the proceeds of the subordinate bonds, the Authority will purchase from MDOT a portion of I-95 that connects New Hampshire with the turnpike and the Authority will assume maintenance responsibilities for this section of roadway. While at this time it is generally credit neutral given the authority's financial flexibility, to the extent that there are additional funding requirements that pressure the authority's financial profile in the future, it may be a heightened credit risk. The Maine Turnpike Authority is a body corporate and politic, empowered under its enabling act to construct, maintain, reconstruct and operate the turnpike. The Maine Turnpike extends 109 miles from a point in Kittery, ME in the south to a point in Augusta, ME in the northeast. Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings. Applicable Criteria and Related Research: --Rating Criteria for Infrastructure and Project Finance, July 12, 2012; --Rating Criteria for Toll Roads, Bridges, and Tunnels, Aug. 2, 2012. Applicable Criteria and Related Research: Rating Criteria for Infrastructure and Project Finance Rating Criteria for Toll Roads, Bridges, and Tunnels