March 23 - Toll roads built to reduce congestion are exposed to volatile
traffic volumes, and therefore have a weaker credit profile than toll roads
built on new routes that do not face competition from existing, toll-free roads.
Their status as "peaker facilities" would act as a constraint on ratings
assigned to project companies, Fitch Ratings says.
The U.K. government confirmed in Wednesday's budget that there would be a
feasibility study into "new ownership and financing models" for the U.K. road
network, and that plans to boost capacity and performance on one specific
stretch of road "could be part-funded by tolling."
The announcement followed a speech by David Cameron on Monday, in which the
prime minister said that road tolling is one funding option "for new...capacity"
but that there was no intention to toll existing roads.
We would expect toll roads built to relieve congestion to have a weaker credit
profile than toll roads built to service a new route. As "peaker facilities,"
they benefit more from rises and suffer more from falls in traffic volumes. At
times of economic growth, when overall traffic volumes in a particular transport
corridor rise, growth on the free road is constrained by congestion. Most of the
growth is therefore captured by the toll road. When the economy weakens and
overall volumes fall, toll road traffic in turn experiences a greater
contraction. Toll-free travel may also be more attractive in a downturn.
This volatility, which we call the "corridor leverage effect", has been seen for
example in Spain, where a relatively large number of toll roads have
In the managed lane system that has been developed in the U.S., drivers can
choose between toll and free roads in the same transport corridor based on
real-time estimated travel time information and dynamic pricing. Managed lanes
feature higher revenue volatility. We therefore only see managed lanes as viable
in heavily congested areas.
For a more detailed examination of the corridor leverage effect, see our report
"Resilience of Infrastructure and the Role of Competition" published in November
The above article originally appeared as a post on the Fitch Wire credit market
commentary page. The original article can be accessed at www.fitchratings.com.
All opinions expressed are those of Fitch Ratings.