Feb 1 - Fitch Ratings upgrades approximately $442.7 million of the New
Hampshire Turnpike System's (NHTS) turnpike system (the system) revenue bonds
issued by the state of New Hampshire (the state) to 'A+' from 'A'.
The upgrade to 'A+' is based on the system's solid financial metrics and
franchise strength that are comparable to peer systems at the 'A+' or higher
level. Included within these factors is the NHTS's relatively moderate leverage
at 4.0x Net Debt to cash flow available for debt service (CFADS) on the senior
bonds and historical and projected coverage ratios in excess of 1.6x. In
addition, the upgrade reflects the system's limited capital improvement plan
(CIP) which is to be largely paid for with existing bond proceeds and cash with
only modest future borrowing. The upgrade also incorporates the mature and
stable nature of the traffic base that has a compound annual growth rate (CAGR)
of 0.9% since 2000.
The Rating Outlook on the bonds remains Stable.
Important Transportation Link: The mature service area and strong competitive
position of the turnpike system supports a stable traffic and revenue base for
the primary New Hampshire population and employment centers. Commercial vehicles
represent 6% of total turnpike traffic and 18% of revenue, adding some
volatility. Lost traffic and revenue to the opening of the Manchester Access
Road has been lower than anticipated.
Moderate Ratemaking Ability: The system has competitive toll rates by national
standards and toll rates have been raised to maintain financial flexibility,
with some political challenges. No future toll rate increases are currently
planned but in Fitch's view significant economic ratemaking flexibility remains
Conservative Debt Structure: All turnpike debt is fixed rate with declining
amortization profile. Approximately 53% of turnpike debt matures in the next 10
Overall Financial Margins Remain Adequate: Net toll revenues have provided debt
service coverage ratios (DSCRs) in excess of 1.60x since fiscal 2006. Net Debt
to CFADS is low to moderate at 4.0x including the 2012 bonds. Leverage is 5.58x
if projected R&R commitments and I-95 acquisition payments (subordinate to debt
service) are included, but this level will decline rapidly as outstanding debt
CIP Requires New Borrowing: NHTS's CIP to modernize and upgrade all three
segments of the system is estimated to cost $285 million from 2012-2020.
Approximately $158 million will be paid from bond proceeds and the remaining
$127 million paid out of cash. NHTS currently expects to issue an additional $50
million in 2015 as part of the CIP.
What Could Trigger a Rating Action:
--Traffic and revenue performance that diverges from past trends or management
reluctance to maintain DSCRs and leverage by deferring toll increases;
--Future approval of interstate aggregation legislation that could undermine the
turnpike's financial position by exacerbating capital expenditure requirements
and placing a heavier reliance on future toll increases on the existing system.
The revenue bonds are secured by a net pledge of turnpike revenues.
Fiscal 2012 annual transactions are estimated to be flat at 108.7 million
following a 0.4% increase in fiscal 2011. Year-to-date performance for 2013
indicates that traffic remains at 2012 levels.
The toll-free interchange from the Central Turnpike to Route 3 via the
Manchester Airport Access Road opened in November 2011 and to date has produced
lower than anticipated traffic diversion. Between fiscal 2007 and fiscal 2012,
toll transactions on the NH Turnpike declined slightly at a CAGR of
approximately -1.20%. This is on the lower end of experience across the sector
in the U.S.
The traffic declines were offset by toll increases in 2007 and 2009. As a result
of these increases toll revenues actually grew to $116.6 million at a CAGR of
6.84% from 2006 to 2012. Toll revenues have been essentially flat the past two
fiscal years (2011 and 2012). The combination of the 2007 and 2009 toll
increases represent a greater reliance on out of state drivers. No toll
increases are currently planned as part of NHTS's current capital program.
Operating expenses have grown at a CAGR of 1.38% since fiscal 2006. Fluctuations
in expenses are mainly attributed to winter weather conditions with fiscal 2012
expenses down 1.2% relative to 2011 and 2011 expenses up 5.55%. These swings are
mainly attributable to costs associated with snow removal.
Senior DSCRs were flat in 2012 as revenues and expenses remained relatively
constant, providing debt service coverage of 2.35x compared to 2.28x in fiscal
2011. Senior DSCRs are anticipated to drop to below 2x over the medium term as
result of debt service ramp-up after the incurrence of additional senior lien
revenue bonds through 2015 which will be used to finance a portion of the
turnpike's capital improvement program.
The Fitch base case and rating cases assume 1.4% and 0% annual traffic growth as
well as 2.2% and 4% expense growth, respectively. DSCRs are expected to drop in
both scenarios as debt service ramps up the next couple of years and,
specifically in the rating case, total coverage is expected to drop as low as
1.4x. Fitch would expect NHTS to raise rates if coverage dropped to levels in
the rating case.
The turnpike's acquisition of the remaining 1.6 miles of I-95 it did not
previously own and the incremental debt incurred in conjunction with its
proposed capital plan will pressure future DSCRs for all obligations. All
obligation coverage ratios are projected to drop below 1.50x during the payment
period for the I-95 acquisition in fiscal 2014-2019.
Segments of the NHTS began operations in 1950. The turnpike consists of the
Central Turnpike and Eastern Turnpike. The Central Turnpike (also known as the
F.E. Everett) is a 39.5-mile segment that extends from the Massachusetts state
line to Nashua, NH through Manchester and up to Concord, the state capital. The
Eastern Turnpike consists of the Blue Star Turnpike and Spaulding Turnpike
segments. The Blue Star Turnpike is a 15-mile segment of U.S. Interstate 95 from
the Massachusetts state line to Portsmouth, NH. The Spaulding Turnpike is a
33.2-mile segment extending from Portsmouth to Milton.
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