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 competition. 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 2011. 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.