News Column

Fitch Affirms Ohio Turnpike's 'AA' Senior Lien Revs and 'A+' Junior Lien Revs

June 11, 2014

CHICAGO--(BUSINESS WIRE)-- Fitch Ratings has affirmed the ratings on the following Ohio Turnpike and Infrastructure Commission (OTIC, formerly known as Ohio Turnpike Commission) turnpike revenue bonds:

--$585 million senior lien revenue bonds 'AA';

--$1 billion junior lien revenue bonds 'A+'.

The Rating Outlook on all bonds is Stable.

RATING RATIONALE

The 'AA' and 'A+' senior and junior ratings reflect Ohio Turnpike's long-term traffic stability and revenue growth, low toll rates relative to peers and essentiality to the national transportation network. The senior debt rating also reflects its conservative debt structure, with the lien expected to be drawn only to fund turnpike capital expenditures and subject to relatively restrictive covenants.

The junior lien is subject to more lenient covenants and is intended to be used for non-turnpike purposes. However, it compares favorably to peers on debt service coverage metrics, supporting its rating at the top of the 'A' category. The primarily cash funded capital plan and OTIC's intent to accelerate replacement of the roadway base provide further strength to the rating. Fitch expects that the debt service coverage ratio (DSCR) will be maintained at levels above 2.5x on the senior lien and 1.7x on the junior lien.

KEY RATING DRIVERS

--Strategic Asset with Low Volatility: Ohio Turnpike is a key east-west interstate connector that faces limited competition and has a stable traffic base. This profile is offset to some degree by a commercial traffic component that comprises approximately 21% of traffic and more than 55% of revenue. However, Fitch notes the relative stability of commercial traffic on the Ohio Turnpike compared with other rated toll roads. Revenue Risk-Volume: Stronger

--Strong Rate-Making Flexibility: OTIC has unlimited toll rate-setting authority and this, coupled with low passenger toll rates of $0.05 per mile, provides for robust economic rate-making ability. OTIC has raised rates several times in its history, most recently on Jan. 1, 2014 to commence its pre-approved 10 years of 2.7% annual rate increases. Revenue Risk-Price: Stronger

--Cash Funded Capital Plan: OTIC's capital investment plan (CIP) is approximately $931 million over the 2014-2023 period, focusing on roadway base replacement. It is 87% cash funded, with some senior lien debt issuance for turnpike projects planned for 2018. Infrastructure Development and Renewal: Midrange

--Conservative Capital Structure: All of OTIC's debt is fixed rate and total debt service is relatively flat. That said, junior lien debt is somewhat back-loaded and, by definition, is fully subordinated behind the senior lien. Financial covenants are viewed as adequate and OTIC has adopted a policy to maintain a 2.0x debt service coverage ratio on the senior lien. Debt Structure: Stronger (senior lien); Midrange (junior lien)

--Modest Leverage and Robust Metrics: OTIC leverage of 1.9x on the senior lien and 8.5x on the junior lien in fiscal year (FY) 2013 reflects its well-managed debt profile. It is expected to maintain a DSCR profile of 2.5x or greater on the senior lien and 1.7x on the junior lien. Current liquidity is healthy, reflected in 567 days' cash on hand.

RATING SENSITIVITIES

--Additional Leverage: Should senior debt be raised for non-system purposes, or meaningful additional junior debt be raised in excess of the aggregate $1.5 billion currently envisaged;

--Expanded O&M Scope: Additional operation and maintenance responsibilities relating to projects other than the turnpike itself;

--Shift in Pay-Go Investment: A meaningful shift from the expectation that major maintenance and capital investment on the turnpike will be undertaken on a pay-as-you-go basis;

--Declining Operating Performance: Cost growth or traffic declines resulting in senior or junior DSCR below 2.5x or 1.7x, respectively, for a sustained period.

SECURITY

The bonds are secured by the net revenues collected on the turnpike operated by the OTIC.

CREDIT UPDATE

Total year-to-date traffic through April 2014 is down 0.8% due to harsh winter conditions experienced earlier this year; however toll revenue is up 1.7% reflecting a toll increase that took effect Jan. 1, 2014. The toll increase represents the first of 10 pre-approved years of toll increases at an average annual rate of 2.7%. In FY2013, traffic and revenue were up 1.8% and 0.8%, respectively. OTIC operating expenses decreased 2.3% over the same period, reflecting additional toll collection efficiencies realized.

OTIC has historically produced consistently sound financial results. In FY2013, total debt service coverage was 2.43x. Maximum annual debt service (MADS) on the senior lien occurs this year and MADS coverage with FY2013 net revenue is very strong at 2.8x. Due to the accreting nature of a portion of the junior lien debt, total leverage approaches 9.0x with MADS occurring in FY2034, resulting in total current MADS coverage of 1.17x.

OTIC's CIP through 2023 totals $931 million, with the replacement of the original concrete base of the oldest sections of the Ohio Turnpike comprising the largest portion at 46%. OTIC is accelerating the pace of base concrete replacements to 40 lane miles per year from 20. Besides replacement, roadway resurfacing makes up 19% of the program, with bridges making up 18%. The accelerated CIP is planned to be 87% cash-funded and 13% funded by senior lien debt issuance.

Ohio Turnpike spans the entire northern portion of the state of Ohio and connects the cities of Toledo, Cleveland and Youngstown, encompassing a distance of 241 miles. It is the primary connection between the Indiana Toll Road (to the west) and the Pennsylvania Turnpike (to the east). The Ohio Turnpike also serves as a major interstate transportation corridor between the Northeast and the Midwest, linking toll roads between Boston, New York City and Chicago. Sections of the turnpike are designated interstate routes 76, 80 and 90, all of which are major highway routes across the country.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Rating Criteria for Infrastructure and Project Finance' (July 11, 2012);

--'Rating Criteria for Toll Roads, Bridges and Tunnels' (Oct. 16, 2013).

Applicable Criteria and Related Research:

Rating Criteria for Infrastructure and Project Finance

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682867

Rating Criteria for Toll Roads, Bridges and Tunnels

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=720736

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=834184

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.



Fitch Ratings

Primary Analyst

Casey Cathcart

Associate Director

+1-312-368-3214

Fitch Ratings, Inc.

70 West Madison Street

Chicago, IL 60602

or

Secondary Analyst

Scott Zuchorski

Senior Director

+1-212-908-0659

or

Committee Chairperson

Saavan Gatfield

Senior Director

+1-212-908-0542

or

Media Relations

Elizabeth Fogerty, New York, +1-212-908-0526

elizabeth.fogerty@fitchratings.com

Source: Fitch Ratings


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