News Column

Fitch: TX Highway Highlights Importance of Careful Forecasting

July 22, 2014



NEW YORK--(BUSINESS WIRE)-- The financial challenge faced by Texas State Highway 130 (SH130) is the latest demonstration of the risk in forecasting greenfield toll road traffic patterns, Fitch Ratings says. Similar challenges have resulted in downgrades and defaults on other toll roads including Dulles Greenway, South Bay Expressway, Southern Connector, Santa Rosa Bay Bridge and Pocahontas Parkway.

Most of those projects assumed development activity that grew slower than forecast, or not at all. The problems around the SH130 forecast are particularly stark as Texas has grown faster than almost any other area in the US in recent years. The state's real gross product has grown by an average of 3.9% annually since 2009 while the US real GDP grew at just 1.24% per year over the same period. The state's unemployment shrank from 7.4% in May of 2009 to 5.1% this May. And the US Census Bureau estimated the state's population grew by 9.7% from 2009 to 2013.

In our view, traffic underperformance on SH130 is partly due to resilience of the main competing alternative highway in the area, IH35, despite SH130's higher speed limits and discounted truck toll rates designed to incentivize a switch from IH35 to SH130.

Outside growing states like Texas, the possible capture rate for a new toll facility can be subject to additional challenges and that may magnify forecast risk. According to the University of Michigan Transportation Institute, the average US driver traveled 9% fewer miles in 2011 than in 2006. Factors that contributed to that decline include telecommuting and the migration of people towards living in cities.

Fitch Rating says forecasts for projects that depend on residential and commercial developments, truck traffic and diversion from competing roads should be heavily discounted. We believe traffic patterns on existing roadways have a stronger basis for predicting future flows.

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

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

Thomas McCormick

Managing Director

US Public Finance

+1 212-908-0235

33 Whitehall Street

New York, NY

or

Tanya Langman

Director

Global Infrastructure and Project Finance Group

+1 212-908-0716

or

Rob Rowan

Senior Director

Fitch Wire

+1 212-908-9159

or

Media Relations

Elizabeth Fogerty, +1 212-908-0526

elizabeth.fogerty@fitchratings.com

Source: Fitch Ratings


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