State, regional, and local transportation toll authorities will steadily issue debt as the economy recovers in order to pay for infrastructure maintenance and construction projects that cannot be funded from state and federal coffers, Moody’s Investors Service predicted in a report issued late last week.
The debt may include Build America Bonds, which Moody’s said will sell at a growing pace before the 35% interest subsidy attached to the taxable BABs expires on Jan. 1, 2011.
The toll road sector had 2.7% fewer tolled transactions and tolls paid per transaction decreased 10 cents last year compared with 2007. The sector “has proven reasonably resilient so far, [but] further economic deterioration could continue to place downward pressure on credit ratings,” the report said.
The annual report was based on 45 government-owned toll roads and bridges rated by Moody’s, including eight start-up facilities, that have more than $58 billion of outstanding debt. Analysts looked at financial and other indicator medians in the sector, including debt service coverage and days of cash on hand.
The rating agency changed its outlook in June for toll roads to negative from stable, citing the slumping economy beginning in 2008 and its downward push on traffic going through tolling facilities.
However, median ratings for the toll roads “remains A1, with ratings ranging from a high of Aa2 to a low of B3,” last week’s report said.
Positive factors are lower gasoline prices compared with a high of more than $4 per gallon in mid-2008, and a small amount of traffic growth on some toll roads such as those operated by the Pennsylvania Turnpike, Bay Area Toll Authority, and Central Texas Regional Mobility Authority.
Toll road muni bond issuers also restructured auction-rate and variable-rate debt in 2008, causing higher debt-service costs. Those cost increases, combined with continued bond issuance to pay for capital needs, “has eroded debt service coverage margins and internal liquidity for many toll roads,” the report said.
Moody’s had an optimistic long-term prediction, saying that traffic and revenue growth will eventually catch up with the additional debt issued to pay for construction and maintenance of infrastructure.
