DALLAS — Toll road debt rated by Moody’s Investors Service rose 19.2% in 2010, prompting a negative outlook on the sector, analysts said in a special report.
“As the economy recovers, toll facilities are going to issue debt to finance both upgrades for aging infrastructure and new projects to increase capacity,” said Moody’s senior vice president Maria Matesanz.
“Both cash-strapped state and local governments will look increasingly to their toll roads to finance transportation projects that they can’t or are unwilling to fund with tax revenues,” she wrote.
To service the rising debt, toll roads are relying more on rate increases, which could risk traffic loss or diversion, the report observed.
“The dramatic rise in debt per mile in 2009 was followed with further debt issuance in 2010, resulting in $17.081 million of debt per mile in 2010, compared with $15.735 million of debt per mile in 2009,” the report said.
Despite the rising tide, the median debt ratio saw a slight improvement to 66% in 2010 from 66.9% in 2009 and the median debt service coverage ratio improved to 1.58 times from 1.52 in 2009.
Debt per transaction fell to $8.44 in 2010 after rising above $9 in 2009, an improvement that Moody’s attributed to modest transaction growth.
As the economy gradually improves, traffic is stabilizing as gasoline prices have declined from their 2011 peak, and cuts to operating expenses have offset some debt pressure and preserved operating ratios, the report said.
Many toll road operators are forecasting a resumption of slow-but-steady traffic growth.
Liquidity also improved in 2010 to a median 672 days’ of cash on hand, compared with 507 in 2009 and 466 in 2008.
Moody’s rates the debt of 42 U.S. toll roads, including 35 established systems and seven new systems. The median rating is A1, with a range of Ca on the low side for the Santa Rosa Bay Bridge Authority in Florida to a high of Aa2 for New York’s Triborough Bridge and Tunnel Authority and the New York State Bridge Authority.
The San Joaquin Hills Transportation Corridor Agency in California is the only other toll credit rated below investment grade, at B1.
The median A1 includes the Orange Count Transportation Authority in California, the Delaware River and Bay Authority, the Orlando-Orange County Expressway Authority, the New Hampshire Turnpike Authority, and the New York State Thruway Authority.
Much of the debt increase can be attributed to Build America Bonds, which allowed toll authorities to issue debt with a federal subsidy on interest payments. The BAB program ended in 2010, bringing a dramatic drop-off in issuance throughout the muni market.
“The decline of governmental tax-supported funding and political constraints on raising taxes, coupled with the need to maintain and expand aging transportation infrastructure also added to toll road debt burdens,” Matesanz wrote.
This year’s dramatic cuts in state spending are likely to add pressure to toll authorities’ systems, the report said.
In Texas, for example, the North Texas Tollway Authority has become the de facto builder of major projects, along with private developers such as Spain’s Cintra, which has its U.S. headquarters in Austin.
The NTTA, rated A2 by Moody’s, has tripled its debt load in recent years as it prepares to build its first projects in Fort Worth.
“Moody’s continues to expect that greater debt issuance will exert negative credit pressure for established toll roads,” Matesanz wrote.
