A decrease in traffic on the Atlantic City Expressway prompted Moody’s Investors Service last week to downgrade nearly $500 million of South Jersey Transportation Authority revenue bonds to Baa1 from A3. The outlook is stable.
The rating also applies to the authority’s Series 2009A subordinate revenue bonds.
The 47-mile tolled expressway runs from the Philadelphia area to Atlantic City, and is the main roadway into the gambling and vacation destination.
Traffic dropped by 12.7% and 5.6% in 2009 and 2010, respectively, as the national recession hurt the city’s tourism industry, according to Moody’s.
It also decreased 2.2% for January and February, due mostly to weather conditions.
While the expressway is seeing fewer vehicles, a 50% toll hike in November 2008 helped boost revenue by 30% in 2009 to $82.8 million. Officials expect it will fall to $77.5 million in 2011.
The authority expects revenue to grow by 2.5% in 2012 based on a traffic consultant report, “which Moody’s considers somewhat aggressive given the actual transaction performance in recent history,” the rating agency said.
The transportation authority’s low liquidity levels also contribute to the rating change.
The agency has 278 days’ cash on hand, below the sector median of 601 for A-rated toll facilities. It also pays $2.5 million per year to the state. Such allocations are an ongoing credit concern, Moody’s said.
On the other hand, the expressway is an essential road in its service area. Authority officials don’t anticipate large issuance for major capital projects in the future, and air service is expected to increase at its Atlantic City International Airport.
Fitch Ratings rates the credit BBB-plus and the Series 2009A subordinate bonds BBB-minus. Standard & Poor’s rates the authority’s debt A-minus and its subordinate bonds BBB.
