Moody's Negative on Toll Roads; Citing Fuel Costs, Lack of Hikes

WASHINGTON — Moody’s Investor’s Service is keeping its negative outlook on U.S. toll roads because of rising fuel prices, political hesitancy to increase toll rates, and a sluggish economy.

The negative outlook, a projection of how Moody’s sees toll road business conditions over the next 12 to 18 months, has been in place each projection since 2009.

But in a report, issued Wednesday and entitled “Rising Leverage, Toll Rates Keep Outlook Negative Despite Signs of Economic Recovery,” Moody’s says toll roads are trapped in a cycle of spending on construction projects and  then creating credit risk due to an aversion to raising toll rates.

“As critical infrastructure, toll roads are increasingly looking at sizeable construction projects to maintain their systems and relieve congestion,” said Moody’s vice president Maria Matesanz, author of the report.

“However,” the report says, “toll rate increases introduce unwelcome political scrutiny, so authorities have been slow to propose them, causing financial metrics to weaken.”

Another concern the report cites is the tendency of policymakers to use toll revenue to subsidize other projects, since toll roads provide a constant and dependable stream of revenue.

“This has led to the use of toll roads as a funding source for non-tolled projects, thus raising leverage without increasing toll road capacity or demand,” Moody’s said.

While there are some signs that toll road traffic is beginning to stabilize, many major issuers, such as the New Jersey Turnpike, have still not recovered to pre-recession levels, Moody’s said.

A genuine economic recovery and subsequent increase in traffic volume, along with maintenance of healthy debt-service coverage ratios, could prompt a return to a stable outlook, according to the report.

However, continued increases in fuel prices could cause that scenario to stall. The report points to data from the Energy Information Administration, which shows that on Jan. 2 the average gas price was $3.30, up $0.23 from a year ago.

Also of concern are recent events in the Middle East, where Iran has threatened to block oil shipments through the Strait of Hormuz in response to economic sanctions imposed by the Obama administration Dec. 31.

“Turmoil in the Middle East or elsewhere that disrupts oil production or transportation would raise the cost of gasoline, which could depress toll-road traffic and revenue,” said the report.

“A sustained rise in current gas prices of over 30% could depress growth by at least one-half, and flat or reduced traffic and revenue growth would keep our outlook negative,” Matesanz said.

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Transportation industry Washington
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