LOS ANGELES — Fitch Ratings placed the BBB-minus rating of Foothill/Eastern Transportation Corridor Agency, Calif. toll revenue bonds on rating watch negative Thursday, affecting $2.3 billion in debt.
Analysts said they expect to resolve the negative watch on the outstanding revenue bonds series 1999 and 1995A within three to six months and warned the debt could be downgraded to junk if a restructuring doesn’t take place.
Fitch also withdrew the BBB-minus and BB expected ratings assigned in June to the proposed issuance of the second senior and junior lien restructuring bonds, because the bonds have not yet been sold.
“The negative watch reflects Fitch’s concerns that F/ETCA may not be able to successfully execute its planned restructuring of outstanding debt in the next three to six months, and therefore, may be unable to improve its financial flexibility,” according to the report.
The proposed restructuring is dependent on the extension of an agreement between F/ETCA, the toll road operator, and the California Department of Transportation, which owns the road.
It is also highly sensitive to long term interest rates, which are starting to climb, Fitch analysts said.
“Although market rates appear to be currently moving in the right direction, it is not clear that rates will fall to a level that makes the restructuring economically viable,” Fitch analysts said.
Negotiations are continuing with Caltrans, said Lisa Telles, F/ETCA’s communications director.
The Fitch ratings report “highlights the need to come to an agreement so we can proceed with the refinancing, which is what we intend to do within the three to six month time frame noted by Fitch in their press release,” Telles said.
Foothill/Eastern had hoped to refinance $2.4 billion in debt on July 8, but its plans were slowed because Caltrans didn’t sign documents that would extend the agency’s authority to toll the highway by 13 years to 2053. The toll agency needs an extension of the agreement in order to refund the bonds, because it wants to extend the maturity dates on them from 2040 to 2053.
In the absence of a meaningful restructuring, Fitch analysts said, it is their view “that the financial profile of the existing debt is not consistent with investment grade.”
In such a scenario, Fitch would likely downgrade the current BBB-minus bond to BB-plus. If the restructuring is successful, however, Fitch believes the investment grade rating proposed if the bonds had sold should be within reach.
California State Treasurer Bill Lockyer released a report on July 3 on the toll agency that said it could eventually default on its bond payment obligations without the debt restructuring.
“We are glad to see that Fitch reports that the agency’s various reserves for debt service are projected to remain healthy and that refinancing the agency’s debt to improve financial flexibility is a positive move,” Telles said.
