Coronavirus won't hold back Illinois Tollway's capital spending plan
The Illinois State Toll Highway Authority plans to keep its nearly 10-year-old infrastructure program on track with $600 million of new money borrowing in 2021.
The $600 million is in addition to $500 million of borrowing still needed for the 2020 capital program.
The tollway is coming back from a pandemic-induced drop in traffic and while the numbers are improving, monthly transactions remain depressed from the same period last year.
Maintenance and operations spending will remain flat in the proposed $1.42 billion 2021 budget while “the tollway anticipates making a substantial capital investment” of $1.53 billion in the tollway’s infrastructure, Chief Financial Officer Cathy Williams said in a budget presentation. That’s a more than $300 million increase from 2020.
“This is the 10th year of the Move Illinois capital program with a budget of $1.5 billion. Revenues are projected to increase 11% from 2021 estimates but continue to reflect impact from the pandemic and economic recovery. Operating cost will remain flat from the 2020 budget and $600 million of planned new bond issuances will provide the necessary funding for current and future capital costs,” Williams said.
The budget unveiled last month and expected to be approved by the authority board at its December meeting is up 11.4% from revised revenue estimates that incorporated the COVID-19 pandemic’s impact on tollway traffic.
The better-than-expected numbers reflect some economic and social recovery from the pandemic this year but it’s still a 7.8% decline from the 2020 budget. The revenue projections take into account a scheduled commercial traffic rate increase, modest projected traffic growth and the “continued impacts of the pandemic.”
Toll transactions between January and October fell by 21% to 639.7 million with the commercial decline at 2.7% and the passenger total off 23.5%. Growth was seen in January and February before the weight of the pandemic’s economic shutdowns was felt in March. The biggest hit to traffic transactions came in April as figure plummeted 51 %, according to an Oct. 23 tollway traffic and revenue update posted on the Municipal Securities Rulemaking Board’s EMMA website.
Toll revenues including evasion recovery dropped 4% for the first quarter and 34% for the second. A preliminary estimate of a 10% drop is cited for the third quarter ending September 30. That puts overall revenues at $1.1 billion, a 17% decline through the third quarter compared to 2019.
Moody’s in a July commentary reported that nationally commercial traffic was seeing a softer coronavirus impact than passenger traffic, which would soften the 2020 blow for tolls. “As a result, tolled facilities with a larger share of commercial traffic suffered much lower revenue losses compared to commuter roads with mostly passenger traffic,” Moody’ wrote.
Commercial accounted for about 11.9% of the Illinois tollway’s traffic in 2018 and 46% of revenue, and the percentage of commercial vehicle revenues is forecasted to surpass passenger vehicle revenues by 2028 due to scheduled rate increases based on inflation.
The proposed budget earmarks $380 million for operations, $468 million for debt service, and $567 million for capital.
The authority's debt will total about $6.4 billion January 1 after $500 million of borrowing for the 2020 budget which is expected before the end of the year. The authority will then sell $600 million over the course of 2021. The Tollway also could jump into the market with refundings. It has authorization in place to refund its 2013A and 2014B bonds.
Debt service coverage ratios are estimated at 2 times this year and 2.1 times next year. Net revenues must be at least equal to 1.30 times aggregate annual debt service under the authority’s trust indenture.
By the end of 2021, the authority will have spent $9 billion on the Move Illinois Program with another $5.2 billion of work remaining. All of the authority’s debt load is in a fixed-rate structure.
The authority refunded roughly $700 million of floating-rate debt last year to shed bank and swap-related risks. A decade ago its debt was a mix of 60% fixed to 40% synthetically fixed floating-rate. Overall, the refunding resulted in a roughly 20 basis point cost addition to the debt, which the authority considered worth it to eliminate the floating-rate risks.
The authority’s bonds are among the highest rated debt related to the Illinois state government but it still pays penalties for the association.
The 10-year in the authority’s December 2019 deal paid a yield that was 41 basis points over the Municipal Market Data’s AAA benchmark, 27 basis points over the AA, and 11 over the A benchmark.
The authority doesn’t rely on state funding and its finances and debt enjoy autonomy from the state under its authorizing legislation, master trust indenture and the state constitution which provides a lockbox on transportation revenue use.
Fitch Ratings and S&P Global Ratings rate the authority’s debt at AA-minus with Fitch assigning a stable outlook and S&P a negative outlook.
Fitch affirmed the rating and outlook in April. S&P revised the authority’s outlook to negative from stable in March as part of action taken on “nearly all long term debt ratings in the U.S. transportation infrastructure sector due to the severe and ongoing impacts associated with the COVID-19 pandemic.”
Moody’s Investors Service rates the authority A1 with a negative outlook that was assigned in April due to the pandemic’s impact on the authority’s revenues and the state.
“The negative outlook reflects increased credit pressure on the state as well as the assumption of materially lower toll revenues in 2020 due to the coronavirus outbreak,” Moody’s said.
The 2021 capital budget provides $312 million for system wide roadway and bridge repairs to keep the existing tollway system in good repair, which is required under the bond indenture.
The plan earmarks $451 million to continue planning and advance construction for one new toll road and new interchanges connecting several existing tollways and for the new direct access roadway to O’Hare International Airport. Another $690.4 million will fund continued design and reconstruction of one toll road and $78 million is for the construction of an interchange.
The authority adopted the $12 billion, 15-year year “Move Illinois” program in 2011, raising rates to finance it. The board raised the size to $14.3 billion in 2017. The program earmarks $10 billion for improvements to the existing roadways and $4 billion for expansion.
The authority, which operates 294 miles of highways in 12 counties in northeast Illinois, has seen two of its rating outlooks dim.
Moody’s, lowering its outlook in April, cited concern about the “authority's potential exposure to further deterioration in the state's credit and the powers a state could invoke in times of fiscal stress.”
The authority’s fiscal profile otherwise enjoys strengths from a strong market position characterized by its essential nature and strong traffic and revenue trends through toll increases and state-level fiscal stress, Moody’s said. The authority has liquidity of 1,000 days cash on hand and could withstand a 56% reduction in operating revenues in fiscal 2020 while still maintaining its ability to pay debt service without additional liquidity or accessing its debt service reserve fund.