Fitch Ratings downgraded bonds from the Pennsylvania Turnpike Commission backed by oil franchise tax revenues.
Lower fuel consumption in Pennsylvania will cause the bonds' pledged revenues to gradually decline, in Fitch's view.
Fitch affirmed the AA-minus rating on the turnpike's senior lien oil franchise tax revenue bonds, but downgraded the subordinate lien bonds to A-minus from A.
Wednesday's rating change was prompted by Fitch's new rating criteria for dedicated tax and revenue bonds, according to the report. The outlook is stable on all the bonds; they were removed from "under criteria observation," the rating agency said.
The Pennsylvania Turnpike Commission first issued oil franchise tax bonds in 2003. It issued $173.5 million of
In addition to the 2025 bonds, the turnpike has outstanding $844.4 million of senior lien oil franchise tax revenue bonds and $588.7 million of subordinate lien bonds.
The oil franchise tax is "a statewide levy on various fuels," according to
In fiscal year 2024, Pennsylvania collected $961.4 million of
"The ratings are based on Fitch's assumption that the PTC will fully leverage the OFT liens up to the additional bonds test maximums," Fitch's analysts wrote in the report. The ratings "reflect strong resilience through an economic downturn for the senior lien bonds, but only modest resilience for the subordinate lien bonds."
The rating on the subordinate lien bonds also reflects positive revenue control and liquidity, according to the report.
Oil franchise tax revenue growth has been inconsistent since 2014, when Pennsylvania changed the calculation for the OFT tax rate, increasing the pledged revenue. But the consumption underlying the tax revenue has been trending downward, Fitch wrote. However, fuel consumption is also relatively stable during periods of economic stress.
The turnpike commission maintains "substantial reserves," Fitch analysts wrote, including a debt service reserve fund equal to half of maximum annual debt service for the subordinate lien.
The Pennsylvania Turnpike Commission did not respond to a request for comment.
