Fitch Ratings Assigns Negative Outlook To Toll Roads Over Next 3 to 5 Years

WASHINGTON - Fitch Ratings yesterday gave the U.S. toll road sector a negative outlook over the next three to five years, citing possible opposition to public and private attempts - including through public-private partnerships - to cash in on undervalued roads.

"Recent and proposed monetization transactions (public and private) could come under increasing public scrutiny in the medium term, potentially resulting in political interference, the need for unanticipated financial concessions, and, in a worst-case scenario, the unwinding of a transaction with negative implications for participating governments and possibly lenders and equity participants," the rating agency said in a report on global infrastructure and project finance.

For example, Pennsylvania Gov. Edward G. Rendell and other state officials are weighing leasing the Pennsylvania Turnpike to a private consortium for a long period of time in return for an up-front sum of cash. Meanwhile, the state's Turnpike Commission is seeking permission from the U.S. Department of Transportation to lease Interstate 80 from the state DOT for 50 years.

Under the plan, ratified by the legislature and approved by Rendell in June, the commission would place up to 10 tolling facilities on the 311 miles of I-80 that run through the state. The commission would collect the tolls for 50 years in exchange for paying PennDOT a total of $83.4 billion in regular installments over the same period.

In New Jersey, Gov. John Corzine has proposed a plan to help lower debt service payments and finance transportation infrastructure by paying down half of the state's $32 billion of outstanding debt with up to $38 billion of new debt backed by a 50% toll increase on the state's three toll roads.

"Regardless of the approach, the traditional mission of public toll authorities is evolving and likely to result in increased credit risk," the report said. "Fitch will continue to follow the public policy debate and will take action as necessary."

In the next one to two years, Fitch assigned the toll road sector a stable outlook due to expected increase in the leveraging of existing roads to meet the nation's growing transportation needs.

"In Fitch's view, the growing realization by elected officials that existing toll roads are highly valued and under leveraged will lead to more debt either through long-term leases to private concessionaires, or through mission change whereby existing public toll road authorities adjust to these circumstances and directly compete with the private sector to plug funding shortfalls or subsidize state departments of transportation," the report said. "Either way, Fitch expects more levered private concessions and public authorities and thus increased credit risk in the sector."

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