BRADENTON, Fla. — Moody’s Investors Service late Monday downgraded the Florida Department of Transportation’s turnpike revenue bond rating to Aa3 from Aa2, citing rapid declines in traffic and revenue along the 460 miles of established toll roads operated by the Turnpike Enterprise system.
The action affects approximately $2.5 billion of outstanding debt, but Moody’s said the outlook is stable at the new rating level.
The downgrade reflects declines brought on by a protracted and deep dislocation in Florida’s real estate market, the continued decline in employment and personal income, and relatively flat population growth and net migration, said a report by Moody’s analyst Maria Matesanz.
Toll collections and concession revenue from service plazas are pledged to repay turnpike debt. Those revenues were $600 million in fiscal 2009 compared to $646 million in fiscal 2008, a decline of 7.56%.
“The turnpike’s independent traffic and revenue consultants have made significant downward revisions in the forecast to reflect the more severe and accelerated impact of recession in Florida compared to other parts of the U.S. due to dependence on tourism, high subprime exposure related to vacation homes, and construction activity,” Matesanz said. “The forecast calls for a 7.1% transaction drop in fiscal 2009, a 4% drop in 2010.”
Toll revenue collections are not expected to pick up until 2011 and 2012, when consultants anticipate increases of 1.9% and 2.3%, respectively.
Before meeting with analysts earlier this year, officials already knew that the state’s economic decline was having an effect on the turnpike’s revenue stream, according to Bill Thorp, chief financial officer of the turnpike and assistant secretary of the Florida DOT.
“In the 20-plus years I’ve been with the turnpike, this is the first time I’ve seen an actual decline in traffic and a decline in revenues,” he said.
In response to the declining revenues, Thorp said the Turnpike Enterprise took steps to cut expenses by laying off a number of employees, reducing operational expenses, and cutting capital projects.
While the agency still had a “solid financial plan,” he said those steps still were not enough to avoid a drop in historic debt-service coverage levels.
“Our coverage has always been two times or above and now our forecast is slightly less than two times,” Thorp said. “We clearly understood that the lack of having two times coverage might result in a downgrade.”
Thorp also pointed out that Moody’s rating was a step higher than the AA-minus assigned to the Florida turnpike’s debt by Fitch Ratings and Standard & Poor’s, and now the ratings are comparable.
“We believe we’ll get past this as far as returning to normal,” he said. “While we’re disappointed about the downgrade, I don’t think it will affect pricing significantly at all.”
While Moody’s changed its rating outlook to stable on the turnpike bonds, Fitch and Standard & Poor’s still maintain a negative outlook on their ratings.
The turnpike rating downgrade is the first of a Florida state-level credit in the current recession, although other Sunshine State credits have negative outlooks from all three major rating agencies.
On July 14, Moody’s removed Florida’s Aa1 implied general obligation rating from watch for possible downgrade and affirmed the Aa1 rating on more than $13 billion of outstanding debt with a negative outlook.
Last week, Fitch and Standard & Poor’s affirmed their implied GO ratings of AA-plus and AAA, respectively. Both maintained a negative outlook on their ratings.
