Moody’s Investors Service expects an increase in toll roads and toll-supported projects, the rating agency said in a report.
“The user-pay model for funding transportation projects is gaining acceptance as traditional tax-supported funding options for infrastructure fall short of needs,” Maria Matesanz, the Moody’s senior vice president who authored the report, said in a news release.
The rating agency expects toll road traffic to increase “modestly” this year, due to rising toll rates, a sluggish economy and rising fuel prices. Moody’s also said steady toll rate increases will be necessary to support the rising debt burden, though political pressure against the unfettered ability to increase toll rates could surface in the slowly growing economy.
Moody’s outlook for the toll road sector remains negative in 2013 in part because of the weak pace of economic recovery and increased federal fiscal tightening.
Increasing debt continues to be a risk for toll roads. The roads will need large construction projects to maintain their systems and reduce traffic congestion, but state and local governments want excess cash flows from toll roads to subsidize their own capital and operating needs. Governments have also devolved some of their financing responsibilities to existing toll roads, as was recently the case in Ohio, Moody’s said.
The report looked at data taken from fiscal 2012 audited financials for 42 toll roads. The rating agency’s median bond rating for U.S. toll roads is A1, and ratings overall range from Aa3 to B1.
Toll road debt rated by Moody’s increased slightly in fiscal 2012 to $80.2 billion from $79.9 billion the previous year.
The median debt per roadway mile increased to $18.9 million in 2012 from $14.3 million in 2011, but the median debt per transaction remained relatively stable, signaling that the growth in transactions offset the growth in debt, the rating agency said.
The median year-over-year increase for toll road transactions in fiscal 2012 was 0.5%, compared to a fiscal 2011 decrease of 0.3%. Growth in transactions was strongest in states like Texas that fared better during the recession than others, and growth was weakest in economically challenged or undiversified areas as well as areas where there were saw toll increases, Moody’s said.
Liquidity increased to 773 days cash on hand in fiscal 2012 from 610 days the previous year. The report noted that increases in toll rates and containment of operating costs offset weak traffic growth. The average toll per transaction increased to $1.96 from $1.82.