Moody's: Outlook for Toll Roads Remains Negative Despite Stabilizing Trends

Despite some stabilizing traffic and revenue trends, the outlook for the toll road sector remains negative for the fifth consecutive year, says Moody's Investors Service in its sector outlook for 2013.

"Negative credit factors continue to outweigh positive ones, which need to show greater sustainability," said Moody's Senior Vice President Maria Matesanz, author of the report, "US Toll Roads: Traffic and Revenue Stabilization Trends Emerging But Need to Show Sustainability."

"This is made more difficult in the face of a continued weak pace of economic recovery and potential fiscal tightening by the US government,"said Matesanz.

An organized, long-term solution to the US government's various fiscal dilemmas could stabilize the economy and sustain traffic trends, which, according to Moody's, are flat but no longer declining. It could also lead the rating agency to change the sector's outlook to stable, perhaps by midyear.

"An outlook change to stable would also be possible if toll roads achieve consistent traffic growth and stable financial metrics, including healthy debt service coverage ratios, over the next six months," said Matesanz. "We expect toll road traffic to grow only modestly in 2013 in tandem with GDP growth."

Circumstances working against a change back to a stable outlook, according to Moody's include: the possibility of another recession; rising leverage and increasingly back-loaded debt structures; if gas prices go above $4.50 a gallon; and if traffic rates are kept flat or decline.

"The user-pay model for funding needed transportation construction projects is gaining acceptance but the unfettered ability to increase toll rates could also face pressure in a contracting economy," said Matesanz. "A prolonged period of persistently high unemployment, slow wage growth and declines in discretionary income could have the same effect."

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