DALLAS — Moody's Investors Service has raised its outlook on the U.S. toll road sector to stable from negative for the first time in five years, as traffic continues at a slow but steady recovery along with the strengthening economy.
Toll road traffic is up this year by about 1% from 2012 and is expected to continue at a 1.5% rate in 2014, Moody's said in a report released Wednesday.
"While the growth rate is slower than the U.S. gross domestic product, it marks a sustainable comeback from the decline in the recession and is consistent with the widespread toll rate increases and demographic-driven driving patterns we are seeing," Moody's said.
The outlook for the toll road industry had been negative since 2009, when traffic dropped 13%.
The outlook could return negative if the economy falters, the report said, or if gasoline prices rise unexpectedly.
"Rate increases could face some push back from toll road users and thus depress revenue growth, particularly if the economy falls back into recession" it said. "Reduced revenues would hurt financial margins and liquidity, and negative pressures would become even more acute if gas prices rise.
A revision to a positive outlook is unlikely until at least 2015, Moody's said.
"We would have to see sustained traffic and revenue growth over a two-year period in order to move to a positive outlook," a spokesman for the rating agency said.
Toll revenues are expected to be up approximately 1.5% this year and next with the modest traffic growth, Moody's said. Revenues rose 11.2% in 2012, mostly from several large rate increases.
"We expect increases to be unevenly distributed across the sector as some toll roads are planning no rate increases, some are implementing inflation-indexed increases and others larger, one-off increases," the report said.
Median debt per tolled roadway mile almost doubled from 2008 to 2012, Moody's said. Increasing leverage is seen by Moody's analysts as an important risk to the toll road sector.
"The use of toll roads as "cash cows" to finance non-tolled projects has increased leverage without a corresponding investment in toll road capacity," the analysts said.
The trend accelerated in the recent recession as governments turned to toll revenues to finance various infrastructure projects rather than raise taxes.
"State and local governments continue to exert demands on the excess cash flows of toll roads to subsidize their own capital and operating needs, or have shifted some of their transportation financing responsibilities to existing toll roads," Moody's said.
Other ways are being found to finance highway projects that could help moderate future debt leverage for established toll roads, the report said. That includes public-private partnerships and new tolling authorities in Delaware, Kentucky, Georgia, North Carolina, and Virginia.
"The creation of new tolling authorities with independent toll-raising and debt-issuing ability may help alleviate the future leverage burden for existing toll roads," Moody's said.
Toll roads with fees indexed to inflation or with multi-year toll increases have more predictable revenues and more reliable traffic levels, according to the report.
"Revenue predictability in turn enables toll roads to more accurately plan and budget for both operating and capital expenses, which we view as a credit-positive," Moody's said.