Separate toll lanes on non-tolled highways carry greater credit risks than traditional toll roads because they are challenging to implement and subject to extreme traffic volatility, Moody’s Investors Service concluded in a new report.

Public planners are making increasing use of these separate toll lanes, called “managed lanes,” because they offer the opportunity to relieve traffic congestion and create revenue without creating an entirely new road. Managed lanes have begun to pop up in Northern Virginia, Texas, and California, among other places. They can be either new lanes constructed in a widening of the freeway or tolled lanes converted from high-occupancy or carpool lanes.

When developed as public-private partnerships, managed lanes present a tantalizing opportunity to develop infrastructure with limited public resources.

But Moody’s analysts said managed toll lanes should carry lower ratings than other toll roads because of their limited history as well as their unpredictability.

“Managed lane projects have a limited history in the U.S. and the demand for them among motorists is highly discretionary,” they wrote in the report. “Because tolls will rise as traffic increases, and fall as it decreases, we expect in general managed lane projects to exhibit a higher degree of revenue volatility compared to traditional toll roads.”

Managed lanes use “dynamic” tolling, allowing the price to rise during peak hours and fall when the roads are more empty. But Moody’s said such pricing systems can be challenging to implement because of the difficulty of predicting traffic flows. Feasibility studies conducted prior to construction can offer a near-term forecast of traffic patterns, but become increasingly inaccurate over time as populations shift, new roads open or close nearby, and other local changes create new behaviors.

The report said, for example, that the 91 EL lanes in Southern California “captured” an average of 11.7% of the daily traffic along the corridor between Orange County and Riverside County as of 2012 — a low number for such a congested area.

“This low capture rate goes to the heart of the question as to how many users are willing to pay and how often will they need to opt for a managed tolled lane alternative,” the rating agency said.

But analysts believe investors could still find an attractive option in managed lane debt under the right circumstances.

“Notwithstanding the difficulty of forecasting traffic and revenue for these projects, we believe that managed lane projects are capable of achieving investment-grade ratings even in the construction phase,” Moody’s concluded in the report. “However, we expect these types of projects to carry lower ratings than those of traditional toll roads in the same service area or corridor. In order to achieve comparable ratings to traditional toll road projects, we expect managed lanes to have substantially more robust debt metrics and liquidity that can help protect bondholders.”

A flexible debt structure and the ability to still meet debt service in a less-than-forecast traffic scenario are key rating drivers for managed lanes, Moody’s said. However, that flexibility can lead to back-loading debt and require toll increases to meet revenue needs down the road.

“Hence, a project’s leverage and debt structure should accommodate a balance between a less predictable ramp up period and conservative growth and capture rates throughout the concession given the riskier nature of these type projects,” the report concluded.

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