Once-bankrupt San Diego-area toll road gets rating affirmation

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California's South Bay Expressway — a project that landed in bankruptcy eight years ago — has been affirmed at A-minus.

Fitch Ratings on Friday affirmed the rating and its positive outlook on the $194.1 million of toll revenue bonds outstanding for the highway in San Diego County.

The San Diego Association of Governments, a regional planning and transportation agency, purchased the lease on the 10-mile toll road from Southbay Expressway LLC in 2011 after the private developer of the highway filed for Chapter 11 bankruptcy. The toll highway links suburbs southeast San Diego.

Fitch began rating the tollway ahead of the November deal in which SANDAG refinanced all of the toll road’s outstanding debt, including a Transportation Infrastructure Finance and Innovation loan.

If revenue strength continues, the toll road could receive a ratings boost to A, said Scott Monroe, a Fitch director.

The ratings agency also cited the affluence and growth in housing occurring in the southern San Diego area served by the toll road in Friday's affirmation.

The positive outlook “reflects SANDAG's consolidated debt structure at a lower interest rate and recent years' rapid traffic and revenue growth, which has materially strengthened the project's financial profile and, if sustained, could warrant positive rating action,” Fitch analysts wrote.

The road opened for business in late 2007 just as the economy began to sink. Economic conditions and other challenges resulted in the Chapter 11 bankruptcy in March 2010.

The private developer had raised tolls before the bankruptcy – but that ended up reducing the number of drivers using the toll road. SANDAG lowered tolls after acquiring the road, which drew drivers back, Monroe said. It was able to realize better revenues than the private entity had achieved with higher rates, because of the increased number of drivers, he said.

The toll road's metrics are solid enough that Fitch anticipates it would be able to ride out a recession, Monroe said.
“These strengths are offset by the small catchment area and competition from a nearby freeway,” Fitch wrote in the report. “Historically, there was high elasticity of demand as evidenced by a surge in traffic after a toll decrease in 2012. Strong performance since 2012 could suggest that traffic is less prone to large swings; however, this will not be clear until there is another change in toll rates, which is not currently planned.”

Peers include other small network standalone toll roads in Southern California such as Foothill/Eastern Transportation Corridor Agency, with senior debt rated BBB-minus by Fitch with a stable outlook; and the San Joaquin Hills Transportation Corridor Agency, with senior debt rated BBB with a stable outlook. Fitch also cited Colorado's E-470, rated BBB-plus with a stable outlook.

SANDAG's higher rating reflects its lower leverage and lower reliance on revenue growth to service its debt, according to Fitch.

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Ratings Transportation industry TIFIA Toll revenue bonds San Diego Association of Governments California