Orange County, Calif., toll road snags a positive outlook

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Fitch Ratings revised the outlook on $2 billion in senior bonds issued by the San Joaquin Hills Transportation Corridor Agency to positive, saying that if stronger performance persists in the next one to two years positive rating action is likely.

Fitch affirmed a BBB rating on the toll roads $2 billion in senior bonds and a BBB-minus rating on the $294 million junior bonds.


San Joaquin is one of two joint power transportation agencies managed separately by The Toll Roads of Orange County. The other is the Foothill Eastern Transportation Corridor Agency. The two JPAs were formed to finance, build and operate the county’s 51-mile toll road network comprising the 73, 133, 241 and 261 Toll Roads.

Ratings on the agencies were cut as low as BB following the recession, because the revenues forecast for the toll roads during planning for the roads didn’t meet expectations.

The revised outlook “reflects the facility's strong traffic and revenue performance that has outpaced Fitch's initial expectations,” Fitch analysts wrote.

The outlook for the junior bonds remains stable, Fitch wrote, because that lien's higher leverage causes the financial metrics to fall below rating agency’s threshold for positive rating action.

Traffic grew 1.1% in 2018 on a year-over-year basis, gross toll revenues rose 3.6% and operating revenues increased 5.3% to $198 million, according to Fitch. Fiscal 2019 through May toll revenues are up 1% to roughly $151.6 million while traffic volume fell slightly by 1% to 29.2 million.

Moody’s Investors Service upgraded the Foothill-Eastern TCA to Baa2 from Baa3 in June citing stronger than anticipated traffic and revenue growth from 2014-2018 averaging around 7.7% per year.

The higher than anticipated revenue growth “served to diminish the forecasted rate of required future annual revenue growth to obtain robust debt service coverage ratios, and improved the agency’s resiliency to potential downturns or stagnant growth periods,” Moody’s analysts wrote.

The dual agency's bonds were restructured in 2013 and 2014 for interest rate savings.

Moody’s warned, however, that the credit remains constrained by the high leverage ratio, escalating debt service through 2039, which grows higher than inflationary rates, and an accreting debt balance through 2027 due to the deferral of principal repayment in the most recent debt restructuring.

“Although the restructuring provided for a slower rate of annual debt service growth, the debt profile remains back loaded and repayment depends on sustained annual traffic and/or revenue growth supported by continued toll rate increases,” Moody’s wrote. “Coverage ratios could be pressured in later periods in the absence of continuous growth since the majority of principal (72%) is repaid in the last decade of the Caltrans Cooperative Agreement.”

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Ratings Transportation industry Toll revenue bonds California
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