Standard & Poor's downgraded the New York State Thruway Authority to A-plus with a stable outlook from AA-minus yesterday, affecting $2.4 billion of outstanding general revenue bonds.
The rating agency cited as negatives recent traffic declines and an erosion of debt service coverage levels combined with growing debt service needed to fund a large capital program.
The downgrade was mostly "due to the current economic environment and lower revenues," said Standard & Poor's director Joseph Pezzimenti. "That's basically led to consistently lower coverage, and given the prospects for 2009 and maybe even 2010, we just don't think that coverage levels will return to a level consistent with the double-A category [in 2009 and 2010]."
Despite toll increases this year and planned increases next year and in 2010, Standard & Poor's said it expects coverage to remain at 1.5 times to 1.7 times through 2011. The Thruway projects its coverage to fall to 1.39 times in 2012. An upgrade would depend on whether the authority could get its coverage above 1.7 times and maintain it, the rating agency said.
Negative traffic trends reflect high fuel prices and regional economic conditions, and a nationwide flattening out of travel growth, Standard & Poor's said in a report.
"The Thruway Authority is not unique - everybody is experiencing this trend," said John Bryan, chief financial officer for the authority. "The rating agencies are starting to catch up. Now that a lot of the toll roads are starting to put out their revised financial plans you'll probably see more of this kind of activity going on."
Nationally travel on all roads and streets is down by 4.4% in September compared to a year earlier, according to the Federal Highway Administration. Cumulative travel nationally for the first nine months of the year was 2,177 billion vehicle miles, a 3.5% drop compared to the same period last year.
The authority projects its traffic will be down 3.2% this year over last year and will decline a further 0.8% next year before rising by 1.6% in 2010. In June, when gas prices were pushing toward $4 a gallon, year-over-year Thruway passenger and commuter traffic declined by 5%, according to a study by Stantec Consulting Services Inc.
While gas prices have come down, the economy has tanked.
"It's kind of like a double whammy because you're in a recession, people are losing jobs that can have an impact on the level of commuter traffic, then since times are tough people could be cutting back on spending, taking less trips for discretionary purposes," Pezzimenti said. "This current economic cycle we're in right now can impact every component of traffic for a toll facility."
The rating agency cited the Thruway's experienced team and conservative management and the essentiality of the system as positive factors.
"We would have preferred not to have the downgrade but we certainly understand the factors that are happening beyond our control," said Thruway Authority executive director Michael Fleischer. The authority does not plan to cut back on its current $2.1 billion 2005-2011 capital program.
The Thruway plans to ask its board next month to authorize $200 million to $300 million of bonds. It doesn't need the money until April or May, but Bryan said they want the flexibility to be able to jump into the market when conditions are right. Officials expect to issue $1.5 billion of debt from 2009 through 2012.
Moody's Investors Service rates the authority Aa3 with a negative outlook. Fitch Ratings does not rate the credit.
The Thruway Authority operates and maintains 641 miles of roadway, which includes a 496-mile toll road connecting New York City and Buffalo as well as other major regional roads.