Limited future borrowing plans helped earn the Ohio Turnpike and Infrastructure Commission a one-notch upgrade as it prepares to sell $487 million turnpike revenue bonds.
The commission will sell roughly $72 million of senior-lien bonds and $415 million of junior-lien bonds in a deal scheduled to price Tuesday. Citi and Bank of America Merrill Lynch are co-senior managers. PFM Financial Advisors LLC is the municipal advisor.
Moody’s Investors Service upgraded the senior lien revenue bonds to Aa2 from Aa3 and the junior-lien revenue bonds to Aa3 from A1.
S&P Global Ratings affirmed its AA-minus rating on the senior bonds and its A-plus rating on the junior bonds. Fitch Ratings rates the bonds AA and A-plus. The outlook from the three rating agencies is stable.
Moody’s said the higher ratings reflect its view that the state will no longer use the Ohio Turnpike to fund additional transportation projects after the current junior-lien debt issuance. “The upgrade also incorporates our expectation that no new debt will be issued beyond what is forecast in 2020 for toll road improvements,” the rating agency wrote.
The upgrade also reflects the long-term credit strength of OTIC's consolidated credit profile and the maintenance of a strong financial position that is able to better absorb the additional debt forecast in the near-term as well as any potential future economic shocks.
Proceeds of the junior-lien bonds will pay costs of infrastructure projects in accordance with 2013 legislation that allows the commission to use toll revenue to pay for non-turnpike projects as long as they are connected to the turnpike in some way. As part of the deal the commission approved a series of toll rate increases that raise rates by 2.7% every year for the next 10 years.
The projects must first be approved by the state's Transportation Review Advisory Council. The commission stated in its investor presentation for the series 2018 bonds that it has funded nearly all of the first $930 million of infrastructure projects with a proceeds from a 2013 junior debt bond.
The 2018 junior-lien debt will provide $450 million for additional projects.
Proceeds on senior-lien bonds are restricted to capital improvement projects on the 241-mile turnpike itself. The turnpike’s 2018 ten-year capital improvement plan increased by about $140 million or 10% because of the new toll plaza modernization system. It has hired Jacobs Engineering Group Inc. to evaluate the current toll collection system and develop a strategic plan for modernizing it. The price tag on the project is expected to bet roughly $200 million.
The commission’s debt outstanding totaled approximately $1.5 billion, consisting of $497 million of senior-lien debt and about $1.1 billion of junior-lien debt as of Dec. 31, 2017. At the end of 2018, the total senior lien debt outstanding is forecast to be about $516 million with total junior lien debt outstanding of $1.5 billion.
The senior lien is expected to be minimally used with $140 million of new debt in 2020 anticipated for turnpike capital projects and the rest funded from excess cashflow. The junior lien is no longer forecast to be used to fund state transportation projects, according to Moody’s.