Moody's medians show large increase in toll road debtGlobal Credit Research - 25 Jul 2011
New York, July 25, 2011 -- The rated debt of the U. S. toll roads rose 19.2% in 2010, to $72.7 billion from $61 billion, which will exert negative credit pressure on the established toll roads, according to a new report from Moody's Investors Service.
"In light of the ongoing rise in debt, our outlook for the toll road sector remains negative," says Moody's Senior Vice President Maria Matesanz, author of the report.
"As the economy recovers, toll facilities are going to issue debt to finance both upgrades for aging infrastructure and new projects to increase capacity," said Matesanz. "Both cash-strapped state and local governments will look increasingly to their toll roads to finance transportation projects that they can't or are unwilling to fund with tax revenues."
On the positive side, says the Moody's report, traffic has been stabilizing, and even recovering in some regions, and gasoline prices have declined from their peak in early 2011. In addition, increases in toll rates and cuts to operating expenses have offset some of the pressure of the higher debt service and preserved the liquidity and operating ratios of most toll roads.
Furthermore, many toll road operators are forecasting a resumption of slow-but-steady traffic growth, which is consistent with Moody's global macroeconomic GDP growth forecast for 2011 of 2.5% to 3.5%; over the long term, rekindled traffic and revenue growth are going to offset the additional leverage needed to fund new capital projects and update an aging infrastructure.
"However, " said Matesanz, "any positive, stabilizing trends have been tempered by the growing servicing costs for the rising debt, especially as, since the 2008 crisis, many issuers have had to replace their liquidity providers at higher costs or refinance debt with higher fixed rates, which raised their servicing costs and made for lower DSCRs."
At the same, despite declines, fuel prices are still volatile and could depress traffic growth, and as the toll roads start to rely more on rate increases to support their escalating debt service costs, they face the rising risk of traffic loss or diversion.
An omen as MWAA looks to add $2 billion to that top line total to finish Phase 1 and begin Phase 2 financing?
Moody's "U.S. Toll Road Sector Medians for Fiscal Year 2010: Heavy Debt Issuance Continues to Pressure Metrics" is available at www.moodys.com.