NEW YORK--(BUSINESS WIRE)-- Fitch Ratings assigns an 'AA' rating to the following Pennsylvania Turnpike Commission bonds:
--$93 million Motor License Fund-enhanced turnpike subordinate special revenue bonds, series B of 2012.
The bonds are expected to sell via negotiation during the week of Oct. 15, 2012.
Additionally, Fitch affirms the 'AA' rating on $604 million in outstanding Motor License Fund-enhanced turnpike subordinate special revenue bonds.
The Rating Outlook is Stable.
The bonds are secured by a junior pledge on the trust estate securing the Commission's subordinate revenue bonds (primarily residual toll revenues). Ultimate security for the bonds and the rating rest with the ability to access certain monies in the Commonwealth's Motor License Fund to fund debt service if necessary.
KEY RATING DRIVERS
AVAILABILITY OF COMMONWEALTH MOTOR LICENSE FUND: While the bonds are intended to be repaid from Commission revenues, the 'AA' rating rests upon the direction to the state Treasurer, contained in the authorizing legislation (Act 44), to draw upon certain funds in the Commonwealth's Motor License Fund (MLF) to make up any deficiency in debt service deposits expected to be made by the Commission. Act 44 further includes non-impairment language.
MLF FUNDS AVAILABLE WITHOUT ANNUAL APPROPRIATION: Appropriation on the part of the Commonwealth is not necessary to access the Motor License Fund to cover a debt service deposit deficiency.
CERTAIN MLF FUNDS RESERVED: Reserved funds within the Motor License Fund and a debt service set-aside account have been established to facilitate timely payment in the event of any debt service deficiencies. The fund has exhibited large daily balances in recent years, providing sound protection should a draw on the fund become necessary.
MLF RECEIVES CERTAIN VEHICLE-RELATED REVENUES: The Motor License Fund receives a variety of fuel and other vehicle-related revenues that are not expected to vary significantly from year to year.
The bonds being offered represent the sixth issuance of Motor License Fund-enhanced turnpike subordinate special revenue bonds contemplated under Act 44 of 2007 of the Commonwealth, which was designed to provide additional annual support for statewide transportation projects. The rating is based on provisions in the act that direct the state Treasurer to draw upon certain funds in the Commonwealth's Motor License Fund in the event that debt service deposits expected to be made by the Commission are not sufficient. The claim on MLF revenues is stated directly in Act 44 and no further appropriation on the part of the Commonwealth is necessary. Act 44 further states the Commonwealth's commitment not to impair its commitment to bondholders.
The Commonwealth's Motor License Fund receives proceeds of motor fuels taxes, vehicle registration fees, license taxes, operator license fees, as well as other excise taxes and federal transportation revenues. Pennsylvania's constitution requires such proceeds to be used exclusively for construction, reconstruction, maintenance and repair of and safety on public highways and bridges and for debt service on obligations incurred for these purposes. Revenue performance among sources into the MLF has been fairly steady. Taxes and fees declined in the downturn and have recovered modestly in recent years. Tax and fee revenues grew by 0.3% for fiscal 2012, slightly below budget, and are expected to be basically flat in the current fiscal 2013. Fitch expects, given the nature of the sources and the Pennsylvania economy, continued steady to slightly declining performance going forward.
Motor License Fund average and minimum daily balances in recent years have been significant, with fiscal 2012 levels averaging $1.4 billion and a minimum of $1.1 billion. Pursuant to Act 44, approximately 70% of MLF revenues are available to cover deficiencies in debt service deposits for the bonds if necessary. That percentage of the minimum daily fund balance in fiscal 2012 provides more than 11x coverage of maximum annual debt service (MADS) on the outstanding and presently offered subordinate special revenue bonds. The additional bonds test limits MADS to no more than one-third of the ending balance in the MLF for the prior year. Fitch notes that not all monies in the MLF are available for debt service coverage, and that priority is placed on sources to be drawn upon. Nonetheless, the sizeable balances and limitation on leverage provide sound protection.
Neither the Motor License Fund nor its revenues are directly pledged to bondholders. Instead, the claim on MLF revenues is stated directly in Act 44 which authorizes the bonds. A memorandum of agreement by and among the Pennsylvania Department of Transportation, the Commonwealth's Office of Budget, and the State Treasurer spells out the timing of notifications necessary should a draw on the MLF become necessary. Fitch believes this structure would avert a missed debt service payment.
In addition, a special revenue bonds funded debt service sub-account, funded at closing with bond proceeds in the amount of 50% of MADS, is available to be drawn upon if PennDOT or the Treasurer failed to transfer monies from the MLF. If MLF monies are received subsequent to a withdrawal from this account, such monies would go to restore it; however, the Commission has no obligation to maintain the balance or replenish any funds withdrawn, lessening the fund's significance among rating factors.
The memorandum of agreement creates the Pennsylvania Turnpike Commission special revenue bond account within the Motor License Fund. The State Treasurer agrees to use best efforts to maintain the fund at a level equal to MADS on the special revenue bonds. This account is not pledged to bondholders, but the stated intent is to use balances in the account to cover deficiencies in Commission payments for the special revenue bonds only in the event no other funds are available in the MLF. The memorandum requires replenishment from first monies into the Motor License Fund from certain sources if the account is drawn upon.
The Commission's subordinate indenture specifies a rate covenant setting toll rates to achieve 1.15x coverage of subordinate obligations and 1.0x combined subordinate and Motor License Fund-enhanced debt service coverage. Actual coverage by toll revenues is currently higher at about 1.8x.
Act 44 limits Motor License Fund-enhanced debt to $5 billion, with no more than $600 million to be issued annually. The Commission's annually reviewed long-term projections currently anticipate issuance of approximately $200 million each year through 2032.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 14, 2012);
--'U.S. State Government Tax-Supported Rating Criteria' (Aug. 14, 2012);
--'Rating Guidelines for State Credit Enhancement Programs' (June 19, 2012).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
U.S. State Government Tax-Supported Rating Criteria
Rating Guidelines for State Credit Enhancement Programs
Elizabeth Fogerty, +1-212-908-0526
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Kenneth T. Weinstein, +1-212-908-0571
Douglas Offerman, +1-212-908-0889
Source: Fitch Ratings