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Fitch Rates Illinois Tollway's $760MM Revs 'AA-'; Outlook Stable
CHICAGO-(Business Wire)-January 30, 2008 - Fitch Ratings assigns an 'AA-' long-term rating to the Illinois State Toll Highway Authority's (the authority) approximately $760 million toll highway variable-rate senior priority revenue bonds, series 2008 A-1 and A-2, scheduled for negotiated sale in early February 2008. Fitch expects to assign short-term ratings based on a standby purchase agreement provided by Dexia Credit Local, New York Branch, nearer to closing. Fitch also expects to assign a long-term rating based on an insurance policy issued by Financial Security Assurance, Inc. The bonds are secured by the net revenues of the system. Proceeds will refinance portions of the authority's outstanding debt. Fitch also affirms the 'AA-' rating on the authority's $2.3 billion of outstanding debt. The Rating Outlook is Stable.
The 'AA-' rating reflects the very strong economic fundamentals underlying the authority's network of roads; its mature, growing traffic base; limited, viable competing roads; low toll rates; expectations for continued strong financial performance with sound coverage of annual debt service requirements, and its experienced and capable management team. The rating also incorporates the challenges associated with the implementation of a system-wide capital improvement program while maintaining full operational conditions, as well as efforts to manage and reduce toll violations. The authority does not anticipate the need for future toll adjustments to finance the capital program. However, while the authority maintains the sole ability to raise tolls, and Fitch believes it has the economic flexibility to do so if necessary, the potential for political resistance remains a concern. The Stable Outlook reflects the successful implementation of the capital improvement program within budget parameters to date.
While construction cost and schedule risks remain a possibility as a several large elements of the authority's capital program have yet to be put out to bid, management has delivered a number of early improvements including the completion of the open road tolling program and the opening of a 12.5 mile extension to the North-South Tollway, on time and on budget. As a result, the authority continues to enjoy considerable community and political support for the redevelopment of the system.
The authority has continually refined its financial plan to incorporate the influences of the 2005 toll rate increase, construction, and rising fuel prices on system usage for its revenue projections; as well as adjustments to the effects of construction schedule and scope and project changes to its cost estimates to maintain a level of conservatism. In September 2007, the authority announced a $1 billion increase to its capital program, reflecting both anticipated increases in commodity and labor costs as well as additional projects that extend the program by two years. The authority's current forecast, which includes an additional $1 billion in future debt, indicates debt service coverage will remain above 2.1 times(x) through fiscal year 2017. This forecast is based on the authority's projection of a 3.1% average annual increase in system traffic, as measured in transactions, through fiscal year 2015. Fitch continues to view the forecast as reasonable; however, maintenance of 2.0x coverage of debt service is a key rating consideration. Management's ability to demonstrate and reinforce user-value derived from the capital program should limit political opposition to future toll adjustments should they become necessary, and is another important rating factor.
The authority operates a network of four toll highways that serve a 12-county area in northeastern Illinois, including the Chicago metropolitan area. Since the opening of its first highway in 1959, the authority has enjoyed a nearly unbroken record of annual gains in traffic and revenue reflecting the steady expansion of the regional economy. Traffic, as measured by the number of toll transactions, increased at a 2.5% average annual rate from 1994 - 2005. However, declines in traffic following the 2005 toll increases and the start of significant construction on much of the system, as well as the 2006 elimination of a mainline toll plaza on the Northwest Tollway, resulted in a 7.1% overall decline in transactions between 2004 and 2006. While toll revenues increased significantly following the 2005 toll increase, the authority experienced its second annual revenue decrease in history in 2006 due to the combined effects of reduced traffic volume and a switch in companies that process toll evasions that resulted in an interruption in the billing process. Still, the authority ended the year with a strong liquidity position, with 921 days cash on hand, and a sound debt service coverage ratio of 2.7x.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
