Fitch reaffirms Florida Turnpike bonds 'AA-'

June 2, 2012

Florida's Turnpike bonds have been reaffirmed by Fitch Ratings as 'AA-' among the most highly rated of toll bonds in the country. Outlook is called 'Stable.' Fitch in spelling out the factors behind the high rating cited:

- Strategic Importance: The Florida Turnpike is a critical transportation link with a mature traffic profile and established demand.

- Strong Rate-Making Flexibility: Considerable economic flexibility exists to increase toll rates. Toll rates going forward will be indexed to ensure timely increases.

-Low Leverage and Solid Financial Margins: Leverage is currently low at 5.4x. Debt service coverage (DSC) was solid at 1.82x in fiscal year (FY) 2011 (ended June 30), but down from over 2.0x in FYs 2009 and 2010. Fitch expects DSC to remain at 1.8x in FY 2012 and to rise to historical levels in FY 2013 given the toll increase scheduled to take effect on June 24, 2012.

- Historically Manageable Work Program: The turnpike's 2011-2016 Work Program was $3.2 billion which assumed $670 million in borrowing but is now currently under review. The turnpike now expects to borrow $130 million this fall relating to the ongoing capital plan, but for this review, Fitch has assumed the original larger borrowing and will monitor the developments with the program.

"After experiencing two consecutive years of declines, toll transactions increased 1.4% and 2.1% in FYs 2010 and 2011, respectively. For the first nine months of FY 2012, transactions are tracking approximately 1.6% higher than FY 2011. Toll revenues totaled $600 million for FY 2011, slightly higher than FY 2010 at $596.2 million, and were in-line with expectations. The turnpike has demonstrated higher levels of stability but the continued weak economic conditions in Florida remain a concern. Florida's economy has started to show signs of improvement in recent months; however, it is still in the early stages of an economic recovery. Fitch expects flat to limited growth in traffic in the near term given current market conditions."

On cost control:

"Management has taken strong initiatives to reduce expenses. Operating expenses were reduced significantly in FY 2010 by 14% due to the elimination of approximately 25% of manual cash collectors and reducing some back-office staff. In FY 2011 operating expense grew approximately 5% to $181 million from $172 million in FY 2010. Year-to-date FY 2012 expenses are currently tracking favorably to budget. Through April 30, 2012 (FY 2012) operating expenses were approximately $135.9 million compared to a budget of $149.9 million, or roughly 90.6%."

Florida's Turnpike Enterprise chief financial officer Nicola Liquori is quoted by the Turnpike: "The affirmation of the Turnpike's bond rating reflects confidence in our program by the investment community.  The stable outlook helps the marketability of our bonds."

TOLLROADSnews 2012-06-01

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