Fitch Upgrades New Hampshire Turnpike System's $442.7MM Rev Bonds to 'A+'; Outlook Stable

NEW YORK--()--Fitch Ratings upgrades approximately $442.7 million of the New Hampshire Turnpike System's (NHTS) turnpike system (the system) revenue bonds issued by the state of New Hampshire (the state) to 'A+' from 'A'.

The upgrade to 'A+' is based on the system's solid financial metrics and franchise strength that are comparable to peer systems at the 'A+' or higher level. Included within these factors is the NHTS's relatively moderate leverage at 4.0x Net Debt to cash flow available for debt service (CFADS) on the senior bonds and historical and projected coverage ratios in excess of 1.6x. In addition, the upgrade reflects the system's limited capital improvement plan (CIP) which is to be largely paid for with existing bond proceeds and cash with only modest future borrowing. The upgrade also incorporates the mature and stable nature of the traffic base that has a compound annual growth rate (CAGR) of 0.9% since 2000.

The Rating Outlook on the bonds remains Stable.

SENSITIVITY/RATING DRIVERS

Important Transportation Link: The mature service area and strong competitive position of the turnpike system supports a stable traffic and revenue base for the primary New Hampshire population and employment centers. Commercial vehicles represent 6% of total turnpike traffic and 18% of revenue, adding some volatility. Lost traffic and revenue to the opening of the Manchester Access Road has been lower than anticipated.

Moderate Ratemaking Ability: The system has competitive toll rates by national standards and toll rates have been raised to maintain financial flexibility, with some political challenges. No future toll rate increases are currently planned but in Fitch's view significant economic ratemaking flexibility remains untapped.

Conservative Debt Structure: All turnpike debt is fixed rate with declining amortization profile. Approximately 53% of turnpike debt matures in the next 10 years.

Overall Financial Margins Remain Adequate: Net toll revenues have provided debt service coverage ratios (DSCRs) in excess of 1.60x since fiscal 2006. Net Debt to CFADS is low to moderate at 4.0x including the 2012 bonds. Leverage is 5.58x if projected R&R commitments and I-95 acquisition payments (subordinate to debt service) are included, but this level will decline rapidly as outstanding debt matures.

CIP Requires New Borrowing: NHTS's CIP to modernize and upgrade all three segments of the system is estimated to cost $285 million from 2012-2020. Approximately $158 million will be paid from bond proceeds and the remaining $127 million paid out of cash. NHTS currently expects to issue an additional $50 million in 2015 as part of the CIP.

What Could Trigger a Rating Action:

--Traffic and revenue performance that diverges from past trends or management reluctance to maintain DSCRs and leverage by deferring toll increases;

--Future approval of interstate aggregation legislation that could undermine the turnpike's financial position by exacerbating capital expenditure requirements and placing a heavier reliance on future toll increases on the existing system.

Security:

The revenue bonds are secured by a net pledge of turnpike revenues.

Transaction Summary:

Fiscal 2012 annual transactions are estimated to be flat at 108.7 million following a 0.4% increase in fiscal 2011. Year-to-date performance for 2013 indicates that traffic remains at 2012 levels.

The toll-free interchange from the Central Turnpike to Route 3 via the Manchester Airport Access Road opened in November 2011 and to date has produced lower than anticipated traffic diversion. Between fiscal 2007 and fiscal 2012, toll transactions on the NH Turnpike declined slightly at a CAGR of approximately -1.20%. This is on the lower end of experience across the sector in the U.S.

The traffic declines were offset by toll increases in 2007 and 2009. As a result of these increases toll revenues actually grew to $116.6 million at a CAGR of 6.84% from 2006 to 2012. Toll revenues have been essentially flat the past two fiscal years (2011 and 2012). The combination of the 2007 and 2009 toll increases represent a greater reliance on out of state drivers. No toll increases are currently planned as part of NHTS's current capital program.

Operating expenses have grown at a CAGR of 1.38% since fiscal 2006. Fluctuations in expenses are mainly attributed to winter weather conditions with fiscal 2012 expenses down 1.2% relative to 2011 and 2011 expenses up 5.55%. These swings are mainly attributable to costs associated with snow removal.

Senior DSCRs were flat in 2012 as revenues and expenses remained relatively constant, providing debt service coverage of 2.35x compared to 2.28x in fiscal 2011. Senior DSCRs are anticipated to drop to below 2x over the medium term as result of debt service ramp-up after the incurrence of additional senior lien revenue bonds through 2015 which will be used to finance a portion of the turnpike's capital improvement program.

The Fitch base case and rating cases assume 1.4% and 0% annual traffic growth as well as 2.2% and 4% expense growth, respectively. DSCRs are expected to drop in both scenarios as debt service ramps up the next couple of years and, specifically in the rating case, total coverage is expected to drop as low as 1.4x. Fitch would expect NHTS to raise rates if coverage dropped to levels in the rating case.

The turnpike's acquisition of the remaining 1.6 miles of I-95 it did not previously own and the incremental debt incurred in conjunction with its proposed capital plan will pressure future DSCRs for all obligations. All obligation coverage ratios are projected to drop below 1.50x during the payment period for the I-95 acquisition in fiscal 2014-2019.

Segments of the NHTS began operations in 1950. The turnpike consists of the Central Turnpike and Eastern Turnpike. The Central Turnpike (also known as the F.E. Everett) is a 39.5-mile segment that extends from the Massachusetts state line to Nashua, NH through Manchester and up to Concord, the state capital. The Eastern Turnpike consists of the Blue Star Turnpike and Spaulding Turnpike segments. The Blue Star Turnpike is a 15-mile segment of U.S. Interstate 95 from the Massachusetts state line to Portsmouth, NH. The Spaulding Turnpike is a 33.2-mile segment extending from Portsmouth to Milton.

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:

--Rating Criteria for Infrastructure and Project Finance, July 12, 2012;

--Rating Criteria for Toll Roads, Bridges, and Tunnels, Aug. 2, 2012.

Applicable Criteria and Related Research:

Rating Criteria for Infrastructure and Project Finance

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682867

Rating Criteria for Toll Roads, Bridges, and Tunnels

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684146

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Contacts

Fitch Ratings
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Scott Zuchorski, +1-212-908-0659
Director
Fitch, Inc.
33 Whitehall Street
New York, NY 10004
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Secondary Analyst:
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Analyst
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Managing Director
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