Fitch: Despite High Gas Prices, US Toll Road Credits Demonstrate Stability in an Otherwise Tumultuous Transportation Environment.

NEW YORK -- Toll road economic fundamentals, such as economic strength of the service area, demand, and competition, the primary determinants of credit quality, have demonstrated an unusual level of resilience in the face of negative effects of economic cycles. As a result, the U.S. toll road sector has remained stable, according to a recently released Fitch Ratings report. On the other hand, securities issued by other components of the transportation network, such as airports, airlines, and freight carriers, have been affected more severely by economic downturns.

While economic downturns do affect employment and commercial activity and consequently related traffic, the fact that population levels do not similarly drop in the near term results in an inherent demand for local and regional travel, albeit under different conditions. However, as the new Fitch report 'Stability in the U.S. Toll Road Sector: A Function of Management,' highlights, a key vulnerability of publicly owned and operated toll roads is their financial profile, which is largely dependent on management action in the form of adequate and timely toll increases.

'Management's approach to toll policy is an important driver of credit stability,' commented Cherian George, Senior Director and Head of Fitch Ratings Transportation Sector. 'The ability to build and manage user expectations is closely linked to toll policy and therefore is another key factor in the determination of credit quality.'

'Toll increases are not the sole option for management, the ability to control operating and maintenance costs and phase or delay capital projects can also be used to manage credit quality. However, the sustainability of such actions is more limited and so are the overall benefits to credit quality,' concluded Mr. George.

The report goes on to say that issuers that defer toll rate increases in anticipation of cost savings take on additional elements of risk. Those savings may not be achieved, and long gaps in between toll adjustments make future increases more challenging as the public becomes used to a stable toll structure. Fitch incorporates that added risk in its analysis, resulting in negative consequences to some ratings. The challenge for established systems is to strategically link toll rate increases to service quality improvements and capacity expansions. Experience has demonstrated that raising rates frequently in manageable increments is preferable to significantly larger increases at greater intervals.

Toll roads with tremendous economic strength, substantial coverage of net revenues over fixed obligations, high levels of unencumbered internal liquidity, and little to no dependence on aggressive assumptions for future revenues and expenses, like the turnpikes rated in the 'AA' category, have the ability to manage through most conceivable downsides, hence their ratings. Even single facilities and start-ups with lower ratings have the ability to manage the downside to some extent despite their unique circumstances and limitations. A key common credit factor is timely action in advance of planned events or in response to unexpected challenges.

The subject of tolls is very political all over the U.S. and, for that matter, all over the world. The key to managing negative public perception to tolls is through pro-active and high quality service delivery. Maintenance of low, stable toll rates are valid public policy judgments that could be consistent with bondholder security, provided that those expectations are clearly expressed up front to investors and reflected through conservative finance plans. Changes in public policy subsequent to the rating and issuance of debt need to consider the ramifications on credit quality.

While toll roads are subject to competitive pressures from the free road network, the significantly slower pace of increase in highway capacity on a national level relative to the growth in highway travel is generally a credit positive for most toll roads. Fitch believes as long as the factors that affect demand continue to move in the right direction, they take along with them an improved ability to adequately price these facilities to support their obligations and future expansions to the highway network. The natural consequence should be stable or improved credit quality. Stability, particularly in the public sector model, then largely rests in management's willingness to raise tolls to keep pace with needs.

For additional information, see Fitch Research on 'Stability in the U.S. Toll Road Sector: A Function of Management,' dated April 22, 2005, available on the Fitch Ratings web site at www.fitchratings.com.