Fitch Comments on Mass Turnpike Auth Central Artery/Tunnel Closure.

NEW YORK -- Fitch Ratings notes that this week's closing of the I-90 connector tunnel following the collapse of a section of the tunnel's ceiling that resulted in a motorist's death continues to raise issues about the Central Artery/Tunnel (CA/T) project's construction following highly publicized events concerning certain slurry wall construction and waterproofing needs for the I-93 portion of the project. As inspections are being undertaken, the I-90 connector tunnel is closed in both directions, while tolls have been temporarily waived at the Ted Williams Tunnel, which is subject to traffic restrictions in the westbound direction and is closed for almost all eastbound travel. At this point, a date for the full reopening of the tunnels and restoration of toll collection has not been set. Over the short term the Massachusetts Turnpike Authority's (the turnpike or the authority) Metropolitan Highway System (MHS) will experience some reduction in toll revenues and will likely incur additional costs over the near to medium term related to tunnel repair and additional maintenance needs.

Fitch is in contact with authority management and will be assessing the financial impacts resulting from the tunnels' closure. Fitch rates the authority's $1.3 billion in outstanding MHS senior revenue bonds 'BBB+' with a Stable Outlook and its $968.8 million in outstanding subordinated revenue bonds 'BBB' with a Stable Outlook. The 1997 series A and C senior bonds and the 1997 series B subordinated bonds are insured by MBIA Insurance Corp., while the 1999 series A subordinated bonds are insured by Ambac Assurance Corporation, each of whose insurer financial strength (IFS) is rated 'AAA' by Fitch.

While the Ted Williams Tunnel represents about 30% of toll revenues for the MHS, a short term closure should not have a material impact. At the same time, a portion of motorists using the Ted Williams Tunnel are expected to use the authority's Sumner/Callahan tunnels. Additional protection is provided by a senior bonds debt service reserve fund equal to about $100 million or 69% of annual gross toll revenues and a subordinated bonds debt service reserve fund of $82 million or about 57% of gross toll revenues. Nevertheless, an extended closure may pressure the authority's finances.

In addition to lost toll revenues, the authority may face additional obligations to address the construction issues impacting the CA/T. While these obligations may be covered from the turnpike's owner controlled insurance program and claims against contractors, the possibility exists that the authority will incur some portion of one-time repair costs and, if required, additional on-going maintenance work. Given the CA/T's role as a critical link in the region's transportation network and the authority's constrained financial profile, support from the commonwealth also could be required, depending upon the magnitude of potential repair and maintenance work that may not be recoverable from insurance and/or claims against contractors. Another key risk this situation may further exacerbate is the potential risk associated with required toll increases. The next scheduled increase is in 2008.

The Massachusetts Turnpike Authority, a public instrumentality of the Commonwealth of Massachusetts, is responsible for the operation of the Metropolitan Highway System and the Western Turnpike. The finances of the MHS, which includes the Boston extension, the Sumner and Callahan tunnels, the CA/T and the Central Artery North Area, are under a separate system from the Western Turnpike, which includes the portion of the turnpike from the New York border in the west to its intersection with Route 128 in the east.

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