Fitch Rates $35MM New Jersey Turnpike Revenue Bonds 'A'; Outlook Stable.

NEW YORK -- Fitch Ratings assigns an 'A' rating to the New Jersey Turnpike Authority's (the authority) approximately $35 million turnpike revenue bonds, series 2009G. Fitch also affirms the authority's outstanding senior revenue bonds at 'A'. Fitch does not rate turnpike revenue bond series 1991D or 2009A-D. The Rating Outlook is Stable.

The 'A' rating reflects the turnpike system's status as a critical inter- and intra-state transportation link, a mature traffic profile, and considerable economic rate-making flexibility to increase toll rates when needed. Ongoing credit concerns include narrow levels of financial margin to deal with slower revenue growth or higher-than-expected expenses, a high debt burden compared with other turnpikes, a complex and back-loaded debt structure, and a politicized operating environment.

It is Fitch's expectation that the current economic environment will put pressure on the authority's ability to deliver the capital plan that has been announced, but unlike in prior situations, the authority begins this large effort with a stronger financial profile and a potentially longer window of stability. It is possible that the economic recovery will take place over several years, which could result in revenue proving less than projected. Should this occur, Fitch expects the authority to scale back borrowing or increase revenue to maintain financial flexibility. Given the authority's history, political risk remains a concern as action to restore balance may not be timely. However, the authority does retain considerable economic flexibility and has historically eventually acted to protect bondholders.

The authority's current debt load is about $6.7 billion, 25% of which is variable rate. The total includes $275 million in subordinate lien bond anticipation notes (BANs), which are not rated by Fitch. Current plans anticipate taking out the BANs with long-term, senior lien revenue bonds within the current year.

The authority anticipates a series of new borrowings of up to $1 billion a year between 2010 and 2016 to fund the 10-year, $7 billion capital plan. The plan will be entirely debt-funded and anticipates the completion of widening, bridge reconstruction, and interchange improvements on both the turnpike and parkway. Additionally, the authority plans to cash-fund a $1.25 billion contribution to New Jersey's Transportation Trust Fund Authority (TTFA) for the Trans-Hudson Express, the new passenger rail tunnel from New Jersey to Penn Station in Manhattan. The payments are anticipated to be made between 2012 and 2018 on a subordinated basis to all system obligations and on parity with the existing $22 million payment to the TTFA. While the payment to the TTFA is a significant external transfer of system resources at a time when the authority has a meaningful slate of its own commitments, it reinforces the importance of the authority to the state as a tool of public policy. This transfer is also consistent with transportation policies in other jurisdictions across the country that use the financial wherewithal of toll roads to support transportation investment.

On Dec. 1, 2008, the authority implemented the first of two approved toll increases. The second increase will take effect on Jan. 1, 2012. Tolls for a peak hour full-length trip on the turnpike increased 40% in 2008 and will increase 53% in 2012. Tolls for a peak-hour car trip are now approximately $0.07 per mile and will increase to $0.11 in 2012. Truck tolls will also increase commensurately. Fitch estimates a debt service coverage ratio of 1.60-1.70 times (x) with coverage decreasing over time. Fitch's 'A' rating incorporates the authority's representations that it will manage its finances to maintain at least 1.40x debt service coverage. In Fitch's view, meaningful revenue increases beyond 2012 will be necessary to maintain this level of flexibility.

The New Jersey Turnpike Authority system includes the 148-mile New Jersey Turnpike and its two extensions, and the 173-mile Garden State Parkway. About 2 million vehicles use the system each day. Traffic growth on the New Jersey Turnpike was 1.2% in 2006, -0.2% in 2007 and -2.8% in 2008. During the first half of 2009, traffic fell approximately 3.5% from the prior year. Average annual growth so far this decade has been about 1.5%. Operating expense growth has averaged 3% since 2004, and management has represented that it will manage to this low level going forward. According to authority projections, 2009 expenses are likely to be flat compared with 2008.

The New Jersey Turnpike Authority is a public benefit corporation of the State of New Jersey. The authority achieved its current form in July 2003 when it absorbed the New Jersey Highway Authority, which operated the Garden State Parkway. The two roadways now operate as a consolidated system. Both roadways have been in continuous operation since the 1950s.

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