Fitch Rates $475MM New Jersey Turnpike Revenue Bonds 'A'.

NEW YORK -- Fitch Ratings assigns an 'A' rating to the New Jersey Turnpike Authority's (the authority) approximately $475 million turnpike revenue bonds, series 2009 H and I. 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, its 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 continue to put pressure on the authority's ability to deliver the capital plan that has been announced, but unlike in prior situations, the authority has begun this effort with a stronger financial profile and a potentially longer window of stability. Also, recent construction bids have come in 15%-30% below budget, allowing management to bring forward accelerated widening work on the Garden State Parkway.

It is possible that 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 adjust tolls 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 acted eventually to protect bondholders.

The authority's current debt load is about $6.6 billion, 23% of which is variable rate. The 2009 H and I bonds will refinance variable-rate debt and subordinate bond anticipation notes (BANs). 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 improvements to 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 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. Year to date for 2009, traffic on the combined highway system is down approximately 3.4% 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. Management has so far delivered on its promises in this area. According to authority projections, 2009 expenses are likely to be flat compared with 2008, a strong performance relative to comparable systems.

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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