Fitch Rates 2nd Arizona Transportation Board GAN Issue `AA'.

Business Editors

NEW YORK--(BUSINESS WIRE)--March 29, 2001

Fitch has assigned an `AA' long-term rating to the $146,000,000 Arizona Transportation Board's (the Board) grant anticipation notes (GANs) series 2001A, which are expected to sell through negotiation during the week of April 30th. The GANs mature in five serial payments from 2004 through 2008. Proceeds will accelerate construction of major roadway projects within Maricopa County, including improvements to US 60 and the Red Mountain Freeway. The Outlook on the Board's GAN program is Stable. After the current issue, the Board expects to issue an additional $265 million in parity GANs over the next few years, with total expected issuance totally around $450 million. The flow of pledged and available revenues should amply cover debt service requirements over the life of outstanding and planned note series. Fitch assigns a low risk to major changes in the next federal transportation authorization period that would affect credit quality on the GANs.

This issue is the second in a series of planned GANs. The series 2001A notes are special obligations of the Board, authorized by resolution in an amount not to exceed $175 million. ADOT operates and administers the state highway system under the policy directives and debt-issuing authority of the Board. Debt service on the notes is payable from federal aid revenues under a Grant Agreement between the Arizona Department of Transportation (ADOT) and the Federal Highway Administration (FHWA). Although this contractually establishes a sum sufficient debt service payment stream, the board has greatly broadened the definition of pledged revenues in the unlikely circumstance that these payments result in a deficiency. The Treasurer can offset unexpected deficiencies in the Grant Anticipation Note Fund through transfers from certain federal aid construction sub-accounts, and from the Note Proceeds Account. Finally, the Board and ADOT may at any time, deposit any moneys other than federal aid revenues that can be lawfully used to pay debt service on the notes.

Maximum annual debt service for the series 2000A and 2001A notes is expected to be around $54 million. Even after the full $450 million in expected grant anticipation notes is issued, coverage from pledged federal highway aid revenues will be very strong. The average obligation authority to ADOT under the current 6-year authorization period for TEA- 21 is slightly over $400 million (extends from federal fiscal years 1998 through 2003). The absence of other debt leveraging against federal highway revenues, the stability of this revenue source to ADOT, the expectation that note borrowing will not exceed $450 million, and a stringent additional notes test insure that pledged revenues will remain a very strong security for note holders. ADOT also has state-generated taxes and fees for its highway programs, a modest portion of which is debt leveraged. Nevertheless, the note program will constitute the sole debt leveraging of ADOT's federal highway aid.

The key risk of this program, like all other state grant anticipation debt programs, is reauthorization risk of federal highway assistance. Fitch assigns a very low probability of major changes in the next federal transportation authorization period, affecting the total amount of federal transportation assistance, its distribution among highway and transit programs, its distribution to the various states, and its contractual funding commitments under the grant anticipation agreements. The board's note issuances are expected to range with maturities from 5 to 10 years, which are short in comparison to most other such state programs. This further reduces federal reauthorization risk. Debt service is not subject to annual appropriation by the legislature. The Treasurer is free to make required payments and/or transfers under the resolution without any further authorization.