Fitch Rates Arizona Transportation Board GAN's 'AA'.

Business Editors

NEW YORK--(BUSINESS WIRE)--June 23, 2003

Fitch Ratings assigns a 'AA' rating to the approximately $117,125,000 Arizona Transportation Board (the board) grant anticipation notes (GANs) series 2003A, which are expected to sell through negotiation by a Citigroup-led syndicate on or about July 22. The GANs mature Jan. 1, 2004 and then each July 1st from 2008-2015. Proceeds will finance construction of certain highway projects in Maricopa County and refund a portion of the board's series 2000A GANs. Fitch affirms the 'AA' rating on the board's $169,145,000 in currently outstanding GAN's. The Rating Outlook on the board's GAN program is Stable.

After the current issue, the board expects to issue an additional $220 million in parity GANs over the next few years, with total expected new money issuance totaling around $495 million. The flow of pledged and available revenues should amply cover debt service requirements over the life of outstanding and planned note series. Because of this strong expected debt service coverage, Fitch assigns a low risk to changes in the next federal transportation authorization period that might affect credit quality on the GANs.

This issue is the third in a series of planned GANs. The series 2003A notes are special obligations of the Board, authorized by resolution in an amount not to exceed $250 million. The Arizona Department of Transportation (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 grant agreements between ADOT and the Federal Highway Administration (FHWA) related to each GANs series. 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 state treasurer can offset unexpected deficiencies in the Grant Anticipation Note Fund through transfers from certain federal aid construction sub-accounts and the Note Proceeds Account. Pursuant to amendments adopted as part of the series 2003A supplemental resolution, debt service deficiencies can also be funded from any other moneys in the State Highway Fund, except those pledged to highway revenues bonds and moneys in the Regional Area Road Fund construction account to the extent GAN's proceeds were used to finance projects from the fund. These amendments add to an existing resolution provision that 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.

The absence of other debt leveraging against federal highway revenues, the stability of this revenue source to ADOT, 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 portion of which is debt leveraged. Nevertheless, the note program will constitute the sole debt leveraging of ADOT's federal highway aid.

Similar to other Arizona state agencies, ADOT and the board are subject to periodic sunset and are scheduled to terminate in 2008. The state's sunset laws have an established framework for automatic legislative review prior to an agency's termination. Since the enactment of the sunset laws, ADOT has been twice reviewed and continued. Although the series 2003A GAN's extend beyond the board and ADOT's current authorization, Fitch assigns a very low probability that this agency review process would impair the security for the GANs.