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

Business Editors

NEW YORK--(BUSINESS WIRE)--April 22, 2004

Fitch Ratings assigns a 'AA' rating to the $50.5 million Arizona Transportation Board (the board) grant anticipation notes (GANs) series 2004A, which are expected to sell through negotiation by a syndicate led by Bear Stearns & Co. in early May. The GANs mature beginning on July 1, 2007 through 2014.

Fitch affirms the 'AA' rating on the board's $308.095 million in currently outstanding GAN's. A portion of the outstanding series 2001A notes are insured by MBIA Insurance Corporation whose insurer financial strength is rated 'AAA' by Fitch. The Rating Outlook on the board's GANs is Stable.

Proceeds will partially finance accelerated construction of a new bridge crossing of the Colorado River to provide an alternate route and remove vehicular traffic from the top of the Hoover Dam. The total project is estimated to cost about $234 million and to be funded through a combination of State of Arizona, State of Nevada and federal sources. While the board's broad GAN pledge provides adequate security for the payment of debt service on these notes, the board ultimately anticipates being reimbursed through federal discretionary grant allocations that would be over and above normal appropriations.

The GANs are special obligations of the board. 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. Since this contractually establishes a sum sufficient debt service payment stream, the board has broadened the definition of pledged revenues to include all federal-aid revenues received by ADOT and, to the extent necessary, certain State Highway Fund and Regional Area Road Fund (RARF) resources.

The absence of other debt leveraging against federal highway revenues, the stability of this revenue source to ADOT, a stringent additional notes test, and the fact that debt service is not subject to appropriation ensure that pledged revenues will remain a very strong security for note holders. Covenants by the board and ADOT provide additional protection. They include commitments to obligate funds for debt service as soon as practicable after the beginning of the federal fiscal year and not obligate funds for any other purpose until funds for debt service have been obligated.

Although the Transportation Equity Act for the 21st Century (TEA-21) expired on Sept. 30, 2003 without a successor multi-year authorization, Fitch assigns a low probability of an interruption in the flow of federal transportation funds. A series of short-term extensions of the program have been in place since Oct. 1, 2003, currently running through Apr. 30, 2004 and additional extensions are possible as the contents of multi-year bill are debated by congress. Based on indications to-date, major programmatic changes, that would adversely affect these notes, seem unlikely in the immediate successor federal surface transportation program to TEA-21.

The state treasurer can offset unexpected deficiencies in federal-aid funds available for debt service through transfers from certain federal-aid construction sub-accounts and the Note Proceeds Account. Pursuant to amendments adopted in 2003, 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 RARF construction account to the extent GAN proceeds were used to finance projects from the fund. In this instance, though, since the Hoover Dam Bypass project is not located in Maricopa County, the RARF fund cannot be used to service any part of the series 2004A GANs.

Similar to other Arizona state agencies, ADOT and the board are subject to periodic sunset and are scheduled to terminate in 2008. However, the state's sunset laws provide that if the statutes pertaining to ADOT and its relevant fees and taxes are repealed, the provisions of the statutes would remain in full force and effect until any outstanding debt payable from the state highway user revenue fund (HURF) or RARF have been fully paid. These provisions and the high coverage on HURF and RARF bonds provide considerable comfort that adequate resources will be available to service the GANs even if this scenario were to play out.