Fitch Rates E-470 Public Highway Authority's (Colorado) $111.1MM Revs 'BBB-'.

NEW YORK -- Fitch Ratings assigns a 'BBB-' rating to approximately $111.1 million E-470 Public Highway Authority, CO (E-470 or the authority) senior revenue bonds consisting of $53.7 million series 2006A (current interest bonds) and $57.4 million series 2004B (capital appreciation bonds). The bonds are expected to be sold by George K. Baum & Company; Bear, Stearns & Co. Inc. and Morgan Stanley on or about Sept 7. Bond proceeds will be used to refund all $105.2 million in outstanding senior revenue bonds, series 2000A. The bonds are expected to be insured by MBIA Insurance Corp whose insurer financial strength (IFS) is rated 'AAA' by Fitch. Fitch affirms its underlying 'BBB-' rating on $1.2 billion in outstanding senior revenue bonds. The Rating Outlook for the senior revenue bonds is Stable.

Fitch's rating and Stable Outlook on the senior revenue bonds reflects the established and growing traffic demand along the E-470 toll road, improving financial performance, continued strong liquidity and track record of prudent financial management. The rating also reflects the risks associated with toll revenue growth that is sensitive to economic cycles and dependent upon a combination of land development and traffic growth within the E-470 corridor, and periodic toll increases. Similar to the financing structure for other recently constructed toll road projects, the authority's financial profile is constrained by its back-loaded debt structure.

However, the series 2006A and series 2006B debt refunding and restructuring continues the authority's efforts beginning in 2004 to incrementally establish a more level debt service profile. While this strategy is expected to reduce annual debt service needs and provide growing financial flexibility in the long term, which should enhance credit quality, it does require a three to five year extension in the authority's debt maturity. Near term improvement in credit quality is constrained by somewhat lower than expected traffic performance to date and escalating debt service requirements. To the extent a consistent trend of improved performance is realized credit quality could improve in the near to medium term. Concerns regarding additional debt service requirements beginning in 2035, which remain below maximum annual debt service, are mitigated by expected future development and growing traffic which are expected to increase E-470's economic value over the medium to long term.

Reflecting the impacts of growing traffic demand, the on-time opening of Segment IV (the last section of the toll road) and toll increases, toll revenues grew by 27% annually between 2000 and 2005 to $77.8 million. Traffic during this period grew at a 16% annual rate. While E-470 has benefited from growing demand, toll revenue has been somewhat less than expectations, ranging from 88% to 98% of the authority's prior 2000 forecast, due to the effects of the regional economic downturn earlier in the decade, the post-Sept. 11, 2001 decline in activity at nearby Denver International Airport and the inherent uncertainties of toll revenue forecasting. Reflecting the 2006 toll increase and continuing traffic growth, toll revenues through the end of July are 15% greater than last year, but are about 95% of the authority's updated 2005 forecast, primarily due to more subdued traffic growth in response to rising gasoline prices. As a result, the authority has reduced its estimates of annual toll revenue by 7%-16% through the medium term. The authority's track record of very conservative financial planning and management has provided a significant cushion against lower than expected toll revenues. Since 2001 actual operating expenses have come in under budget and non-toll revenues sources have generally come in better than expected.

Debt service coverage has exceeded the authority's 1.30 times (x) rate covenant, which became effective in 2002, and equaled 1.47x in 2005 and is projected to be about 1.40x in 2006. Fitch expects debt service coverage to remain at or above the authority's rate covenant given moderate traffic growth expectations generally in the mid to high single digits through the medium term, programmed toll increases within inflationary levels and continued careful expense management. Given growing traffic demand, the authority continues to enjoy economic rate raising flexibility that can be used to mitigate lower than expected financial performance. While the authority has a consistent track record of instituting scheduled toll increases, E-470, similar to other toll roads, is still subject to political resistance to higher rates.

E-470 continues to retain strong internal liquidity. This is an important credit factor since toll revenues need to outpace growing debt service requirements, which increase in graduated steps. The fully funded debt service reserve fund and other funds and accounts equal about $225 million, which exceeds maximum annual debt service and is sufficient to more than cover the next three years of debt service requirements.

The authority's $125.5 million fiscal 2007-2010 capital program is focused on interchange improvements and added capacity along the initial project segments and is expected to be funded with pay-as-you-go resources. The authority is also evaluating additional senior debt refunding and restructuring options over the near to medium term and debt retirement strategies for the vehicle registration fee bonds (not rated by Fitch).

The senior revenue bonds are secured by revenues primarily consisting of toll revenues but also by excess vehicle registration fees, highway expansion fees, and interest earnings after the payment of operating expenses. The E-470 Public Highway Authority, which is a subdivision of the State of Colorado as authorized by the public highway authority law, was established in 1988, and its members include the counties of Adams, Arapahoe, and Douglas; the cities of Aurora, Brighton, Thornton, and Commerce City; and the Town of Parker. The 47-mile E-470 toll road forms the eastern portion of the Denver region's beltway.

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