Fitch Rates Florida Turnpike Revenue Bonds 'AA-'.

NEW YORK -- Fitch Ratings assigns an 'AA-' rating to the approximately $428.5 million State of Florida Department of Transportation (FDOT) turnpike revenue bonds, series 2006A. In addition, Fitch affirms the 'AA-' rating on $1.9 billion in outstanding turnpike revenue and revenue refunding bonds. The Rating Outlook is Stable.

The series 2006A bonds are expected to sell competitively on 18 hours notice beginning the week of Dec. 4. Bond proceeds will be used to finance a portion of the costs of acquisition and/or construction of certain Florida Turnpike Enterprise (the turnpike) capital projects; refund, together with other legally available sources, approximately $168 million in series 1998B bonds maturing between 2009 and 2027; and pay the costs of issuance and a debt service reserve account surety.

The 'AA-' rating reflects the turnpike's strong service area supporting the expansion of turnpike traffic and toll revenue and the diversity of the toll revenue base resulting from the ramp-up and maturation of urban expressway expansion projects. While capital needs to accommodate growing traffic along the mainline and relieve congestion in urban areas will continue to contribute to increased debt levels, Fitch's rating also recognizes the turnpike's well-established track record of prudent and conservative project development and financial management.

The turnpike's proactive stance toward planning for and delivering toll increases when needed is also a rating factor, as is the demonstrated ability to manage large capital plans, pace the issuance of debt, and balance it with available net revenues. To help meet growing travel demand, the turnpike invested over $1.5 billion in capital improvements between fiscal 2001 and 2006 that included added capacity and renewal of existing facilities and construction of expansion projects.

Debt service coverage between fiscal 2001 and 2006 has been strong and above 2.0 times (x). In 2005 and 2006, the turnpike's net revenues produced debt service coverage of 2.5x and 3.0x, respectively, reflecting strong revenue growth due to the 2004 toll increase and management's efforts to curb operating and maintenance costs. Fitch expects debt service coverage levels to fall from recent trends as the turnpike pursues its capital initiatives, but to continue to remain strong. The turnpike's proposal to increase its legislative bond cap to $7.5 billion in outstanding debt from $4.5 billion in total debt issued is not a concern and is expected to provide added flexibility to finance needed capital initiatives. As the turnpike embarks on its sizeable capital plan, Fitch expects management, consistent with its track record of performance, to manage the pace of borrowing, prioritize capital initiatives, and implement additional toll increases as needed to maintain debt service coverage at around 2x.

The turnpike's financial performance has remained strong since 2001. Toll revenues have grown on average at 11% annually, reflecting strong traffic growth on both the mature facilities and expansion projects and a toll increase in 2004, which increased the cash toll on most facilities by 25% rounded to the quarter, but maintained the existing toll rate from SunPass users (Florida's electronic tolling system). Toll revenues for fiscal 2005 and 2006 were $586.3 million and $632.8 million, respectively, and represent a 12% and 8% increase over the prior year's revenue despite the effects of a 21-day and 16-day suspension of tolls to support hurricane evacuation and recovery efforts. Reflecting a maturing travel market, traffic growth rates are expected to moderate over the medium term.

Total operating expenses grew on average at 11% annually from 2001-2004, primarily due to costs associated with the expansion projects, higher FDOT overhead expenses, and transponders and staffing needs related to SunPass. However, operating expenses grew only 2.7% and declined 1.1% for 2005 and 2006, respectively, reflecting lower FDOT overhead expenses incurred by the turnpike. Operating expenses are expected to increase by 14% in fiscal 2007 and another 17% in fiscal 2008. This growth is due to the opening of the final segment of the Western Beltway Part C, higher property insurance costs and added police patrols in fiscal 2007, and additional SunPass electronic toll collection related costs in fiscal 2008. However, the turnpike projects expenses to grow at around inflationary levels thereafter.

Continued growth in Florida will likely continue to put demands on the turnpike and other regional expressway authorities to provide highway solutions for the growing transportation needs of the state. Additional revenues from the 2004 toll increase combined with robust traffic growth have allowed the turnpike to advance previous capital plans as well as its current $4.9 billion fiscal 2007-2012 capital plan. Expected debt issuance in support of the capital plan is approximately $2.38 billion with the remaining portion to be primarily cash funded from sizeable annual surpluses. The capital plan appears to appropriately balance state of good repair projects on the existing system with capacity expansion projects. System maintenance rating levels well in excess of minimum standards set by FDOT provide assurance that adequate levels of funding are being directed to that effort.

The turnpike system operates as an enterprise within FDOT. Its facilities include the Mainline, segments of which were operational in the 1950s, the Sawgrass, Seminole, and Veteran's expressways, the Southern Connector Extension, the Polk and Suncoast parkways, and the nearly completed Western Beltway, Part C. Most of the non-Mainline facilities have come on line over the last decade.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.