Fitch Rates NY Thruway Trust Fund $188.7MM Bonds 'A+'.

NEW YORK -- Fitch Ratings assigns an 'A+' rating to New York State Thruway's $188,690,000 second general highway and bridge trust fund, series 2005A bonds, and affirms the 'A+' rating on $5.8 billion outstanding first and second general highway and bridge trust fund bonds. The new bonds are expected to sell March 8 through negotiation by a syndicate led by UBS Financial Services Inc. and are due April 1, 2006-2025, with other details to be determined.

With debt service payment requiring appropriation, the 'A+' rating is based on the credit quality of the State of New York, whose general obligation bonds are rated 'AA-' by Fitch. New York is a wealthy state with a broad and diverse economy. However, financial strain has characterized operations over the past few years due to the loss in personal income tax receipts from the recession and the capital markets declines, as well as the effects of the events of Sept. 11, 2001. In response, deficit financing from $4.2 billion of tobacco settlement bonds spread over three years through 2005 and other nonrecurring measures were employed. The economy is now improving, and higher revenues resulted in a surplus of $308 million for fiscal 2004. The enacted $43 billion fiscal 2005 general fund budget, balanced by more than $2 billion of nonrecurring revenues is now projected to end, following several upward revenue projections, with a $1.5 billion balance, including $1.2 billion in the state's principal reserves. Large budget gaps remain to be addressed for future years, including potential costs to comply with a court order concerning education funding. Debt remains above-average although still in the moderate range at 5.8% of personal income, rising to 6.6% with the inclusion of tobacco securitizations that have ultimate general fund support.

The authority has been designated the financing agency for the state's multiyear comprehensive transportation programs. The bonds are separately secured from other authority bonds, as well as from $1.7 billion in state general obligation bonds issued for transportation purposes. The highway and bridge trust fund bonds are special obligations, payable from dedicated highway revenues, subject to annual appropriation by the state legislature in the form of cooperative agreement payments.

The new bonds are issued pursuant to a second general resolution and are junior to outstanding bonds issued under the first general resolution. The major difference between the two is that the second resolution does not provide for a debt service reserve while under the first resolution, one-half of maximum annual debt service (MADS) is retained. As the additional bonds test remains 2 times (x) MADS and is inclusive of both resolutions, no rating distinction is made between the liens. The first resolution is closed except for refunding.

The highway and bridge trust fund receives dedicated portions of the petroleum business tax (now providing over 33% of dedicated revenues), motor fuel tax, motor vehicle registration fees, the highway use tax, and the auto rental tax. Revenue composition has varied somewhat as changes have been made to the dedicated taxes and fees, but the state has taken compensating actions to maintain the fund's integrity. The proposed fiscal 2006 budget includes motor vehicle fee increases, which enlarge allocations to the dedicated highway and bridge trust fund. A new $17.4 billion transportation plan for fiscal 2005-2010 has been recommended, along with an increase in borrowing, to $16 billion from $10.25 billion. The restructuring of transportation debt has also been proposed to achieve some $209 million of debt service savings for the state in fiscal 2006.

Dedicated revenues are approximately $1.7 billion in fiscal 2004 and currently provide 2.3x of MADS coverage, close to the 2x additional bonds test. Estimated fiscal 2005 revenues provide 2.4x coverage of MADS as revenues increased as additional portions of the motor fuel tax and other fees flow to the fund. However, given the size of the capital program, coverage will hover near the test level.

The bonds enjoy additional security derived from various impoundment provisions, which are triggered if the legislature fails to appropriate. In the event of non-appropriation, the state would be unable to receive excess sales tax revenues held by the Local Government Assistance Corporation (LGAC). These moneys, about $1.9 billion, are received by the state's general fund after provision for LGAC debt service. In addition, the state would not receive funds from the highway and bridge trust fund capital account to provide for pay-as-you-go transportation projects. The state's commitment to these bonds is further evidenced by provisions for shortfalls in any appropriated amounts to be transferred from the capital account, as well as from the state's general fund.