Fitch Rates Oregon DOT's $56MM Highway Revs 'AA'.

NEW YORK -- Oregon Department of Transportation's (DOT) $56 million highway user tax revenue bonds, consisting of the $20 million series 2005A and the $36 million refunding series 2005B, are rated 'AA' by Fitch Ratings. Additionally, the Fitch affirms the rating on $523.8 million outstanding bonds. The new bonds, expected for negotiation the week of Jan. 10 through a syndicate led by Bear, Stearns & Co. Inc., will be due Nov. 15, 2014-2029. Term bonds with mandatory sinking fund redemption may be included, and optional call details are yet to be determined.

Oregon has expanded the breadth of this program since the Oregon Transportation Investment Act (OTIA) was authorized in 2001 for 131 transportation projects. In 2002, OTIA II was authorized to fund another 42 projects, and OTIA I and II together have a $500 million authorization, of which $275 million remains. The $20 million new money portion of this issue is authorized under OTIA II. In 2003, OTIA III, with a focus on improving Oregon's bridges, was authorized, and the first $300 million of the $1.9 billion authorization was issued in 2004. The OTIA program is now essentially an ongoing and considerably broadened bonding program for highway and bridge repairs and modernization.

As the program grew, certain fee and revenues were increased to support the new authorizations. However, coverage ratios fell from the once stellar levels of coverage in excess of 70 times (x) with the initial issue in 2000 to 5x-7x after the first OTIA III issue earlier this year. Now, with this issue and an additional $300 million planned to be issued in August 2005, coverage of projected maximum debt service declines from 12.4x in 2005 to 4.5x in 2009 when $1.2 billion of new issues is included. The broad additional bonds' test requires 3x coverage. The 2005 A and B bonds are being issued under a third supplemental declaration to the 2000 master highway bond declaration, which allows the pledge of federal revenues and issuance of subordinate debt. All projects are specifically approved by the transportation commission.

Security for these and the outstanding parity bonds emanates from a first lien on specific highway use taxes and fees deposited in the state highway fund, net of administration and collection costs, and statutorily determined city/county apportionments to fund local transportation projects. Additionally, $35.6 million per year of collected revenues (and $102 million per year for OTIA III) is statutorily set aside for OTIA I and II and not credited to the state highway fund or localities for distribution under apportionment formulas until debt service is met. Any excess not required for debt service on OTIA bonds is distributed by formula to the state, counties, and cities. Set-asides began with OTIA's inception in October 2001 and essentially represent the additional revenues expected to be derived from the various fee increases, roughly comparable to expected debt service.

Pledged revenues consist of the motor fuels and use taxes, the weight-mile and road use assessment fees increased for OTIA III about 10%, and the registration, drivers' license, and titling fees. The weight-mile, road use assessment, vehicle registration, and titling fees were recently increased, contributing to about a 7.7% overall revenue increase from fiscal years 2004 to 2005. The flat fee component of the weight-mile tax was held to be unconstitutional and the state has appealed. This represents only a small portion of pledged revenues. While the state continues to be exposed to financially restrictive initiatives, it constitutionally requires all highway user revenues to be applied for highway purposes, and it has a statutory and contractual requirement to ensure sufficient pledged revenues for debt service.