Fitch Rts Chesapeake Bay Bridge & Tunnel, Virginia Jr Bds 'BBB', Stable Outlook.

Business Editors

NEW YORK--(BUSINESS WIRE)--April 30, 2004

Fitch today assigns a 'BBB' rating on the $76,650,000 Chesapeake Bay Bridge and Tunnel District (CBBTD or district) general resolution (junior lien) revenue bonds, refunding series 2004 auction rate certificates (ARC's). At the same time, Fitch affirms its 'A' rating and Stable Rating Outlook on approximately $45 million of senior resolution bonds and 'BBB' rating and Stable Rating Outlook on approximately $90 million of junior lien bonds (excluding refunded general resolution bonds).

The series 2004 bonds are expected to sell through negotiation with UBS Financial Services Inc. on May 12, 2004 and will be issued on parity with outstanding general resolution debt. Proceeds of the bonds, together with other available funds of CBBTD, will refund approximately $72 million in outstanding series 1996 general resolution bonds. The senior lien bonds are payable from district revenues subject to the payment of current expenses. The junior lien bonds are payable from a subordinate pledge of district revenues. The Rating Outlook on the bonds is Stable.

Debt service on the series 2004 bonds will be synthetically fixed through an interest rate agreement with UBS AG ('AA+', Stable Rating Outlook by Fitch). Fitch views the provisions of the series 2004 swap documents as standard for this type of financing. Importantly, termination payments are subordinate to the payment of debt service on both the senior and junior lien debt.

CBBTD's lack of policy limitations linking the issuance of variable rate debt and use of derivative financial instruments to the district's credit profile is a rating concern. Fitch believes that district liquidity, including over $81 million of revenue and general funds, mitigates both the basis and tax risk associated with the series 2004 swap, and would sufficiently handle any swap termination payment required under the agreement. However, with no formal guideline or policy limiting the use of these instruments going forward, the district could potentially expose itself to a level of financial risk which it is ill-equipped to manage. Though both the swap payments and up to $3 million of the termination payment are insured by XL Capital, bond insurance is only applicable in case of a CBBTD default.

The 'A' rating on the senior resolution bonds reflects the monopolistic nature of the bridge-tunnel facility, which provides the only linkage between Virginia's eastern shore and the metropolitan area of South Hampton Roads, Virginia; the district's continued financial stability, confirmed by healthy generation of net revenues and coverage of debt service well in excess of indenture dictated minimums; mature facility traffic demand, with average annual traffic growth of approximately 3% over the last decade; and moderate economic rate making flexibility which allows CBBTD to set tolls at levels necessary for preservation and maintenance of capital assets and future facility planning. Strong legal provisions for senior bondholders, including a 3.0 times (x) rate covenant and additional bonds test, are also considered in the rating. For fiscal 2003, net revenues (indenture defined) of approximately $33 million provided solid 4.1x coverage of senior lien carrying charges.

The 'BBB' rating on the general resolution debt incorporates the aforementioned factors, yet recognizes the likelihood that the district may eventually leverage this subordinate lien down to the rate covenant of 1.2x. Through fiscal 2001, coverage of general resolution bond debt service typically exceeded 3.0x. Following the November 2001 issuance of $29 million and $23 million of senior and subordinate lien debt, respectively, debt service coverage on the junior lien bonds fell to approximately 1.8x. Fitch notes these levels are still well in excess of the 1.2x required under the general resolution and thus provide an ample cushion for bondholders.

Major credit risks include the potential for significant future capital requirements associated with the possible future expansion of the tunnel portion of the CBBTD; the district's declining flexibility in funding such a project without both a toll hike and issuance of additional bonds; the likelihood of increased, albeit still very low, toll elasticity, which could ultimately divert traffic from the facility; and the potential for erosion of the financial cushion as an increasing debt load is serviced by the district.