Fitch Rts Consolidated New Jersey Turnpike Auth Revs 'A'.

Business Editors

NEW YORK--(BUSINESS WIRE)--June 18, 2003

Fitch Ratings today assigns an underlying 'A' long-term rating to the New Jersey Turnpike Authority $727,535,000 turnpike revenue bonds, series 2003A, $723,035,000 turnpike revenue bonds, series 2003B (federally taxable), $500,000,000 turnpike revenue bonds, series 2003C (variable-rate) and $400,000,000 turnpike revenue bonds, series 2003D (variable-rate). Fitch Ratings also affirms the underlying 'A' rating on the outstanding (approximately) $2.1 billion New Jersey Turnpike Authority revenue bonds, series 1991C, 1991D, 1992B, 2000A-G. The bonds are secured by the net revenues of the New Jersey Turnpike and the Garden State Parkway, i.e. tolls, charges, rents, etc. less operating expenses from highway activities. The fixed-rate series 2003A and series 2003B bonds and the variable-rate series 2003C and series 2003D are expected to sell over the next couple of weeks via a syndicate led by Morgan Stanley. The 2003 bonds are expected to carry bond insurance under an insurance policy with an insurer whose financial strength is rated 'AAA' by Fitch Ratings. The variable-rate series of bonds are expected to be backed by a standby bond purchase agreement, and are expected to be synthetically hedged with forward swaps that the authority entered into recently. In addition to these variable series of debt, the authority has $400 million in unhedged auction rate securities outstanding (series 2000B-G). The Rating Outlook is Stable.

This transaction effectively puts into the place the recommendation of the Governor of New Jersey's Toll Road Consolidation Commission, which investigated the feasibility of consolidating the New Jersey Turnpike, the Garden State Parkway and the Atlantic City Expressway, and determined that the consolidation of the former two made the most sense for streamlined bureaucracy, administrative savings and improved transportation coordination within the state. This consolidation allows the governor to make some much-needed improvements on the Garden State Parkway. It begins to address congestion and aging infrastructure using the modest available resources of the New Jersey Turnpike, while deferring toll increases, particularly on the parkway.

While the consolidation plan addresses some immediate needs, it does not identify the financial resources to address long-term capital replacement and growing capacity constraints. To that end, the development and implementation of the authority's strategic plan with a view to expanding corridor capacity in congested sections of the parkway and along capacity constrained portions of the turnpike, will be key to demonstrating the long-term value from this consolidation of resources.

The series 2003 bonds refund and restructure approximately $1.3 billion in outstanding turnpike senior bonds, refund all $550 million in outstanding parkway revenue bonds, permanently refinance the $270 million combined E-ZPass liability of both roadways that had been temporarily financed with subordinate lien debt and cash, and generate about $170 million in new money to pay for the implementation of high-speed E-ZPass and other projects. The net effect of this restructuring is to find a permanent solution to the failed original E-ZPass financing, provide fixed-cost budgetary relief in the near-term and realize $170 million in funds for congestion mitigation. This benefit comes at a price; it adds approximately $600 million in new debt (to pay for E-ZPass, reimburse some internally borrowed funds and fund improvements and fully defease the bonds) and amortizes the depreciated cost of the E-ZPass financing over the next 20 years or so.

The series 2003 bonds are being issued under the turnpike's 1991 bond resolution, as amended. No material changes in bondholder protections are envisaged at this time. However, as part of the legislation enacted to consolidate the parkway into the turnpike, the potential activities of the turnpike have been expanded to include a broad range of highway and other types of transportation projects. This legislation appears to position the turnpike to assume a broader role in coordinating and developing transportation within the state. While there is no current intention, if implemented, this broader role could lead to more leveraging. Primary protections lie in the rate covenant and the additional bonds test. How this role develops is important because the legislation allows for cross-subsidization of non-self supporting projects on an interim basis.

The consolidation of the parkway into the turnpike merges two economic powerhouses with extremely strong and stable bases of traffic and tremendous economic rate-making flexibility to increase revenues when needed; although political rate-making flexibility is less certain. In spite of this economic strength, the financial performance of the authority is only adequate relative to other U.S. turnpikes. However, it is important to note that financial performance over the last three years has exceeded the forecast, providing for stronger debt service coverage and greater internal liquidity than was expected. The 'A' rating on the bonds reflects the narrow levels of financial margin in the turnpike's financial forecast to deal with slower revenue growth, higher cost of operations and unexpected capital expenditures. This rating also reflects the flexibility that the turnpike retains to take remediative actions to maintain compliance with bond covenants, make state payments and fund capital projects.

While Fitch assigns a stable rating outlook to the bonds, tight coverage of debt service requirements and capital reserve contributions in the financial forecast raises a high likelihood of either a drawdown in reserves or a toll rate hike during the latter part of the forecast period through 2010. It is under these circumstances that the uncertainty related to the authority's political rate-making flexibility could impact the outlook on these bonds.

The New Jersey Turnpike is a body corporate and politic organized and existing by virtue of the Turnpike Act. It is empowered to operate, maintain and improve the New Jersey Turnpike, which extends 118 miles from the Delaware Memorial Bridge on the south-western corner of the state to the George Washington Bridge in the north-eastern corner of New Jersey. With the recent legislation, the authority also is empowered to operate, maintain and improve the Garden State Parkway, which extends 173 miles from the south-eastern corner of the state near Cape May to the New York State line near Spring Valley, NY. With the merger of the parkway, the authority has also assumed responsibility for the Garden State Arts Center in Holmdel, NJ, which is leased to a private operator through 2017. Its net operating revenues of over $3 million are not pledged to these bonds.