Fitch Upgr NTTA, TX's Dallas North Tollway System Revs To `A'.

Business Editors

NEW YORK--(BUSINESS WIRE)--June 6, 2001

Fitch upgrades the North Texas Tollway Authority, TX's (NTTA) approximately $936 million Dallas North Tollway System revenue bonds (series 1993, 1994, 1995, 1997, 1997A and 1998) to 'A' with a Stable Rating Outlook from 'A-' with a Positive Rating Outlook. Virtually all the bonds are rated `AAA' based on guarantees of scheduled debt service payment under insurance policies with monoline insurers whose insurer financial strength is rated `AAA' by Fitch.

The rating upgrade reflects reduced construction and traffic ramp-up risk on the President George Bush Turnpike (PGBT), in spite of cost overruns for this project. The upgrade also reflects a favorable traffic profile for the system, and strengthened managerial controls over future operating and capital spending. Debt service coverage is currently strong at 2 times (x), but is fully expected to drift downward to 1.35x, according to NTTA's (the authority) financial plans, as debt service ramps-up on the PGBT and future projects. While this is relatively low for an `A' rated toll road, NTTA now has a sizable revenue base, and ample internal liquidity in order to weather revenue volatility from economic cycles. The rating also balances a positive view toward the long term economic value of its Dallas North Tollway (DNT) and PGBT projects, against the expectation for moderation of future traffic growth. The key, therefore, to the financial health of NTTA is how it manages the pace of additional borrowing for system expansion projects. New financial planning tools and policies should assist in this endeavor. Nevertheless, the rating outlook is stable, since current and expected debt levels leave little room for further improvement in long term credit quality.

Given the demands on the authority to expand its tolled roadway network, a key rating factor is the authority's stated debt policy that coverage levels will be maintained no lower than 1.35x, thereby providing additional cushion beyond the rate covenant to absorb the risk of economic volatility and project risk associated with expansions. A significant rating consideration is the maintenance of high levels of liquidity (restricted and unrestricted), which currently equals over six times debt service and is projected to be in excess of four times debt service by 2010. By that time, the annual debt service burden is expected to double from current levels. The maintenance of liquidity levels is essential given continued operating risks. Management's proactive stance towards the protection of the credit quality on the bonds, including timely toll rate adjustments and deferred capital investment, is a material rating consideration.

With the anticipated near-term timely completion of PGBT segments three and five, and the approval of the draft environmental impact statement (EIS) on PGBT segment four, a significant amount of the construction risk that was reflected in Fitch's previous `A-' rating on the system's revenue bonds has been eliminated. Segments one and two were opened earlier, essentially on schedule. In addition, the stronger than projected operating performance of the system has mitigated the negative financial impact of the sizable estimated cost increases on segment four, which is scheduled for completion in 2004. The advanced stage of the review process with an approved draft EIS that is pending public hearings, and the completion of 60% of design have mitigated a fair amount of future risk of delays and cost overruns. The authority has indicated that it is pursuing cost containment through design changes and scope reductions, besides active management of contingencies as a strategy to minimize the financial impact of the cost overruns. The primary impact of cost escalations is on the advancement of new projects that are in study and preliminary stages of development.

The opportune positive economic climate that continued through much of 2000 helped the authority exceed revenue projections by 12%, in spite of tepid performance on the Addison Airport Toll Tunnel, which is and will remain a drain on the system. This was primarily due to higher traffic levels on the Dallas North Tollway (DNT), the workhorse of the system. Toll revenue on the DNT grew by 32% between 1998 and 2000. PGBT toll revenues showed significant improvement over its 1999 performance by exceeding forecast by 2% in 2000. Current projections for the system indicate that toll revenues in 2001 will exceed 1998 projections by 16%, and that performance will continue to exceed forecasts by double digits over the next ten years. Over the medium-term, once the DNT reaches its capacity and the PGBT finishes its ramp- up, revenue growth rates are expected to moderate. Fitch expects both projects to be solid financial anchors for system maintenance and expansion. Nevertheless, current and future debt needs are likely to restrain further improvements in credit quality.

A recent development that is of some import is the passage of Senate Bill 342, portions of which are subject to a constitutional amendment that is to be put to voters this November. It permits the Texas Department of Transportation's participation from any source, pertinently with the issuance of debt, in the cost of development and operation of toll facilities. The ability to receive grants and subordinated loans bodes well for the NTTA. The concern that pressure might accompany such contributions to take on projects that could negatively impact the NTTA is largely negated by management's proactive policies. The legislation also authorizes the creation of regional mobility authorities for the purpose of developing and operating turnpike projects in the state, but incorporates language that could divert surpluses away from these regional mobility authorities. A key rating consideration is that the distinction that is made between regional mobility and regional tollway authorities will hold true. The NTTA is created as a regional tollway authority. Lastly, a positive protection that is written into the legislation is the non-compete clause in counties that currently have a regional tollway authority.

The NTTA is a political subdivision of the State of Texas, which includes all of the territories within Collin, Dallas, Denton and Tarrant counties. It was created in 1997 pursuant to Chapter 366 of the Texas Transportation Code and Senate Bill 370 as the successor to the Texas Turnpike Authority and assumed ownership of the Dallas North Tollway System and the Mountain Creek Lake Bridge. The authority has $1.7 million in separately secured revenue bonds outstanding for the Mountain Creek Lake Bridge.