07.02.07
Bond Rating Service Gives NTTA “Rating Watch Negative”
Here’s the story, Fitch Places North Texas Tollway Authority’s Revenue Bonds on Rating Watch Negative. In my less than professional financial analysis what these guys are saying is that this deal will stretch the NTTA very thin financially. They’re also cautioning that if the traffic doesn’t show up, and they expect it will, then there could be big problems.
Fitch also recognizes that based on NTTA’s proposed total debt issuance, the authority would be highly leveraged with an escalating, back-loaded debt service profile. In addition to the SH 121 toll project, additional leverage of more than $1.0 billion is expected to support the development of the Eastern Extension of the President George Bush Turnpike and the Southwest Parkway Segment 1.
Under NTTA’s proposal, toll revenues generated by SH 121 would pay its operating expenses, debt service obligations and generate surplus funds for the authority. However, it is possible in a downside scenario where SH 121 traffic and toll revenues are less than expected; the existing toll system may be called upon to help meet the SH 121’s debt service needs. There is also the potential that the existing toll facilities would cross-subsidize the debt service needs of the Eastern Extension and Southwest Parkway facilities. Under such a scenario, total debt service coverage could decline to levels around the authority’s 1.20x rate covenant. With a tranched debt structure, senior lien debt service coverage could be higher. Given the historic strong performance of NTTA’s facilities and expected growing traffic demand, it is Fitch’s opinion that cross subsidy by the system would not likely be for an extended period.
This whole deal is riding on a the Traffic & Revenue study that are known to have issues many times. Sure hope this one is on the money, shall we say.