January 1, 2004
Toll Road Authority Receives A3 Bond Rating From Moody's
Moody's Investors Service recently took rating action on road-bond issuers upgrading the Harris County Toll Road Authority's senior lien toll revenue bonds to A3 from Baa1. The new A3 rating is based on the Authority's improving financial position, the healthy service area economy centered here in Houston, the completion of the Authority's bond-financed capital expansion program and the growing public acceptance of toll roads in the area.
Although the earliest traffic projections overestimated traffic growth, more conservative traffic and revenue projections prepared in 1994 have now been exceeded, contributing to a better than expected financial performance. Sam Houston tolls continue to account for two-thirds of toll revenue, while those on the Hardy Toll Road have been less dramatic due to its sensitivity to economic cycles. Toll revenues exceeded debt service and O&M requirements in the last five fiscal years, helping to build reserves, although most of the Authority's significant accumulated reserves were build from project construction savings.
The Toll Road Authority's revenue forecast for fiscal 1998 was exceeded by a fairly wide margin (32 percent actual growth versus 22 percent projected) and the revenue projection for 1999 (22 percent) is expected to be exceeded, given sustained strong traffic growth this year. While toll rates have been restructured and increased slightly for some segments and certain classes of vehicles, the basic toll rate structure has remained unchanged over the past 12 years.
The Authority's outstanding senior lien revenue bonds are soundly secured by a gross pledge of toll road revenues, before operating and maintenance costs or other payments are made. Net toll revenues and interest income have been, and are projected to continue to be, sufficient to cover all revenue and property tax-supported debt service requirements of the system, without any tax support.
Completion of the Sam Houston Tollway's South section, which was completed on schedule and opened to traffic in May of 1997, adds credit strength. The agency's recent traffic growth exceeding projections has contributed to a 'better-than-budgeted' financial performance. Combined with significant project construction savings, the Authority has accumulated sizable reserves, which is a credit positive in light of the projected increase in annual debt service and planned capital projects in the coming years. While these reserves are to be drawn down to finance several expansion projects, Moody's expects the Authority to be able to replenish working capital as traffic and revenue continue to grow.
Moody's says their outlook for the senior lien toll revenue bonds is stable. "The Authority's accumulated financial reserves and record of financial self-sufficiency provide protective margins against risk associated with steadily increasing debt service payments in coming years, and help buffer against the event of another economic downturn in the service area," the report stated. Moody's expects the Authority to continue to prudent management of these reserves as it finances several future capital projects with funds on hand.