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Credit Ratings Agency Warns of Tolling Troubles
Fitch Ratings reports toll roads imperiled by lack of sustained growth in the economy.
Fitch reportToll roads at one point appeared to be unstoppable. Steady growth in traffic yielded rapidly rising profits, especially for pioneers in the field such as Australia's Macquarie Bank where executives became so rich from deals that included the leasing of US roads that it was dubbed the "millionaires' factory." That all changed when the recession took hold and motorists scaled back on the mileage driven each year. Losses began to mount, and as a report released last week by Fitch Ratings argues, the dynamics for tolling may not improve in the near future.
"Fitch tracks data on toll roads, bridges, and tunnels across its ratings portfolio," Fitch analysts wrote in the report, Downshifting: US Transportation Reacts as GDP Growth Flattens. "Traffic declined year over year as much as 10 percent during the Great Recession. Sustained positive growth in traffic commenced in February 2010. The most recent Fitch data indicates that growth in traffic volumes began slowly declining on tolled facilities, heading to zero growth in second-quarter 2011."
The US Bureau of Transportation Statistics reported a similar decline in commercial transportation services for both goods and passengers. Despite some recovery, the index remains below pre-recession levels. These transportation statistics mirror figures for consumer spending which began recovering early last year only to falter this March. Growth in consumer spending for the second quarter of 2011 was under 0.1 percent.
The credit ratings agency argues activity in the economy at large and the in the transportation sector are directly linked. When someone gets a job, he generally gets in his car to drive to work. When stores sell goods, the supplies, raw materials and final product are usually transported by truck. When unemployment is high and sales are low, such transportation activity drops.
"Higher oil and other commodity prices account for some of the change in consumer spending," the analysts explained. "Unlike past downturns, these prices are increasingly influenced by external factors as well as US demand. Consumers are reacting to increased prices and a weak labor market with belt tightening."
Fitch will not downgrade any existing credit ratings for toll roads because these operations have a monopoly position that enables them to recover from downturns by hiking tolls that many motorists have no choice but to pay.
"Tolled facilities have experienced low and even negative traffic growth since 2007," the analysts stated. "Revenues have grown at a much higher rate as facility operators reacted to the downturn by raising rates to preserve financial and operational flexibility."
The ratings agency warned that sustained periods of low economic growth imperils the financing of deals built with healthier traffic and economic forecasts in mind.
"Most public infrastructure facilities should be able to weather little to no growth scenarios over the next three to five years," Fitch wrote. "However, there are a number of issuers whose escalating debt profiles could pose a problem in the medium term. Newer toll facilities generally have such debt service profiles... Stand-alone, concession-based facilities, originally financed in 2006 - 2008 when expectations for future economic growth were very high, will be more vulnerable."
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Link to article here.
2010 recovery in toll traffic stopped in Q2, unprecedented stall-out - Fitch Ratings
Posted on Sun, 2011-09-11 23:30
Fitch Ratings say in a recent report that traffic on toll facilities ceased to grow in the second quarter of this year, suggesting the weak recovery from the 2008-2009 recession in 2010 and first quarter 2011 has stalled. An accompanying graph shows 4/11 traffic and revenue as still growing but at 2 to 3% versus a healthy revenue growth 5% year-on-year - rather constant for a year through the first quarter.
Fitch says this "second dip" is unprecedented. No recovery in the past 40 years has seen such marked stoppage before pre-recession levels are reached.
Traffic has been growing through to the second quarter but less strongly than toll revenue, the difference reflecting an increase in average toll rates. But growth in traffic along with revenue has plunged towards zero since, the Fitch report says.
They see approximate "zero growth" now.
Untolled roads too
They say untolled roads are experiencing a pattern of stagnant year-on-year traffic numbers in recent months similar to that of toll facilities.
They write: "It is important to note that this second dip in the trajectory is very different from any seen over the past 40 years."
Reflection of consumer spending
Fitch analysts say the stall-out of traffic recovery is a reflection of the deterioration of the US and world economy over the summer.
"The direction of the economy and the general economic climate has become uncertain over the summer months. The housing market shows rising delinquencies; firms are holding back on expansion plans; and consumers are husbanding their financial resources. The recent dramatic decline in the U.S. stock markets and the overhang of the debt crisis may keep consumers in a conservative posture. Consequently, the prospects for near-term growth in traffic volumes in transportation infrastructure facilities as seen in late 2010 now seem low."
Higher toll rates have boosted revenues
The only good news from Fitch is many tollers have found they can increase revenue with higher toll rates. Those motorists who are traveling apparently find the benefits of tolled travel greater than the cost, so total revenues are up compared to pre-recession levels, though traffic volume has not recovered.
Growth prospects now "low"
Whereas by late 2010 it looked as though there was a recovery under way that would continue through this year and next, the prospects for growth are now "low."
How does the a no-growth scenario affect the viability of tollers whose capital was raised in a more optimistic atmosphere?
Most will weather the no-growth period for 3 to 5 years
Fitch Ratings say most "should be able to weather little or no-growth scenarios over the next three to five years." But a number of bond issuers could find escalating debt a problem "medium term."
This includes several "newer toll facilities" and airports.
No agencies are named, but they say:
"For such facilities, an extended period of limited or flat growth in volume will require they make more dramatic increases in tolls/airline rates and charges coupled with continued expense reductions to maintain their credit profile. Stand-alone, concession-based facilities, originally financed in 2006−2008 when expectations for future economic growth were very high, will be more vulnerable."
SIDENOTE: Metropolitan Washington Airports Authority (MWAA) had its bonds recently downrated in a quite separate Fitch analysis. MWAA has been borrowing heavily to expand capacity at Washington Dulles International Airport and the poor air traffic has depressed landing fee revenues, making the debt for expansion tougher to support.
But MWAA also has plans to issue $3.2b in toll revenue bonds as part of its underwriting of the extension of the DC metrorail system to Dulles airport and beyond. Huge revenue increases will be needed on the Dulles Toll Road to support this. Studies on the future likely traffic and revenue on the Toll Road by consultants Wilbur Smith Associates won't be done until year's end.
Strangely the Fitch rationale for the MWAA downrating focuses exclusively on the airport portion of MWAA business, making no references to the extraordinary rail debt planned to be borne by the Toll Road.
The major report cited here is titled "Downshifting: US transportation reacts as GDP growth flattens."
Named analysts are Thomas McCormick, Michael McDermott, Cherian George and Jeffrey Lack.
TOLLROADSnews 2011-09-11