Saturday, 4 August 2012

Ratings news: LBJ Express, Madrid-Toledo, SANRAL, North Carolina Turnpike Authority, Manila

Note:  Apologies some of these have been delayed a couple of months as it was a draft article I forgot to post.

LBJ Express Lanes - Texas

Key comments are:

- Strategic location of the project “located in a highly congested area north of Dallas and near the Dallas-Fort Worth International Airport. The solid economics of the service area have benefited from considerable population and employment growth over the last decade” 
- Pricing flexibility will be retained to competitively price tolls against the demonstrated congestion which exists at peaks, interpeak and in weekends in both directions. 
- However, managed lanes do bring considerable uncertainty around revenue, given free parallel lanes and the sensitivity of demand with economic conditions. 

The LBJ freeway (IH-635) project is currently in the second year of a five-year construction period. The construction project upon completion will include an eight-lane general purpose freeway, a four- to six-lane managed lane facility, and a continuous two- to three-lane frontage road system with access ramps. As of March 2012, the total value of work completed for design and construction is $494.9 million, approximately 23.9% of the $2,074 million total project cost. Construction activities in the first quarter of 2012 included roadway demolition, utilities, earthwork, structures, and noise walls.

New express lanes will always carry considerable risk, based on demand for existing untolled capacity.

AP-41 Madrid-Toledo, Spain

Bloomberg reports that the highway between Madrid and Toledo, which is managed by companies including Grupo Isolux Corsan SA, Comsa SA, Azvi and Banco Espiritu Santo SA, has declared itself bankrupt at the Albacete court. The AP-41 toll road has over 500 million euros (US$646 million) of debt. It has faced financial ruin due to the collapse of the Spanish economy, as demand has dropped well below forecasts.

The road's profile is summarised below:

The new Madrid-Toledo (AP-41) toll road makes it possible to travel comfortably and safely from the Spanish capital to the imperial City, declared a World Heritage Site by UNESCO, in approximately 30 minutes. The 71.5 kilometre-long motorway, which passes by some of the most interesting and historical towns in the Community of Madrid and Province of Toledo, has new interchanges and a service area. This is a modern, fast alternative to the current A42 motorway, providing a trip without traffic back-ups and at a low cost. 

It's certainly without congestion, as it is following the news last year about the Alicante ring road's lack of demand.  Of course, the bankrupt road will continue to operate with tolls, with the creditors receiving the revenue.  However, given Spain's overall banking crisis, it would appear that this road will simply be another bad asset for some time, until its value is substantively written down.

SANRAL, South Africa

Moody's reduced the credit rating of the South African National Roads Authority Ltd following the North Gauteng High Court’s decision on 28 April 2012 to block the implementation of electronic tolling on the country’s largest toll road, the Gauteng Freeway Improvement Project (GFIP), pending a final court resolution on the matter.

The road agency’s global scale, local and foreign currency issuer ratings have been downgraded to Baa2/P-3 from Baa1/P-2, and the South African national scale issuer ratings has been downgraded to from

More recently, the government agreed on a significant reduction in e-toll rates, in return for which the authorities extended a R5.8 billion budget allocation. Thus far, the delayed implementation of e-tolls has resulted in revenue losses of approximately R2.7 billion for SANRAL, which is a sizable 40% of its estimated 2012 annual budget.

These losses will grow by an estimated R100 million each month that the delay continues and will gradually erode the company’s cash buffer.

Tolling the Gauteng project is now subject to court proceedings which are underway based on challenging the legality of using fully electronic free flow tolling.

For SANRAL's sake, it can only hope that the case is dismissed and it can get on with introducing tolls on the upgraded highways, but if it fails then South Africa may well need to look at a new approach to tolling and taxation of motor vehicles.

North Carolina Turnpike Authority

Marketwatch reports that "Fitch Ratings affirms the 'BBB-' rating on the North Carolina Turnpike Authority's (NCTA) approximately $294.5 million Triangle Expressway System senior lien revenue bond"

The Triangle Expressway will serve as a major alternative to congested free roads and as a key route to the main employment center in the region, the Research Triangle Park (RTP). Solid historical county and corridor population and employment growth is expected to continue and should support assumed traffic growth rates. 

Low Initial Toll Rates and NCDOT Planned Annual Increases: There exists the potential for lower traffic and revenue given uncertainty with perceived value of time savings and potential sensitivity to toll rates given the limited number of toll roads in the area. In Fitch's opinion the road has moderate economic ratemaking flexibility given higher-than-average wealth levels and a 2013 toll of approximately $0.15/mile. 

Significant state support for the project will be in the form of a $25 million annual payment from the state of North Carolina, which will support debt-service payments, after paying debt service on state appropriation bonds (rated 'AA?' by Fitch) (largely on the back-end of the toll revenue /TIFIA loan debt amortization), a construction assurance agreement, an operations and maintenance guaranty agreement, and a guarantee on the renewal and replacement reserve.

The Triangle Expressway will be an all-electronic road payable by either a transponder or video toll. A video will take a picture of a license plate and a bill is mailed to the driver. The NCTA currently has a tolling policy associated with the road. Two toll rates will be set: one for transponders and one for video tolling. The rates will differ across vehicle type. Initial toll rates are estimated to be around $0.15 per mile (2013 dollars). Given wealth levels of the greater Raleigh-Durham MSA and potential time savings, Fitch views the rates as reasonable. Should traffic levels not materialize as expected, Fitch believes there is some, albeit limited, flexibility to increase rates.

Manila Cavite Toll Road Finance Co

According to Reuters:  On May 22, 2012, Standard & Poor's Rating Services lowered its rating on the outstanding US$15.06 million Series 2010-1 notes (due 2022) issued by Manila Cavite Toll Road Finance Co. (MCTFC) to 'CCC' from 'CCC+'

Key points:

- the traffic of 11,000-11,500 vehicles a day on the extension road continued to be below the expectation of closer to 20,000 vehicles a day by the end of first quarter 2012.
- We believe traffic on the existing road is already reaching historical steady levels of 76,000-77,000 vehicles per day, and that traffic on the extension road is not likely to drop below its existing level of about 11,000 vehicles per day. However, it is the delay in the traffic ramp-up on the extension road that continues to hurt the project's performance. We believe traffic growth on the extension road has been affected by factors such as its relatively high toll rate, higher fuel prices, lack of awareness among potential road users, and road users getting comfortable with alternate routes.

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