Fitch rates $95 mln PA Turnpike Commission Motor License Fund-Enhanced Bonds 'AA'; Outlook To Negative

Reuters

NEW YORK, October 09 (Fitch) Fitch Ratings assigns an 'AA' rating to the

following Pennsylvania Turnpike Commission (PTC, or the commission) bonds:

--$80,765,000 motor license fund-enhanced turnpike subordinate special revenue

bonds, series B of 2013, sub-series of b-1;

--$19,896,790.8 motor license fund-enhanced turnpike subordinate special revenue

bonds, series B of 2013, sub-series of b-2.

The bonds are expected to sell via negotiation during the week of Oct. 14, 2013.

Additionally, Fitch affirms the 'AA' rating on approximately $775 million in

outstanding motor license fund-enhanced turnpike subordinate special revenue

bonds (collectively with 2013 sub-series b-1 and b-2, the bonds).

The Rating Outlook is revised to Negative from Stable.

SECURITY

The bonds are secured by a junior pledge on the trust estate, which consists

primarily of residual toll revenues, securing the commission's subordinate

revenue bonds. Ultimate security for the bonds and the rating, rest with the

ability to access certain monies in the commonwealth of Pennsylvania's (PA, or

the commonwealth) motor license fund (MLF) to fund debt service if necessary.

KEY RATING DRIVERS

STATE GO CAPS RATING: The Outlook revision to Negative reflects Fitch's view

that the commonwealth's general obligation (GO) rating caps the rating on the

bonds because the MLF is subject to interfund borrowing from the commonwealth's

general fund and there is no direct MLF revenue pledge. Following a July 15th

rating action, Fitch rates Pennsylvania's GOs 'AA'/Negative Outlook.

AVAILABILITY OF COMMONWEALTH MOTOR LICENSE FUND: While the bonds are intended to

be repaid from Commission revenues, the 'AA' rating rests upon the direction to

the state treasurer, contained in the authorizing legislation (Act 44), to draw

upon certain funds in the Commonwealth's MLF to make up any deficiency in debt

service deposits expected to be made by the Commission. Act 44 further includes

non-impairment language.

MLF FUNDS AVAILABLE WITHOUT ANNUAL APPROPRIATION: Appropriation on the part of

the Commonwealth is not necessary to access the MLF to cover a debt service

deposit deficiency.

CERTAIN MLF FUNDS RESERVED: Reserved funds within the MLF and a debt service

set-aside account have been established to facilitate timely payment in the

event of any debt service deficiencies. The fund has exhibited large daily

balances in recent years, providing sound protection should a draw on the fund

become necessary.

MLF RECEIVES CERTAIN VEHICLE-RELATED REVENUES: The MLF receives a variety of

fuel and other vehicle-related revenues that are not expected to vary

significantly from year to year barring changes in tax rates or bases.

RATING SENSITIVITIES

The rating is sensitive to changes in the commonwealth's GO rating. Leveraging

plans for the MLF as well as any changes in Commonwealth transportation funding

policy that affect the revenue performance of, or available balances in, the

fund could affect the rating. Additionally, the rating is limited by the lack of

a direct revenue pledge from the MLF.

CREDIT PROFILE

The bonds being offered represent the 10th issuance of MLF-enhanced turnpike

subordinate special revenue bonds under Act 44 of 2007 of the commonwealth (the

act), which was designed to provide additional annual support for statewide

transportation projects. The rating is based on provisions in the act that

direct the state treasurer to draw upon certain funds in the commonwealth's MLF

in the event that debt service deposits expected to be made by the commission

are insufficient. The claim on MLF revenues is stated directly in Act 44 and no

further appropriation on the part of the commonwealth is necessary. Act 44

further states the commonwealth's commitment not to impair its commitment to

bondholders.

GO LIMITATION

The commonwealth is permitted to borrow from the MLF to support general fund

cash flow needs. The reverse is also true, and the commonwealth also retains

the authority to issue tax anticipation notes as an alternative to interfund

borrowing. In Fitch's view, MLF balances are not fully segregated from general

fund operations given the general fund's ability to borrow from the MLF. This

linkage caps the rating on the bonds at the commonwealth's GO rating.

Constitutional provisions require interfund borrowing from the MLF to be repaid

by the earlier of eight months or July 31st. The commonwealth last borrowed

from the MLF in fiscal 2010 and the borrowing was repaid within the fiscal year.

Act 44 provisions described below mitigate appropriation risk and support a

rating on par with the GO.

MLF AVAILABLE FOR DEBT SERVICE

Neither the MLF nor its revenues are directly pledged to bondholders. Instead,

the claim on MLF revenues is stated directly in Act 44 which authorizes the

bonds. The subordinate trust indenture governing the bonds lays out trustee

notification requirements to the Pennsylvania Department of Transportation

(PennDOT) in the event of insufficient commission revenues. A memorandum of

agreement (MOA) between PennDOT, the commonwealth's office of the budget, and

the state treasurer spells out the timing of notifications necessary should a

draw on the MLF become necessary. Fitch believes this structure would avert a

missed debt service payment.

In addition, a special revenue bonds debt service sub-account, funded at closing

with bond proceeds to reach 50% of maximum annual debt service (MADS), is

available to be drawn upon if PennDOT or the Treasurer failed to transfer monies

from the MLF. If MLF monies are received subsequent to a withdrawal from this

account, such monies would go to restore it; however, the commission has no

obligation to maintain the balance or replenish any funds withdrawn, lessening

the fund's significance among rating factors.

The MOA also creates the PTC special revenue bond account within the MLF. The

state treasurer agrees to use best efforts to maintain the fund at a level equal

to MADS on the bonds. This account is not pledged to bondholders, but the stated

intent is to use balances in the account to cover deficiencies in commission

payments for the bonds only in the event no other funds are available in the

MLF. Under the MOA, the treasurer agrees to not access the account for interfund

borrowing. The MOA requires replenishment from first monies into the MLF from

certain sources if the account is drawn upon.

The commission's subordinate indenture specifies a rate covenant setting toll

rates to achieve 1.15 times (x) coverage of subordinate obligations and 1.0x

combined subordinate and MLF-enhanced debt service coverage. Actual coverage by

toll revenues was higher at 1.8x in fiscal 2012, and an estimated 1.6x in fiscal

2013. Act 44 limits MLF-enhanced debt to $5 billion, with no more than $600

million to be issued annually. The Commission's annually reviewed long-term

projections currently anticipate issuance of approximately $200 million each

year through 2032. These projections do not anticipate any changes to the

commonwealth transportation funding framework, such as those currently under

discussion by the legislature.

TRANSPORTATION REVENUES FLOW TO MLF

The commonwealth's MLF receives proceeds of motor fuels taxes, vehicle

registration fees, license taxes, operator license fees, as well as other excise

taxes and federal transportation revenues. Pennsylvania's constitution requires

such proceeds to be used exclusively for construction, reconstruction,

maintenance and repair of and safety on public highways and bridges and for debt

service on obligations incurred for these purposes.

Revenue performance has been fairly steady. Pursuant to Act 44, approximately

72% of fiscal 2013 MLF revenues were available to cover deficiencies in debt

service deposits for the bonds if necessary. MLF tax and fee revenues available

for debt service on the bonds increased an estimated 1.3% in fiscal 2013

year-over-year, ahead of 0.5% growth the prior year. Fitch expects, given the

nature of the sources and the Pennsylvania economy, steady to slightly declining

performance going forward barring changes in tax rates or bases. Earlier this

year, the governor proposed transportation reform that would be expected to

generate substantial new revenues for transportation. The proposal also would

terminate the Act 44 obligations of the Commission by 2023. Various proposals,

including alternatives suggested by legislators, are under consideration in the

current fall legislative session. Prospects for passage of any proposal are

unclear to Fitch at this time.

The MLF's average and minimum daily balances are significant, with fiscal 2013

levels averaging $1.1 billion and a minimum of $709 million. These balances

exclude any MLF revenues not available for debt service on the bonds. While

balances are down notably from prior years, reportedly due to increased paygo

capital spending by the commonwealth, coverage remains robust. The minimum

daily fund balance in fiscal 2013 provided nearly 8x coverage of pro form MADS

on the bonds. The additional bonds test limits MADS on all special revenue

bonds, including the proposed issuance, to no more than one-third of the ending

balance in the MLF for the prior year.

Contact:

Primary Analyst

Eric Kim

Director

+1-212-908-0241

Fitch Ratings, Inc.

One State Street Plaza

New York, NY 10004

Secondary Analyst

Laura Porter

Managing Director

+1-212-908-0575

Committee Chairperson

Karen Krop

Senior Director

+1-212-908-0661

Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email:

elizabeth.fogerty@fitchratings.com.

Additional information is available at 'www.fitchratings.com'.

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