Fitch Affirms New York State Thruway Authority $2.7B Trust Fund Bonds 'A+'

Business Wire, August 9, 2005

NEW YORK -- Fitch Ratings affirms the 'A ' rating assigned on July 6 to the New York State Thruway Authority's second general highway and bridge trust fund, series 2005B bonds, and affirms the 'A ' rating on $5.5 billion outstanding first and second general highway and bridge trust fund bonds. The $2.7 billion 2005B bonds are expected to sell the week of Aug. 15 through negotiation with a syndicate led by Goldman, Sachs & Co.

The 2005B bonds were originally scheduled to sell the week of July 18. Since that time, the transaction has been modified to shorten the final maturity of the refunding portion of the 2005B bonds from 2025 to 2021 and eliminate the debt service reserve fund requirement for bonds issued under the first general resolution, thereby freeing up additional moneys to apply to the refunding and reducing the size of the 2005B offering. Fitch has not made a rating distinction between bonds issued pursuant to the first general resolution and the second general resolution, which does not provide for a debt service reserve. As such, the elimination of the reserve fund requirement for the first general resolution does not affect the rating on the outstanding bonds.

The bonds are payable from dedicated highway and bridge trust fund revenues, subject to annual appropriation by the state legislature in the form of cooperative agreement payments. With debt service payment requiring appropriation, the 'A ' rating is based on the credit quality of the State of New York, whose general obligations are rated 'AA-' by Fitch.

The series 2005B transaction will significantly restructure the debt service requirements of the trust fund borrowing program. The refunding will lower debt service by about $1.3 billion during the five-year term of the state's current highway and bridge capital program, providing much-needed funding capacity. The transaction increases debt service requirements between fiscal years 2011 and 2021, although it does not extend the final maturity beyond that of the refunded debt or the useful life of the funded assets, and achieves present value savings and no aggregate dis-savings. A 2.0 times (x) historical additional bonds test provides protection to bondholders. In addition to the restructuring, the transaction will provide about $420 million in new money.

The new bonds are issued pursuant to the second general resolution and are junior to outstanding bonds issued under the first general resolution. The financing moves about $1.9 billion of the $3.7 billion outstanding first lien bonds to the second lien. The first resolution is closed except for refunding.

The authority is the financing agency for the state's multiyear highway and bridge capital programs. The program for fiscal years 2006-2010 totals $17.9 billion, to be funded through proceeds from highway and bridge trust fund bonds, pay-as-you-go spending (including federal assistance), and other bond issuance, including under the state general obligation credit if a transportation bond act proposal is approved by voters in November. Full funding has not been identified for the final year of the program, and additional steps will need to be taken if the bond act is not approved. The borrowing authorization for the highway and bridge trust fund program was recently increased to $16.5 billion, with $7.7 billion issued to date counting against this cap.

Dedicated revenues in the highway and bridge trust fund totaled approximately $1.8 billion in fiscal 2005 and provide 2.7x coverage of post-restructuring maximum annual debt service (compared with 2.5x coverage before the restructuring). Given the size of the highway and bridge capital program and the limited funding available, coverage is expected to return to near the 2.0x additional bonds test level.

The highway and bridge trust fund receives dedicated portions of the petroleum business tax (about 34% of dedicated revenues), motor vehicle fees (25%), motor fuel tax (23%), and various other transportation-related taxes and fees. Changes have been made to the dedicated taxes and fees over time, with the state consistently taking action to maintain the fund's integrity. Most recently, in the fiscal 2006 budget, the state allocated additional revenues totaling about $112 million on an annualized basis to the fund. These are new moneys for transportation, in contrast to past reallocations that were made primarily to enhance legal coverage.

The bonds enjoy additional security derived from various impoundment provisions triggered if the legislature fails to appropriate. The state would be unable to receive excess sales tax revenues held by the Local Government Assistance Corporation (LGAC), which contributed about $2.2 billion to the general fund in fiscal 2005. In addition, the state would not receive funds from the highway and bridge trust fund capital account to provide for pay-as-you-go highway and bridge projects. The state's commitment to these bonds is further evidenced by provisions for shortfalls in any appropriated amounts to be transferred from the capital account, and, if necessary, from the state's general fund, without additional appropriation.