The Bay Area Toll Authority's subordinate debt now carries a stable outlook from Fitch Ratings, which revised the outlook from negative Monday.
The ratings agency also affirmed AA ratings on $6 billion in senior lien toll revenue bonds and AA-minus on $3.6 billion in subordinate toll bridge revenue bonds, retaining a stable outlook on the San Francisco area agency's senior-lien bonds.
The ratings reflect "BATA's monopolistic bridge network located within the large and affluent San Francisco Bay Area, a strong pricing framework with high pricing power and low demonstrated elasticity of demand, and well-maintained infrastructure," Fitch said.
BATA's traffic recovery from the pandemic "has been disappointing in comparison to the toll road sector overall," Fitch said, but toll revenues have risen significantly over the past three years due to two $1 rate hikes authorized by voters in the 2018 Regional Measure 3.
The outlook revision "reflects solid revenue recovery to date with assumed Fitch base case revenues in fiscal 2023 reaching all-time highs," Fitch analysts wrote.
Moody's Investors Service boosted its outlook on all BATA debt to stable from negative in July. In October, Moody's affirmed its Aa3 rating on the senior debt and A1 on the subordinate bonds. S&P Global Ratings affirmed its AA senior-lien and AA-minus subordinate-lien ratings with stable outlooks in December 2021.
Fitch cited BATA's strong pricing framework that reflects unlimited legal rate-setting authority at the discretion of its board to directly support the bridge system. The board has a positive history of raising rates and of voter approval for toll-raising capital measures, suggesting limited political opposition to further toll increases, according to Fitch.
"Although the authority faces a lawsuit in relation to tolls applied under regional measure 3, a potential legal defeat could be mitigated with a toll rate hike pursuant to the authority's general tolling authority, though no such rate adjustment is planned and any related revenues would have to be used directly on the bridge system," analysts wrote.
Voter approval of RM 3 raised tolls on the region's state-owned toll bridges by $1 beginning Jan. 1, 2019. Tolls were increased by another $1 in January 2022 with another $1 increase planned for January 2025. The 2019 increase marked the first toll hike on the seven state-owned bridges since 2010. Tolls, collected in one direction only, are $7 for cars on six of the bridges and range from $6 to $8 on the busiest span, the San Francisco-Oakland Bay Bridge.
The anti-tax Howard Jarvis Taxpayers Association filed a lawsuit in 2018 challenging the legality of Regional Measure 3, losing in trial court and again in an appeals court. In the Court of Appeal ruling on June 2020, the judges affirmed the trial court's finding that the Legislature imposed the toll increase and that fees for entrance to or use of public property are not "taxes" that require two-thirds legislative approval.
HJTA appealed the case to the California Supreme Court, and it is awaiting review.
BATA has been setting aside money raised through RM3 until all of the court challenges have been satisfied.
If the state Supreme Court rules against BATA on RM3, it would require offsetting policy actions to maintain currently solid financial metrics and avoid negative rating action, according to Fitch. The authority's robust liquidity position and rate-making flexibility would provide it with time and tools to rectify its fiscal position if ultimately necessitated, though political obstacles cannot be ruled out, Fitch analysts wrote.
