Oklahoma Turnpike's $500 million of bonds rated Aa3 by Moody's

Moody's Investors Service rated the Oklahoma Turnpike Authority's controversial issuance of initial debt for a $5 billion, 15-year expansion program Aa3 with a stable outlook. 

The rating agency, which previously considered a debt increase for the ACCESS (Advancing and Connecting Communities and Economies Safely Statewide) Oklahoma program a negative credit factor for OTA, was the first to release a rating for the $500 million of second senior revenue bonds.

"The Aa3 rating reflects OTA's well-established, multi-asset, essential inter- and intrastate connector status with a history of sound management with strong financial metrics that we expect to be maintained despite OTA's new large, multi-year capital expansion program," Moody's said in a report.

Oklahoma Department of Transportation

The ACCESS Oklahoma program has been the target of litigation and political scrutiny driven by property owners surprised to find themselves in the path of proposed toll road extensions.

While OTA is eying a bond pricing as early as next month, it must await pending action by the state Supreme Court.

The Oklahoma Council of Bond Oversight's approval Monday of the debt issuance in a 3-1 vote is subject to the resolution or dismissal of a petition for a rehearing before the high court over its August decision validating the debt.

Moody's, which also affirmed its Aa3 rating for OTA's $1.6 billion of outstanding parity bonds, made no reference in its report to the lingering court matter or to an investigative audit of OTA ordered by Oklahoma Attorney General Gentner Drummond in March.

At that time, Drummond cited concerns about "improper transfers between the OTA and the Department of Transportation; improper contracting and purchasing practices; and inadequate internal financial controls." 

In a December 2021 report, Moody's said the ACCESS Oklahoma capital plan was a negative credit factor for OTA because it would primarily be debt financed and repaid with toll revenue, "substantially increasing OTA's leverage beyond its current $1.8 billion of direct debt outstanding."

Moody's analysts were unavailable for comment Friday.

In its Thursday ratings report, Moody's said the Aa3 rating incorporates the forecast increase in total leverage from the $500 million of bonds, as well as future debt expected to be issued for the ACCESS program. 

"OTA expects to maintain near-term debt service coverage ratios (DSCRs) of at least 1.8 (times) over the next couple of years in its base case forecast that incorporates reasonable annual revenue growth of 1% and does not assume new toll rate increases," Moody's said, while warning a downgrade could result if total DSCRs fall below 1.5 times on a net revenue basis.

The report also said Moody's expects "OTA to balance the pace of new debt issued over the medium-term commensurate with traffic and revenue growth to ensure its sound forecast financial metrics are maintained," noting OTA has a history of adjusting toll rates when needed.

Moody's rating affirms what OTA maintained throughout the development of the ACCESS plan, by "stressing the authority's history of sound management and strong financial metrics as a key reason for maintaining the… high rating," OTA said in a statement.

Last month, Stan Ward, an attorney for property owners who unsuccessfully sued over the ACCESS, program contacted rating agencies, investment banks, bond counsels, bond trustees, and others, calling on them to conduct due diligence to protect current and prospective OTA bondholders.

A team of underwriters for the bond sale has been in place since last year, although Wells Fargo resigned as lead underwriter in May in the wake of its placement on the Oklahoma Treasurer's list of companies banned from government contracts for "boycotting" the oil and gas industry. RBC Capital Markets was tapped as its replacement.