S&P Global Ratings dropped the outlook for the Maryland Transportation Authority's outstanding revenue bonds to negative from stable due to concerns about the federal funding promised to rebuild a demolished section on a key toll bridge in Baltimore.
"The outlook revision to negative reflects our view that there is at least a one-in-three chance we could lower the rating within the two-year outlook if potential project cost escalations and uncertain timing of future federal reimbursements weaken the authority's ability to sustain financial metrics at levels comparable with those of peers as it finances the reconstruction of the Francis Scott Key Bridge and its $5.1 billion capital improvement program," said S&P Global Ratings credit analyst Andrew Stafford.
S&P affirmed its 'AA-' long-term rating and underlying rating on the MDTA's outstanding revenue bonds. It signaled the agency could "lower the rating if actual financial performance trends negatively and is materially weaker than currently forecast due to construction cost escalations, project delays, or softening demand."
S&P also does not anticipate raising the rating over the two-year outlook period, given MDTA's relatively high debt burden and additional borrowing plans.
The bond-financed toll bridge was struck by the Singapore-flagged container vessel Dali on March 26, killing six men working on the bridge when the structure substantially collapsed. The federal government pledged to financially support rebuilding the structure, but Congress has also quibbled with how much the federal government should pay to fix a state-owned toll bridge.
Typically, state projects are available for 80% reimbursement of funds while federal projects can qualify for up to 90% reimbursement. The Trump administration has a history of interrupting the flow of federal funds for already approved infrastructure projects.
The Biden administration approved $60 million for emergency funding for the project as the estimates to complete the job range from $1.7 to $1.9 billion.
Estimates for the insurance reimbursement are currently $350 million. The Key Bridge generated $56.8 million in toll revenues for the state of Maryland in 2023.
In February the MDTA announced three $20 million contracts for construction management and inspection services for the project as Maryland Gov. Wes Moore unveiled the design concept which will convert the bridge into the state's first highway cable-stayed bridge.
The new bridge will be longer and taller with more distance between the pylons and has an expected life span of 100 years.
S&P's move follows a Moody's Ratings action from last year that changed the MDTA's outlook to negative from stable while also affirming its Aa2 rating of about $2.2 billion of outstanding debt. At the time, the big concern was the rebuilding costs.
Per Moody's, "The revision of the outlook to negative from stable reflects the uncertainty around the Francis Scott Key Bridge replacement project's costs, including their funding, and timing. Any negative impact from the replacement project would be on top of financial metrics that were expected to narrow from capital investments prior to the loss of the bridge."
