Completion of a replacement Tappan Zee Bridge while keeping debt levels in check triggered an upgrade to New York State Thruway Authority bonds.
Moody’s Investors Service upgraded the authority’s senior revenue bonds to A1 from A2 and junior revenue bonds to A2 from A3 Tuesday. The rating outlook on the $5.375 billion of senior and junior lien debt was concurrently revised to stable from positive.
The upgrades were announced the same day that the eastern part of the old Tappan Zee Bridge was demolished with explosives. A $4 billion project to replace the three-mile span linking Westchester and Rockland counties was completed last year through a design-build venture with Tappan Zee Constructors.
Moody’s analyst Maria Matesanz noted that the credit boost was aided largely by the Tappan Zee Bridge replacement getting built on time and within budget. The NYSTA also benefits from a project contingency that offsets the remaining “relatively modest” construction and demolition costs, according to Matesanz. New York State grants totaling $1.985 billion for the major infrastructure initiative will also offset the need for greater debt leverage.
New York Gov. Andrew Cuomo dedicated $1.3 billion of funding in the state’s 2016 fiscal year budget toward the bridge replacement and to support the entire 57-mile Thruway system so toll rates could remain flat through at least 2020. A $1.6 billion federal loan under the Transportation Infrastructure Finance and Innovation Act also aided the project.
“The A1 senior and A2 junior lien ratings are based on the authority's multi-asset system that is essential to the region and the authority's stated policy to maintain stable debt service coverage ratios above bond resolution requirements through the implementation of toll increases or other revenue adjustments as needed by 2022,” Matesanz wrote.
The bonds are secured by net revenues of the thruway system after payment of operating and maintenance expenses. A debt service reserve fund also backstops the senior lien bonds and Series 2016A junior indebtedness obligations. Matesanz said the junior lien bonds are rated one notch lower because of lower payment priority in the flow of funds, weaker legal covenants and containing less of a debt service reserve fund.
“We view as a credit negative and potential credit pressure the lack of a clear public tolling policy to pay for outstanding, steeply escalating debt service for the new bridge as well as for other essential thruway capital projects, and to maintain the system assets in a good state of repair,” said Matesanz.
The NYSTA’s 2017 toll revenue was $24.2 million above budget forecasts with revenues for 2018 expected to increase slightly once the final numbers are finalized. Non-toll revenues grew from $41 million in 2016 to $60.6 million in 2017 due largely to eliminating E-ZPass discounts for non-New York State drivers along with new fees and fines associated with electronic tolling on the new bridge.
