OREANDA-NEWS. Fitch Ratings has affirmed Massachusetts Department of Transportation's (MassDOT) approximately $16.3 million of Western Turnpike (the turnpike) revenue bonds at 'AA-'. The Rating Outlook remains Stable.

The rating reflects an established system with a history of stable traffic and increasing revenues. High coverage levels and cash balances well in excess of the debt outstanding are very likely to support the bond through its short term to maturity in January 2017.

KEY RATING DRIVERS

Mature and Stable Asset (Revenue Risk - Volume - Stronger): The Western Turnpike is a mature asset with over 50 years of stable traffic history. The turnpike is highly monopolistic and provides a key interstate connection for commercial and passenger traffic. Toll rates are also relatively low and therefore provide significant economic ratemaking flexibility.

Low Toll Rates, High Pricing Flexibility (Revenue Risk - Price - Midrange): The system operates in a highly politicized toll environment as the Commonwealth acts as a practical limit on ratemaking ability.

Facilities in Good Condition (Infrastructure Development & Renewal - Midrange): The turnpike generally remains in good condition. In fiscal 2015, the department contributed $41.3 million for capital reinvestment, a level consistent with historical spending. The turnpike will benefit from the new capital program developed by MassDOT and Massachusetts Bay Transportation Authority (MBTA), which prioritizes system reliability, assets modernization and capacity expansion across the entire transportation system. MassDOT has identified $9.1 billion in known and estimated sources for the entire system, from which the turnpike will partially benefit.

Conservative Debt Structure (Debt Structure - Stronger): Additional debt relating to the Western Turnpike is statutorily prohibited and the outstanding bonds mature in January 2017, for a modest final debt service obligation of $16.5 million.

Strong Coverage; Low Leverage: Debt service coverage improved to 3.79x in fiscal 2015 from 3.46x in fiscal 2014 as a result of lower debt service and increasing revenues. Financial leverage is below zero, with available cash of $177.8 million or 624 days cash on hand, exceeding the debt outstanding.

PEER ANALYSIS

Maine Turnpike ('AA-/A-'/Stable Outlook) and New Hampshire Turnpike ('A+'/Stable Outlook) are among Western Turnpike's closest peers, each operating strong turnpike systems comprising both urban and rural segments. Western Turnpike and Maine Turnpike feature higher debt service coverage ratios than New Hampshire, reflective of their higher rating level.

RATING SENSITIVITIES

Rating changes are unlikely given the short debt maturity and the strength of liquidity in supporting final debt service obligations due in January 2017.

SUMMARY OF CREDIT

The Western Turnpike was completed in 1957 and comprises a portion of the interstate highway system connecting Boston to Chicago. The 123-mile turnpike is designated as I-90 and extends from the New York State border in the west to Route 128 in the east. There are two travel lanes in each direction from Interchange 1 in West Stockbridge to Interchange 9 in Sturbridge, spanning approximately 79 miles. The remaining 44 miles consist of three lanes in each direction to Interchange 15, where the turnpike connects with the Metropolitan Highway System. Routes 2, 9, and 20 are alternate routes but provide limited competition, with Route 2 serving the northern part of the Commonwealth and Routes 9 and 20 serving shorter distance trips along the southern end of the Commonwealth, parallel to the turnpike.

Traffic and revenue at the turnpike has historically proven to be stable. Traffic and revenue increased at a 10-year compound annual growth rate (CAGR) of 0.3% and 2.1%, respectively. The turnpike has seen higher revenue growth than traffic due to the tolling of exits 1-6 since fiscal 2014. Users at those points have previously been accounted for in traffic numbers but were untolled. Traffic in fiscal 2016 increased by 4% and revenues are up a further 6.3%. Operating expenses increased by 6.9% in fiscal 2015 and is projected to increase by 3.7% in fiscal 2016. Overall, debt service coverage continues to improve due to increasing revenues and declining debt service obligations.

Steady financial performance along with lower debt service in 2015 produced higher debt service coverage which increased to 3.79x from 3.46x in fiscal 2014. Ample cash levels and current high coverage levels are deemed sufficient to service debt in January 2017.

Under Fitch's base case scenario, debt service coverage decreases to 3.43x. The scenario adopts management's fiscal year (FY) 2016 projections and conducts a one year forecast to assess coverage in FY2017. Traffic and revenues are assumed to grow moderately by 1.5% in FY2017, combined with expense growth of 4%. Revenue leakage is also assumed to be 8% of toll revenues as the All Electronic Tolling (AET) system rolls out. Under a combined stress in Fitch's rating case scenario of no growth in traffic and revenue, and expenses slightly higher than the base case at 4.5%, debt service coverage is 3.09x and sufficiently robust to cover debt obligations through maturity.

SECURITY

The bonds are secured by a pledge of net revenues derived from the turnpike, including toll revenue and concession revenue associated with fuel stops and restaurants located in turnpike service stations.