Incredibly, despite the risky nature of the North Tarrant Express project, which privatizes portions of I-820 and SH 121, note in the last paragraph that even if the private developer Spanish company, Cintra, is off in its projections by 50%, it can still cover its debt: "On North Tarrant Express, Moody's noted in its rating report that the traffic and revenue projections are aggressive but that even if the revenue is off by 50 percent, the developer could still pay its debt service." That means your toll rates are jacked up sky high if they can be off by as much as 50% and still cover their expenses!
North Tarrant Express gets lower rating than other bond projects
Posted Tuesday, Sep. 06, 2011
By Gordon Dickson - Star Telegram
Bonds sold for North Tarrant Express earned a middle-of-the-road rating, partly because analysts can't be certain that enough people will use the toll lanes to raise the money to pay off the debt.
The project, which includes rebuilding Northeast Loop 820 and Texas 121/183 with both toll and nontoll lanes in Northeast Tarrant County, is considered financially solid, according to a report published last week by Moody's Investors Service. Even so, North Tarrant Express got a lower rating than other bond projects in Dallas-Fort Worth, including toll road projects financed by the North Texas Tollway Authority.
The rating of Baa2 for senior debt and Baa3 for subordinate debt shows that the North Tarrant Express project isn't a terribly risky investment, but it's not fail-safe, either.
"You have to predict people's appetite and tolerance for paying a toll in a toll lane, when there's a freeway lane right next to you," said Laura Barrientos, a Moody's analyst who helped prepare the North Tarrant Express report. "The Baa2, for a project that's in construction, is actually a very good rating."
NTE Mobility Partners is the developer responsible for widening Loop 820 and 121/183, adding toll lanes and rebuilding the free lanes. The developer is using private activity bonds and a federally backed transportation infrastructure loan to pay for some of the $2.1 billion construction. The money is to be repaid by tolls collected on managed lanes in what is now the median.
Solid, with risks
Those who follow bond markets say the Moody's ratings for North Tarrant Express are the lowest that bonds can earn while still being considered investment-worthy -- not junk. According to Moody's definition, the ratings carry a moderate credit risk with "certain speculative characteristics."
NTE Mobility Partners is lead by Cintra, a Spanish company that is also building the LBJ Express project on Interstate 635 between Grapevine and Dallas. Bonds for LBJ Express have earned similar ratings.
Such ratings are normal for toll projects being built in an area where motorists have free options and where the popularity of the toll lanes won't truly be known until they open, several officials with experience in toll finance said.
The report describes North Tarrant Express as financially solid but highlights a few potential risks. First, as with any road project funded by bonds, there is a risk that construction will be slowed, which could delay repayment of the debt. But specific to the North Tarrant Express project, there is also uncertainly about how much motorists will embrace paying tolls in a corridor they're accustomed to using for free.
North Tarrant Express will be among the first projects with so-called variable pricing, meaning the price can change by the minute, depending on traffic. To limit traffic on the toll lanes -- two in each direction -- tolls can range from $2 to $10 to travel the entire 13-mile corridor, NTE Mobility Partners spokesman Robert Hinkle said. The idea is to ensure that traffic flow stays at least 50 mph on the toll lanes, whereas traffic on the free lanes will likely remain congested during peak travel times.
"The Moody's investment grade rating of NTE shows confidence in the project," Hinkle said.
State is satisfied
The Texas Department of Transportation, which has entered into contracts with outside developers for North Tarrant Express and LBJ Express, was mainly concerned that both projects be considered investment-grade, not junk, said James Bass, the agency's chief financial officer. Officials at the agency are satisfied that the ratings are unchanged since the project agreements were signed nearly two years ago.
"Right now, people are making investments in large part based on revenue forecasts," Bass said. "What you'll see oftentimes is as a roadway gets past the construction risk and starts dealing with actual revenue, then there might be an opportunity for that rating to be adjusted upward."
But the tollway authority, which builds more-traditional toll projects in the Metroplex, typically gets higher ratings.
In July, the authority issued $100 million in revenue bonds, which were rated AA1 and A-plus by Standard & Poor's, and P1 and A1 by Moody's -- all ratings that indicate a low credit risk.
Those bonds were backed by the entire Dallas-area tollway system, meaning that even if revenue from tolls collected on one road fell below projections, revenue from another road could pay the debt.
But even the tollway authority sometimes struggles with bond ratings. Last month, a different series of tollway bonds issued in 2008 was dropped from an A-minus rating from S&P to "nonrated," which is considered noninvestment grade. The move came shortly after the U.S. government's rating was dropped. Tollway officials said they don't expect S&P's action to affect the agency's ongoing projects.
On North Tarrant Express, Moody's noted in its rating report that the traffic and revenue projections are aggressive but that even if the revenue is off by 50 percent, the developer could still pay its debt service.