Ratings Agency Goes 'Negative' on Foothill/Eastern Toll Road Bonds

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Due to declines in traffic and toll revenues, crippled further by the weakened economy, a ratings agency has revised its outlook on bonds backing the Foothill/Eastern Transportation Corridor Agency from "stable" to "negative," jeopardizing the TCA's ability to finance construction of the long-debated extension of the 241 toll road through South County.

Fitch Ratings believes the Foothill/Eastern TCA could raise tolls substantially and stay afloat, but it likely could not also afford the 241 extension, according to a release posted Monday on Business Wire:
 
Under a scenario where toll rates are increased in line with the proposed toll rate increases through 2016 and at or above inflation thereafter, it appears likely that the F/ETCA could meet all of its debt service obligations. However, such a scenario does call into question the F/ETCA's ability to support the construction of the Foothill/South extension and/or provide the SJHTCA with loan facility draws as agreed to in the Mitigation Payment Loan Agreement entered into by the two agencies in November of 2005. Under Fitch's stress case scenario which assumes sub-inflationary toll increases beyond 2019 and very limited traffic growth, the F/ETCA would continue to generate surplus cash flow for some time, but increasing debt service obligations would completely consume all net revenues by about 2030 and possibly deplete the DSRF near the final maturity of the bonds.

By comparison, Fitch notes that the Foothill/Eastern's sister agency, the San Joaquin Hills TCA, "has been very proactive in protecting the interest of SJHTCA bondholders through accelerated toll increases and that many of the members of the SJHTCA board also sit on the F/ETCA board." Fitch vowed to continue monitoring economic conditions, traffic volumes and management's response "to what appears to be a significant drop in the facility's traffic base, which could lead to weaker financial flexibility over time."

The battering the housing market is taking in Orange County and Riverside County, which generates most of Foothill/Eastern's traffic, rising jobless rates in those two counties, a 4.2 percent drop in Foothill/Eastern traffic in '08 (and a 7.9 percent drop so far in '09) and a 3.8 percent fall in '08 toll-gate revenues (and a 8.3 percent fall so far in '09) all contributed to Fitch's sour outlook.

The agency also cited uncertainty given the U.S. Commerce Department upholding the California Coastal Commission's rejection of the TCA's chosen 241 Foothill/South route.

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