Fitch Ratings has assigned an 'A' rating to the New Jersey Turnpike Authority's (NJTA) approximately $109.555 million series 2016A turnpike revenue bonds. The Rating Outlook is Stable.

The bonds are expected to sell on or about Jan. 14, 2016.

KEY RATING DRIVERS

The rating reflects continued stable traffic and revenue performance of both the New Jersey Turnpike (the turnpike) and Garden State Parkway (the parkway), NJTA's continued prudent operating cost management and ability to deliver significant capital improvements as detailed in its current $7 billion plan running to 2018 ahead of time and on budget. Additional debt of about $1.3 billion is expected to be raised over 2016-2018 and is not anticipated to be significantly detrimental to financial metrics, given toll increases implemented ahead of the capital plan. Fitch views the authority's sufficient economic rate-making flexibility to bolster its financial position as key.

Revenue Risk: Volume - Stronger

Mature Traffic Profile Serving Key Commuter and Interstate Routes: The turnpike forms a vital link in the key I-95 interstate route, providing important commercial links between New York City, Philadelphia, Baltimore and Washington DC. At the same time, the turnpike and parkway serve major, wealthy, established and stable commuter populations in New Jersey and suburbs of New York City, accounting for the bulk of toll revenue generated by the system. Fitch views toll rates on both the turnpike and parkway of $0.11 per mile and $0.04 per mile, respectively, as low and considers future toll increases in the near- to medium-term as affordable if required.

Revenue Risk: Price - Midrange

Rate-Making Flexibility Constrained by Political Willingness: The authority benefits from unlimited legal authority to change toll rates as it needs. Nevertheless, some doubt remains as to the level of political support any such toll increases would have within the state.

Infrastructure Development/Renewal - Midrange

Well-Defined Capital Plan Largely Debt-Funded: NJTA's $7 billion 2009 - 2018 capital investment plan (CIP) is on schedule and on budget, with additional works included as a result of savings made in the original plan. However, it is largely debt funded, with an additional $1.325 billion of debt required over the remainder of CIP. State transfers made after debt service constrain the authority's ability to build up cash reserves to fund future infrastructure investment, implying future renewal works will require additional debt funding.

Debt Structure Risk - Stronger

Swaps Hedge Variable-Rate Risk But Create Basis Risk: NJTA maintains around 15% of its debt profile as variable rate debt, almost entirely hedged with interest rate swaps with counterparties of adequate financial strength. The use of SIFMA-indexed swaps to hedge LIBOR-linked debt creates a mismatch that can distort the authority's cash flows. However, NJTA has been reducing its exposure to basis risk through recent debt refundings, with currently about 42% of the variable-rate debt bearing basis risk compared to close to 70% in prior years. NJTA has entirely removed reliance on sureties to support liquidity, with cash funding of the debt service reserve to covenant levels.

Financial Metrics

Moderate Leverage and Liquidity: Net debt-to-cash flow available for debt service (CFADS), reflecting the debt service reserve balance of $590 million and the required minimum balance of $75 million in the general reserve as cash deducted from gross debt, was relatively elevated at approximately 8.2x in 2014, and is expected to rise further over the next few years to around 8.5x in the Fitch base case. Despite this, debt service coverage ratios (DSCR) should remain robust, averaging at around 1.5x through the end of the forecast period in 2021. Furthermore, Fitch believes the authority retains the economic ability to increase tolls in the medium term in order to support its financial profile should traffic levels not meet expectations.

Peers: Peers to NJTA with similar toll and transaction profiles include Pennsylvania Turnpike Commission (PTC, senior and subordinate liens rated 'A+' and 'A-', respectively, by Fitch), and Maryland Transportation Authority (rated 'AA-'). PTC's ratings reflect its sizable CIP and the expectation of relatively stronger senior lien DSCR levels of around 2x compared to NJTA's 1.5x, yet lower subordinate lien DSCR managed at around 1.3x and higher all-in leverage of around 12x. Maryland TA's rating largely reflects lower leverage and higher coverage metrics.

RATING SENSITIVITIES

Negative - Weaker Coverage Ratios: Erosion of DSCR in the medium term significantly below 1.5x for a sustained period.

Negative - Higher Leverage: Increases in leverage materially beyond the authority's planned $1.3 billion in additional debt to fund the balance of the 10-year, $7 billion CIP without corresponding toll increases.

Negative - Increased Transfers: Materially increased transfers from NJTA to the state in order to support state transportation projects without commensurate toll increases to ensure system preservation.

Positive - Given NJTA's sizable and ongoing borrowing plans for the near- to medium-term, upward rating action is not likely at this time.

SUMMARY OF CREDIT

NJTA expects to issue $109.555 million in series 2016A refunding revenue bonds as part of the funding plan for its 2009-2018 $7 billion CIP. Proceeds will also cover the costs of issuance for series 2016A. The bonds will be fixed rate, amortizing through 2035 and will be on parity with existing NJTA revenue bonds.

Over the first 11 months of 2015, revenue was $1.58 billion, about 0.3% above projections and the same period last year and 5.3% up on revenue generated over the same period in 2014. Growth since March offset weaker performance in the first few of months of the year stemming from winter weather and two state of emergency storms during the first quarter. Total system toll revenue for the year is expected to grow by 5.6%, exceeding the forecast of 2.4% growth for 2015.

For more information on the New Jersey Turnpike Authority please see Fitch's press release 'Fitch Affirms New Jersey Turnpike Authority's Turnpike Revs at 'A'; Outlook Stable,' dated June 3, 2015 and available at www.fitchratings.com.

SECURITY

Turnpike revenue bonds are secured by a first lien on pledged net revenues, which are defined as all tolls, revenues, fees, rents, charges, and other income derived from operating the turnpike (including Build America Bond subsidies), proceeds from business interruption insurance, amounts deposited in the revenue fund from the construction/special project reserve/or general reserve funds, and revenues from qualified swaps and investments.

Date of Relevant Rating Committee: June 2, 2015

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria

Rating Criteria for Infrastructure and Project Finance (pub. 28 Sep 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=870967

Rating Criteria for Toll Roads, Bridges and Tunnels (pub. 29 Sep 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=870170

Additional Disclosures

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=997543

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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