OREANDA-NEWS. Fitch Ratings affirms Massachusetts Department of Transportation's (MassDOT) approximately \$33.5 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. The short duration to maturity of the debt coupled with a statutory prohibition on additional debt, very high coverage and cash balances well in excess of the debt outstanding add additional strengths.

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.

LOW TOLL RATES PROVIDE PRICING FLEXIBILITY, Revenue Risk - Price: Midrange
The turnpike provides significant economic ratemaking flexibility with remarkably low toll rates per mile and services the wealthy economy of the Commonwealth of Massachusetts. However, the highly politicized toll environment in the Commonwealth acts as a practical limit on ratemaking ability.

FACILITIES GENERALLY IN GOOD CONDITION, Infrastructure Development & Renewal: Midrange
The turnpike generally remains in good condition. In fiscal 2014, the department contributed \$36.2 million for capital reinvestment, a level consistent with historical spending.

CONSERVATIVE DEBT STRUCTURE, Debt Structure: Stronger
Additional debt relating to the Western Turnpike is statutorily prohibited and the outstanding bonds mature in 2017. Annual debt service obligations decline to \$16.8 million in 2017 from \$20.4 million in 2014.

STRONG COVERAGE AND LOW LEVERAGE
Debt service coverage improved to 3.46x in fiscal 2014 from 3.02x in fiscal 2013 as a result of lower debt service and increasing revenues. Financial leverage is below zero, with the authority having more cash available for debt service than debt outstanding. The department's cash position is also strong with \$150.8 million in the general fund, equivalent to 517 days cash on hand.

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

--Negative: Underperformance of traffic revenue and higher expense growth leading to a decrease in debt service coverage below 2x;
--Negative: Diversion of surplus cash to MassDOT would impact funding levels available for turnpike improvements.
--Positive: Given the restriction to additional debt and short duration to maturity, positive rating action is unlikely.

CREDIT UPDATE

Traffic at the turnpike has historically proven to be stable and decreased marginally at a 10-year compound annual growth rate (CAGR) of -0.1%. The turnpike has seen recent revenue growth due to the tolling of exits 1-6. Users at those points have previously been accounted for in traffic numbers but were untolled. Traffic in fiscal 2014 was flat while revenues increased 9.4% reflecting the aforementioned new tolling points. Through the first seven months of fiscal 2015, traffic is flat and revenues are up a further 7.8%. Operating expenses increased by 11.6% in fiscal 2014 after increasing by 7.2% in the previous year, primarily due to variable costs such as snow and ice removal, transponder purchases, and tolling costs related to the new gantries. Steady financial performance along with lower debt service in 2014 produced higher debt service coverage which increased to 3.46x from 3.02x in 2013. Going forward, a declining debt service schedule will provide more flexibility against lower than expected revenue growth and higher expense growth, which can be volatile depending on severe weather conditions.

Under Fitch's base case scenario which assumes flat traffic growth along with moderate expense growth, coverage remains above 3.3x through bond maturity in 2017. Fitch's rating case scenario assumes an increase in operating expenses due to severe weather and slight traffic declines. Under this scenario, coverage remains above 2.8x. Fitch notes that coverage levels produced under the stress case scenario are consistent with the current 'AA-' rating.

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 WT.

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.