OREANDA-NEWS. June 05, 2015. Fitch Ratings has assigned an 'A+' rating to State of New Hampshire's series 2015A turnpike revenue bonds and affirmed the 'A+' rating on \\$369 million of outstanding turnpike revenue bonds. The Rating Outlook is Stable.

The rating reflects New Hampshire Turnpike System's (NHTS) stable traffic and revenue performance generating strong debt service coverage (DSCR) of 2.13x in fiscal 2014 and is expected to remain above 1.7x following the issuance of the series 2015 bonds. The turnpike's 10-year capital improvement program is manageable at \\$314 million and is expected to be funded primarily through operating cash-flow without the need for toll increases.

KEY RATING DRIVERS
Important Transportation Link [Revenue Risk - Volume: Stronger]: The mature service area and strong competitive position of the turnpike system supports a stable traffic and revenue base for several major New Hampshire population centers. Annual traffic has been relatively flat since 2004, growing at a compound annual growth rate (CAGR) of 0.08% but revenues have grown at a CAGR of 6.01% following toll increases in 2007 and 2009.

Moderate Rate Making Ability [Revenue Risk- Price: Midrange]: Toll rates have been raised in recent years to maintain financial flexibility. The turnpike maintains considerable economic rate-making flexibility with an average toll of \\$1.06, which is comparable to other turnpike facilities in Fitch's rated portfolio, but faces some political challenges.

Capital Improvement Plan Funded Primarily with Pay-Go Capital: [Infrastructure Development and Renewal: Midrange]: The 2015-2024 capital plan is manageable at \\$314 million and focuses mostly on rehabilitation and widening projects. The turnpike is generally in good condition based on the latest renewal and replacement assessment by independent engineer.

Conservative Debt Structure [Debt Structure: Stronger]: Debt structure is conservative with all fixed rate bonds. The debt service schedule will be level at \\$42.1 million through 2021 following the issuance of the series 2015A bonds then decreasing to \\$34.2 million in fiscal 2022 and \\$27.4 million in fiscal 2023.

Overall Financial Margins Remain Solid: DSCR is strong at 2.13x. Net Debt to CFADS (cash flow available for debt service) is moderate at 3.64x. The turnpike also has \\$58.5 million of unrestricted cash at fiscal year-end 2014 equivalent to 503 days cash on hand.

Peers Analysis: Maine Turnpike ('AA-'/Stable Outlook) and Metropolitan Highway System-Western Turnpike (MassDOT 'AA-'/Stable Outlook) are comparable peers to New Hampshire Turnpike System which have higher coverage ratios and no additional near-term debt plans reflective of the higher rating level.

RATING SENSITIVITIES
Pricing Flexibility (Negative): Inability to raise toll rates may pressure the rating should traffic not materialize as forecasted.
Traffic and Revenue Performance (Negative): Volatile traffic and/or revenue performance over a sustained period, beyond Fitch's expectations, may pressure the rating.
Positive: While financial metrics remain solid, given peers in the 'AA' rating category, a positive rating movement is unlikely in the near term.

TRANSACTION SUMMARY
The New Hampshire Turnpike System is issuing \\$50 million of series 2015A bonds to fund several projects in the 2015-2024 capital improvement program. The series 2015A bonds will bring annual debt service requirements to a level \\$42.1 million through fiscal 2021 and will fully amortize by fiscal 2022. The bonds are expected to be priced the week of June 8th.

Traffic in fiscal 2014 increased by 3% to 111.5 million transactions while revenues increased 2.2% to \\$117.9 million. Traffic levels have been mostly flat in recent years following toll increases in 2007 and 2009 along with the economic recession and opening of the free Manchester Airport Access Road in November 2011. Fiscal year-to-date March is showing an increase of 0.5% transaction growth and 3% increase in toll revenues over the same period in 2014. The growth is primarily driven by the increased commercial traffic but partially offset by legislative directive to discontinue tolling at Bedford Road exit 12 ramp plaza in July 2014. Most recent traffic and revenue forecast provided by traffic consultant Jacobs in May 2015 anticipate some recovery in toll revenues growing at a five-year CAGR of 1.5% through 2019.

Operating expenses in fiscal 2014 increased slightly by 0.6% and is up 2.1% for year-to-date March compared to the same period in prior year. The turnpike system has been successful in keeping expense growth low in recent years by implement a 'lean staffing model' to reduce staffing hours for toll operations and the implementation of open road tolling. The turnpike conservatively budgets for potential increase in contracted service cost for fiscal 2015 and 2016 when the contract with Xerox for customer service expires.

DSCR for fiscal 2014 remains strong at 2.13x. The turnpike's near-term financial forecast using traffic consultant projections shows coverage to declining to 1.71x in fiscal 2016 and quickly increases back above 1.8x by fiscal 2019. Fitch conducted several sensitivity analyses. Under the rating case scenario which assumes a 3% decrease in toll revenues followed by 0.5% annual increase, coverage decreases to 1.5x in 2016. Fitch would expect NHTS to raise rates if coverage dropped to such levels. Fitch notes the turnpike has the economic flexibility to raise rates and have a demonstrated history of raising rates when there is a decline in debt service coverage.

The turnpike is a Bureau within the State Department of Transportation. Segments of the New Hampshire Turnpike system began operations in 1950. The turnpike consists of the Central Turnpike and Eastern Turnpike. The Central Turnpike (also known as the F.E. Everett) is a 39.5-mile segment that extends from the Massachusetts state line to Nashua, NH through Manchester and up to Concord, the state capital. The Eastern Turnpike consists of the Blue Star Turnpike and Spaulding Turnpike segments. The Blue Star Turnpike is a 15-mile segment of U.S. Interstate 95 from the Massachusetts state line to Portsmouth, NH. The Spaulding Turnpike is a 33.2-mile segment extending from Portsmouth to Milton.