Metropolitan Highway System, MA 'A+' Bond Ratings Affirmed

BOSTON (S&P Global Ratings) April 15, 2019--S&P Global Ratings has affirmed its 'A+' long-term rating and underlying ratings (SPUR) on the Massachusetts Department of Transportation's (MassDOT) senior-lien revenue bonds issued for the Metropolitan Highway System (MHS) using our "Rating Government-Related Entities" (GRE) criteria (published March 25, 2015 on RatingsDirect) and our "U.S. And Canadian Not-For-Profit Transportation Infrastructure Enterprises" (TIE) criteria (published March 12, 2018). The senior-lien bonds are secured by net revenues derived from the MHS toll road system, which, along with annual contract assistance payments from the commonwealth, support $1.7 billion in debt–approximately $893 million on the senior lien and $834 million on the subordinate lien. The outlook on the senior lien is stable. The subordinate lien benefits from a first claim on contract assistance payments and is rated 'AA/Stable' under our state criteria. (See "Massachusetts Department of Transportation’s 2019A-B Bonds Rated ‘AA’ With A Stable Outlook," published on Jan 3, 2019.)
At the same time, S&P Global Ratings affirmed its 'AA+/A-1' rating and 'A+' SPUR on MassDOT's $100 million senior-lien variable-rate series 2010A-1 revenue bonds, backed by a letter of credit (LOC) from Citibank N.A. S&P Global Ratings also affirmed its 'AA+/A-1' split rating and 'A+' SPUR on MassDOT's $107.6 million senior-lien variable-rate series 2010A-2 backed by an LOC from Barclays Bank N.A. We base the joint ratings on both the ratings on the banks and MassDOT's senior-lien bonds assuming low correlation.
"Specifically, our enterprise risk profile incorporates our view of MHS' extremely strong service area fundamentals, very strong market position, low industry risk relative to other sectors that we rate; and strong governance and management," said S&P Global Ratings credit analyst Kurt Forsgren.
Overall, the 'A+/Stable' rating assigned to the senior lien reflects two views: a high likelihood of extraordinary support provided by the Commonwealth of Massachusetts (AA/Stable) applying our GRE criteria, combined with the stand-alone credit assessment (SACP) of the MHS by itself (a-/Stable) applying our TIE criteria. In particular, the 'a-/Stable' SACP of MassDOT's MHS senior-lien debt is based on our opinion of the turnpike system's very strong enterprise profile and adequate financial risk profile. Elements of our enterprise risk profile include MassDOT's role as operator of a comparatively small but very important 12-mile urban commuter toll road (a portion of Interstate 90) and three-tunnel system connecting Boston to the regional road network and international airport. Our financial risk profile is based on MHS' vulnerable financial performance, its strong debt and liabilities position offset by only adequate liquidity and financial flexibility. The system has high ongoing maintenance and capital requirements due to its tunnel and subterranean segments.
System net revenues secure the bonds derived from toll revenues, fees, fines, violation charges, rental income, interest, and contract financial assistance revenues received by MassDOT from the commonwealth. MassDOT oversees four divisions, including Aeronautics, Registry of Motor Vehicles, Rail and Transit, and Highways (including the toll-supported MHS).
"The stable outlook reflects our expectation of uninterrupted contract assistant payments from the commonwealth at current levels with steady operational metrics and sufficient financial performance incorporating annual pay-as-you-go capital maintenance included in current expenses," added Mr. Forsgren. We view the ongoing maintenance and capital reinvestment into the MHS system--particularly the tunnels and underground elements--as a significant ongoing financial requirement and critical to its overall credit profile.
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