Florida Department of Transportation -- Moody's assigns Aa3 rating to Florida Department of Transportation Turnpike Revenue Bonds, Series 2012A; Outlook stable

New York, December 07, 2012 -- Moody's Rating

Issue: Turnpike Revenue Bonds, Series 2012A; Rating: Aa3; Sale Amount: $168,405,000; Expected Sale Date: 12-04-2012; Rating Description: Revenue: Government Enterprise

Opinion

Moody's Investors Service, Inc. has assigned a Aa3 rating with a stable outlook to the Florida Department of Transportation (FDOT) Turnpike Revenue bonds, Series 2012A. We also have affirmed the Aa3 rating on about $2.9 billion of outstanding parity bonds with a stable outlook.

RATING RATIONALE:

The rating reflects continued stabilization and growth in traffic and revenue on the turnpike's large and diverse system of toll roads, following sharp declines in FYs 2008 and 2009 due to the economic recession; management's proactive steps to sharply cut operating and capital costs to maintain strong debt service coverage ratios (DSCRs) and liquidity levels and the on-going annual operations and maintenance (O&M) support from FDOT. The rating also reflects expected additional debt of $1.0 billion to finance a $2.8 billion capital work plan through 2018, which is expected to be supported from both steady traffic growth and programmed toll increases.

The turnpike serves the most populous and economically important employment centers in Florida (State of Florida - rated Aa1, stable outlook), including nearly 57% of the state's population. While the turnpike continues to expand, primarily through widening of existing roadways and construction of new interchanges in areas with population growth, it remains vulnerable to the state's weak housing market and economic dependence on tourism.

A key stabilizing factor is that turnpike management is committed to controlling expenditure growth and limiting debt issuance to ensure that the turnpike remains compliant with its internal debt management policy, which requires net revenue debt service coverage to be a minimum of 1.5 times. Operating expenses dropped approximately 10% in FY 2010, in large part due to a 25% reduction in manual toll collection, replaced with electronic toll collection (ETC) systems. Expenses increased by 4.4% in FY 2011 but dropped again in FY 2012 due to the implementation of all ETC collection on the southern Homestead Extension segment.

Over the longer term, Moody's expects the turnpike's sizeable, geographically and economically diverse service area to help soften the impacts of the broader economic slowdown. We also expect that management's prudent fiscal policies and rational capital planning practices will continue to sustain the turnpike's long track record of healthy financial operations, despite sizeable new debt planned to fund an ambitious capital program. Future rating reviews will hinge on the turnpike's ability to maintain its financial metrics as leverage increases.

STRENGTHS

*Florida's turnpike system is well-established and strategically important to the state's strong economy, providing key transportation links between southern and central Florida, and serving 57% of the state's population in 14 of the state's most populous counties. Approximately of 95% of transactions and 82% of revenue comes from two axle vehicles

*Financial performance has been consistently strong with ample liquidity, as large expenditure reductions related to increased electronic tolling offset traffic and toll revenue declines during the recession

*Florida DOT's covenant to pay annual operating expenses provides strong debt service coverage by gross system revenues and flexibility to finance the Turnpike's ambitious capital improvement plan (CIP)

*The five-year capital plan contains maintenance and system expansion projects, many of which are discretionary based on growth

*Statutorily approved toll indexing to CPI is required no later than every five years,. First increase was implemented in June 2012

CHALLENGES

*Traffic and revenue remain below peak FY 2007 levels; significant declines in FYs 2008 and 2009 due to the severe impact of the economic recession in Florida in FYs 2008 and 2009; however with the rate increase revenues should be above the historical peak in FY 2013

*I-95 lane additions, widenings and new Express lanes will likely divert some traffic at southern Mainline, though this is included in traffic forecast and is not expected to be material

*Planned debt will somewhat narrow financial margins and reduce debt service coverage, though statutorily required indexed tolling in FY 2013 is forecasted to maintain metrics at satisfactory levels

*The Turnpike is under the control of the state DOT, so rate increases are subject to approval of the Florida Secretary of Transportation, and its budget is subject to annual legislative appropriation, which could create pressure to leverage the core system to construct new projects that may not be economically feasible

*The Florida economy continues to rely heavily on tourism, making it susceptible to national and global business cycles

OUTLOOK

The stable outlook reflects Moody's view that the turnpike's fundamental strengths and strong management will contribute to the maintenance of stable financial metrics despite expected future leverage and Florida's slow recovery from the economic recession.

What could change the rating - UP

Recovery of lost traffic and revenue to historical highs that result in materially stronger coverage levels could exert positive rating pressure.

What could change the rating - DOWN

Continued declines in traffic and revenues combined with additional debt issuance that reduces debt service coverage below 1.5 times and liquidity below 400 days cash on hand could result in a rating downgrade.

The principal methodology used in this rating was Government Owned Toll Roads published in October 2012. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

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Maria Matesanz Senior Vice President Public Finance Group Moody'sInvestors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653Kurt Krummenacker VP - Senior Credit Officer Public Finance Group JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653 Releasing Office: Moody's Investors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653(C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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