Toll Roads and Toll Bonds

By Fester:

I have been vacationing in West Virginia this week and reading the local papers and I noticed the following story that could be a precursor of future government limited obligation bond problems.  The West Virginia Turnpike system is facing some financial troubles do a combination of a declining credit rating of its bond insurer, FGIC, lower toll collections and less traffic:

Moving to counter a revenue loss prompted by a decline in Turnpike traffic and high interest on unpaid bonds, the West Virginia Parkways Authority agreed Tuesday to refinance its outstanding $59.1 million package for a smaller rate.....

June traffic plummeted by 6 percent, and that meant a 5 percent drop in toll collections, Manager Greg Barr pointed out.

Under its old arrangement with Financial Guaranty Insurance Co., interest rates were climbing because the firm ran into a quagmire in a national sub-prime trauma and its credit rating slipped from the top-ranked AAA to A3. In June, the 88-mile toll road lost some $250,000, as fewer tolls were collected at the tollgates.

The Authority is replacing its low rated underwriter with a AAA rated underwriter to save some money, however this is a one time fix.  It provides some breathing room for the authority to hope for toll revenues to rebound back to the projected trend. We have seen Americans cut back on the miles they drive
as a response to higher gasoline prices.  We may be seeing the inklings of a deceleration of the trend towards the exurbanization of settlements.  If these trends continue, the one time fix of bond refinancing will not be enough for the West Virginia Turnpike Authority or any other bond issuer that is relying on increased toll collection to back those bonds. 

This could be a wave of failures in a few years as reserves and one-time fixes are exhausted. 

Comments

[Fraud Guy]

Amusing, as I have had to increase my local use of toll roads, as they cut miles off of some local shopping. Basically, if I save 2 miles, 6 stoplights, and 5 minutes by using the toll road, getting 20mpg, then paying $0.35 for a one mile toll jaunt saves me money. The economy is only there because gas is over $3.00/gal.