Toll Road Muni Bonds Has Improved Over the Past Five Years

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Fixed-Income Insights

Behind the improving credit quality for toll road muni bonds is a growing U.S. economy and low gas prices; both are driving traffic volume higher. 

The credit quality of toll road muni bonds has continued to improve over the past five years, boosted by strong demand for facilities, as well as rate increases, and operating efficiencies. Since 2014, of the 18 largest issuers (each with $1 billion in debt or more), 14 have been upgraded, one has been downgraded, and three have had their ratings affirmed by the major credit-rating agencies (see Table 1).


Table 1. The Credit Quality of Toll Road Muni Bonds Has Improved Over the Past Five Years

Source: Criteria – Pure Toll revenue pledge, no express lanes, minimum $1 billion in long-term debt. Debt outstanding of entity not any particular lien. The ratings for PA Turnpike and Ohio Turnpike are Senior ratings. *Plan to convert to 100% by 2020.   ̂Over-written by recent legislation that is being contested.  Data as of October 30, 2019.


Behind the improving credit quality for toll roads is a growing U.S. economy and low gas prices; both are driving traffic volume higher, which in turn is lifting toll revenues. Since August 2014, the United States has added 9.8 million jobs and seen the unemployment rate drop to 3.7% in 2019 versus 6.1%. Although the price of gasoline has fluctuated over the five-year period, it remains low relative to the 10-year average, which is a factor in determining vehicle miles traveled (see Chart 1). The combination of these two factors along with population growth has allowed for traffic growth across the sector.


Chart 1. The Price of Gasoline Remains Low Relative to the 10-year Average
October 9, 2001-October 28, 2019

Source: As of October 28, 2019


The five-year compound annual growth rate of traffic at all the facilities monitored by Moody’s was 3.2% from 2012-2017. At the same time, most toll roads have raised tolls or moved to inflation-adjusted toll policies. Of the 18 largest issuers of debt, 10 have changed to index price tolling (based on local inflation) and all but two have experienced a rate increase over the five-year period resulting in stronger revenue growth.

Conversion to all electronic tolling continues across the sector, which has lowered labor costs, as toll collectors are eliminated. Savings estimates in Florida were $10 million a year on the southernmost portion of the turnpike, and in California an all-electronic conversion of the Golden Gate Bridge is estimated to save $16 million over eight years.1 As collection technologies improve, so will revenue, in our opinion.

So what could stop toll roads in their tracks?

Slowing economic growth is one factor to watch for in terms of future toll road performance, but another is political risk. Intervention from government officials can negatively affect credit quality. For example in 2019, the Florida State legislature attempted to unwind the Miami-Dade County Expressway Authority through legislation that would create a new tolling authority which would reduce rates and limit future toll rates. The bill was passed and signed by the governor which led to downgrades of the authority by Moody’s, Fitch, and Standard & Poor’s and a subsequent lawsuit filed by the Expressway against Florida. The bill, HB 385, has since been overturned and deemed unconstitutional by the courts, but the damage has already been done with the Expressway’s credit falling lower, although remaining in the “A”-rated category.

Other potential political risk includes the siphoning of funds by struggling states from toll facilities. For years both New Jersey and Pennsylvania Turnpikes have sent millions of dollars to their respective state coffers, and an on-going risk remains that these transfers could increase as the states’ fiscal positions deteriorate. Currently, both these states have contracts in place that fix the amount of transfers, but with a new regime change there is also risk to changes in those contracts.

Our team believes that credit quality in the toll road sector will remain stable over the next year as traffic growth and rate increases will overshadow rising political risks.


1 All data herein from as of October 28, 2019 unless otherwise specified.


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The Fourth Quarter 2019 edition offers insights from our analysts on key topics for municipal bond investors, along with essential market information.



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