Fitch Ratings today assigns an underlying 'A' long-term rating to New Jersey Turnpike Authority's (NJTA, or the authority) approximately $154.1 million of turnpike revenue bonds, series 2004A (multimodal put bonds), approximately $103.6 million of turnpike revenue bonds, series 2004B (growth and income securities), and approximately $154 million of turnpike revenue bonds, series 2004C (current interest bonds). Depending upon the economics of the transaction at the time of the sale, an additional $157 million of series 2004C bonds may also be issued to refund certain outstanding series 2000A maturities. The series 2004A-C bonds are expected to sell via negotiation lead by Morgan Stanley on or about Dec. 8, 2004. An insurer whose financial insurer strength is rated 'AAA' by Fitch is expected to insure the bonds. Final maturity for the series 2004A-C bonds occurs on Jan. 1, 2035.

At this time, Fitch also affirms the underlying 'A' rating on the outstanding (approximately) $4.5 billion New Jersey Turnpike Authority revenue bonds. The bonds are secured by the net revenues of the New Jersey Turnpike (turnpike) and the Garden State Parkway (parkway), i.e. tolls, charges, and rents, among others, less operating expenses from highway activities.

The Rating Outlook is revised to Negative from Stable, reflecting the growing financial pressure facing the NJTA. This Negative Rating Outlook is based upon a more aggressive revenue, expense, and debt profile. It also incorporates the near-term inability to support all operating and capital needs (including reserves) on a current basis without the drawdown of liquidity. While in the past, the authority has successfully reduced operating costs and has generated higher margins in recent years, the ability to identify cost savings is more challenging. As a result, the dependence of the financial plan on low levels of expense growth may be difficult to sustain. Since 2000, the authority has stepped up its capital reinvestment program. However, with the consolidation of the turnpike with the parkway, considerable level of capital investment remains to be made.

The 'A' rating reflects the extremely strong and stable traffic profile of the turnpike and the parkway and the considerable economic rate-making flexibility retained by NJTA to increase toll rates on both roads when needed. Operations of the parkway were consolidated with the NJTA on July 9, 2003 following dissolution of the New Jersey Highway Authority (authority). While the consolidation aimed at achieving more streamlined bureaucracy, administrative savings, and important transportation coordination, the combination also created financial capacity for NJTA to begin making necessary near-term improvements on the parkway and improvements to alleviate the turnpike's chronic congestion points and to renew aging infrastructure. Importantly, Fitch notes that necessary projects relating to long-term capital replacement and constrained capacity on both the turnpike and parkway are still unfunded mandates of the newly consolidated entity. The timetable and sources of funding for these projects are currently under study as part of a comprehensive strategic planning effort expected to be completed by NJTA during early 2005. Timely action in connection with this effort will be an important factor in maintaining the current rating.

Ongoing credit concerns include the narrow levels of the financial margin in the financial forecast to deal with slower revenue growth, though NJTA's ability to take remediative actions to maintain compliance with bond covenants, make state payments, and fund capital projects is an important mitigating factor. Additionally, debt metrics remain high compared with other turnpikes. While NJTA's considerable economic rate-making flexibility provides the ability to increase toll rates to fund necessary improvement projects, the authority's political rate-making flexibility is more limited.

Current financial operations of the NJTA (in fiscal 2003), including approximately six months of parkway financials, remain healthy, reflecting an operating margin of approximately 52%, and providing 1.6 times (x) coverage of senior debt service and 1.2x coverage of total obligations (debt service and reserves). Baseline projections reviewed by Fitch, inclusive of approximately $18 million-$22 million of revenues related to the planned elimination of an EZ Pass discount, indicate declining debt service coverage as rising expenditures and capital and debt service costs increase pressure on NJTA's finances. Coverage on a combined basis (debt service plus reserves) is forecast to remain at or about 1.0x. While it appears likely that the discount will be approved, if it is not, the authority's financial flexibility will become further pressured.

During early December 2004, interim acting Governor Cody is expected to announce an expansion of the lane-widening project on the turnpike. The project, which is currently estimated at approximately $1.5 billion, will expand roadway lanes between interchanges 6A and 8A, a major traffic choke point on the turnpike. As significant amounts of engineering and other environmental work need to be completed prior to commencement of the project, any related financing is at least several years away. NJTA has indicated the possibility of raising tolls in support of this effort, though the level of any such increase would depend upon NJTA's ability to obtain funding from other sources. Fitch notes that tolls raised to fund a portion of costs associated with widening of the turnpike does not lessen the financial burden of NJTA to find sources of funding for other major parkway and turnpike capital projects.