O.C. Tollway’s Bonds Downgraded

The financial picture for the struggling San Joaquin Hills toll road in west Orange County worsened Tuesday, when a major Wall Street ratings agency downgraded more than $1 billion in bonds to junk status because traffic and revenue continue to fall short of projections.

Citing higher potential risks for investors, New York-based Fitch IBCA lowered the rating for more than half of the tollway’s $1.8 billion in bonds from BBB-minus, the lowest investment grade, to BB, or speculative grade--so-called junk bonds.

Toll road officials said paying customers won’t be affected by the lowered rating and that the turnpike’s financial future appears sound.

But one director of the agency that oversees the tollway said the downgrade raises serious concerns about the road’s future.

Tuesday’s rating change is the second time in two years that the agency has downgraded bonds that were sold to finance the 15-mile tollway that runs from Newport Beach to just north of San Juan Capistrano.

In February 2000, Fitch lowered its rating from BBB to BBB-minus because the growth in traffic and revenue from the tollway had fallen short of 1997 estimates. Late last year, Standard & Poor’s, another rating agency, concluded that the financial outlook for the turnpike was bleak.

“There has been a meaningful downward shift, from the 1997 forecast, in the growth rate of revenue over the past two years,” said Cherian George, a senior director at Fitch Ratings. “With the compounded effects of a toll increase in July 2001 and the recession, traffic performance in fiscal year 2001 has been tepid.”

George and other bond consultants say the downgrade will hurt toll road investors by lowering the value of $789million in uninsured bonds issued in 1997 and $220million in revenue bonds sold in 1993. An additional $795million in San Joaquin Hills bonds sold by the agency in 1997 still retain their AAA rating because they are insured.

Standard & Poor’s and Moody’s Investors Service, a third rating agency, have yet to reevaluate their investor-grade ratings of the turnpike’s bonds.

The San Joaquin Hills toll road is part of a 51-mile network of Orange County tollways operated by the Transportation Corridor Agencies, based in Irvine. Figures dating to 1998 show that the tollway has never met its annual projections for traffic and revenue.

TCA officials had forecast that the turnpike would generate almost $37million in toll revenue for the last six months of 2001. The actual amount was about $28million. For fiscal year 2000-01, the TCA projected toll revenue of more than $63million but received about $51million.

“We are disappointed” at the lowered rating, said Walter D. Kreutzen, the chief executive for TCA. “However, this action will have no impact on the agency’s ability to make its debt payments, operate the road or service our customers.”

The TCA has substantial resources available, including $140million in cash reserves and a $12-million line of credit from the federal government, which has never been tapped.

The agency is also set to increase tolls again throughout its system Sunday, which could increase revenue by about $3.1 million a year.

Fares at the main San Joaquin Hills toll plaza will increase from $2.50 to $3 for cash-paying drivers who travel the entire road any time of day. Those who use a FasTrak transponder, an electronic billing device, will pay a maximum of $2.75, a 25-cent increase, during peak travel times.