Fitch Affirms MA Turnpike Auth MHS Sr. Bnds at 'BBB+'/Sub. Bnds at 'BBB'; Stable Outlook

NEW YORK--July 28, 2005--Fitch Ratings affirms the 'BBB+' underlying rating on $1.2 billion in outstanding Massachusetts Turnpike Authority (the authority) Metropolitan Highway System (MHS) revenue bonds 1997 series A (senior) and $89.1 million in outstanding MHS revenue bonds 1997 series C (senior). Fitch also affirms the underlying 'BBB' rating on the authority's $194.7 million in outstanding MHS revenue bonds 1997 series B (subordinated) and $782.8 million in outstanding MHS revenue bonds 1999 series A (subordinated). The 1997 series A and C senior bonds and the 1997 series B subordinated bonds are insured by MBIA Insurance Corp., while the 1999 series A subordinated bonds are insured by Ambac Assurance Corporation, each of whose insurer financial strength is rated 'AAA' by Fitch. The Rating Outlook for the MHS senior and subordinated bonds is Stable.

Fitch's 'BBB+' rating on the senior bonds and 'BBB' rating on the subordinated bonds reflect the MHS' strong service area and traffic base which is relatively inelastic to toll increases. The ratings also consider the near completion of the Central Artery/Tunnel (CA/T) project, contributing to a more stable but still constrained financial profile and improved MHS connectivity. Dedicated payments from the Commonwealth of Massachusetts are an additional strength and cover a portion of debt service payments. Key credit concerns include political risk that affects from time to time the authority's governance, rate setting ability, and management of the CA/T; increasing debt service and operating and maintenance expenses with the periodic need to raise tolls to meet those obligations; and the use of non-recurring revenue sources, which provide a near-term benefit, but may, in the case of swaptions, contribute an additional level of risk to the MHS' more constrained long-term financial profile.

MHS traffic has recovered from the effects of the economic downturn, the aftermath of the events of Sept. 11, 2001, and the 2002 toll increase. While traffic declined by over 4% in 2002, it increased by over 2% in 2003. Reflecting the recovery of Logan Airport passenger activity, the improving regional economy, and the full-year effects from the opening of the I-90 extension and CA/T I-93 northbound and southbound project sections, total MHS traffic grew by 5.7% to 87.1 million transactions in 2004. Most of this growth was at the tunnels, which grew by 11.7% and also benefited from rebounding Logan Airport passenger activity, while the commuter-oriented Boston Extension increased by over 4%. As a result of the July 2002 toll increase and rebounding traffic levels, toll revenues have increased 70% between 2001 and 2004. Year-to-date traffic and revenue through June 2005 have grown 0.5% and 1.6%, respectively, reflecting the impact of severe winter weather earlier in the year.

CA/T project and financial risks are significantly diminished as nearly 97% of construction is completed, the official $14.6 billion cost has remained unchanged since April 2002, and substantial completion is expected by this year. The authority is addressing the highly publicized issues regarding construction of certain tunnel slurry walls and waterproofing and expects these costs to be borne by its contractors and/or within the existing scope of the project. Nevertheless, some additional costs associated with this effort remain a possibility.

While traffic and toll revenues have recovered, the MHS continues to face a constrained financial profile due to escalating debt service and the additional operating and maintenance obligations with the completion of the CA/T. As originally planned, toll increases of about 20% every six years are required, with the next one expected in 2008. With the prescribed toll increase, senior debt service coverage and combined senior and subordinated debt service coverage calculated against net revenues and dedicated payments are expected to be about 2.0 times (x) and 1.2x, respectively, in the medium-term. Medium-term senior and combined senior and subordinated net debt service coverage on an indenture basis, which is a more liberal calculation based on the ratio of net revenues to gross debt service less dedicated payments and interest earnings, are estimated to be around 2.8x and 1.4x, respectively.

Annual dedicated payments from the commonwealth, which represent reimbursement for CA/T related costs, are pledged by the authority to pay a portion of debt service. While pledged to debt service, dedicated payments do not adequately cover CA/T operating costs.

Given the history of political resistance to toll increases which contributed to a six-month delay and an unexpected discount as part of the 2002 rate adjustment, Fitch expects periodic challenges to the authority's toll strategy. Without the planned toll increases the MHS would not be able to meet all of its financial obligations. While reluctance to put in place timely rate increases remains a risk, Fitch expects the authority will raise rates when needed to provide toll revenues, dedicated payments and other sources to cover debt service and other expenses at a constrained margin of protection consistent with current ratings.

The Massachusetts Turnpike Authority, a public instrumentality of the Commonwealth of Massachusetts, is responsible for the operation of the Metropolitan Highway System and the Western Turnpike. The finances of the MHS, which includes the Boston extension, the Sumner and Callahan tunnels, the CA/T and the Central Artery North Area, are under a separate system from the Western Turnpike, which includes the portion of the turnpike from the New York border in the west to its intersection with Route 128 in the east.

Fitch's rating definitions are available on the agency's free of charge web site, www.fitchratings.com. Published ratings, criteria and methodologies, and relevant policies and procedures are also available from this site, at all times. This document will remain on the free site for seven days.