S&P Rates PA Turnpk Comm Oil Franchise Tax Sr Revs
30 July 1998
S&P Rates PA Turnpk Comm Oil Franchise Tax Sr Revs
NEW YORK--Standard & Poor's CreditWire 7/30/98--Standard & Poor's today assigned its single-'A'-plus rating to Pennsylvania Turnpike Commission's $305.97 million oil franchise tax senior revenue bonds series 1998A, and its single-'A'-minus rating to the commission's $226.2 million oil franchise tax subordinated revenue bonds series 1998B, both dated Aug. 15, 1998 and due Dec. 1, 2027. The bonds are scheduled to sell Aug. 1, 1998.
The rating reflects the following strengths:
-- A gross pledge of the relatively stable oil franchise tax, which
can only be used for capital improvements and not to fund
operations or maintenance;
-- Sound senior additional bonds test of 2 times (x) coverage of
maximum annual debt service; and
-- Maintenance of $10 million in the revenue fund, available for
debt service payments but not included in the additional bonds
test.
These strengths are mitigated by the following concerns:
-- The oil franchise tax's susceptibility to the quantity of fuel
sold, despite the relative price certainty provided by the
minimum and maximum price mandated by law;
-- Limited rate-setting flexibility for the oil franchise tax;
-- No debt service reserve fund for senior bonds and a half funded
reserve fund for subordinate bonds; and
-- The large unfunded cost of the Mon/Fayette and Southern Connector
projects.
Bonds are secured by a first lien on the commission's allocation of the oil franchise tax, which totals 14% of an additional 55 mills on a total 153 mills levied statewide at a wholesale level on the sale of motor fuels. Following the implementation of Act 3 of 1997 which is under appeal, revenues are collected by the distributor -- revenues which were previously collected by retailers.
Bond proceeds will fund about one-third of the costs of the Mon/Fayette and Southern connector projects plus a $10 million deposit to the revenue fund and a debt service reserve fund (funded at one-half maximum annual debt service) for the subordinated bonds. The senior bonds do not have a reserve fund. Additional parity debt may be issued if historic pledged revenues, not including monies in the revenue fund, provide 2 times (x) coverage of MADS on the senior bonds and a weaker 1.15x coverage on the subordinate bonds. Fiscal 1998 ongoing revenues of $41.5 million provided total debt service coverage of projected maximum annual debt service by 1.16x. Total debt service coverage increases to 1.5x with the inclusion of the revenue fund. Pledged revenues grew by an average annual 2% since fiscal 1993. Total gallonage rose by 1.3% annually since the inception of the tax in 1983, declining only in 1991 by 1.6%.
OUTLOOK: STABLE
The outlook reflects the sound debt service coverage levels and adequate legal provisions, Standard & Poor's said.---CreditWire