Orange County, California, toll system snags Moody's upgrade

The senior-lien rating of the Foothill/Eastern Transportation Corridor Agency in Orange County, California, was upgraded to A3 from Baa1 by Moody's Ratings, citing a strengthening financial position and the expectation that debt reduction will remain a board priority and be achievable despite a large capital plan.

Moody's affirmed the junior lien rating at Baa1 saying those bonds have lower recovery prospects given senior debt comprises 90% of the total debt owed. The rating outlooks are stable.

"The stable outlook reflects our expectation that financial metrics will be sustained at healthy levels," with total debt-service coverage ratio above 2.0 times and cash to debt of close to 25%, supported by stable traffic, Moody's analysts Moses Kopmar and Earl Heffintrayer said in the ratings report released Thursday.

Foothill/Eastern consists of 36 miles of high-speed, electronically tolled four-to-six lane roads: State Route 241, State Route 261, and a portion of State Route 133. The toll roads link Orange County employment centers with commuters in neighboring counties.

The Transportation Corridor Agencies, which operates both the San Joaquin Hills Transportation Corridor Agency and the Foothill/Eastern, has received several rating upgrades and outlook revisions over the years for its fiscal prudence.

In May, Fitch Ratings upgraded Foothill/Eastern's $2.3 billion of senior lien bonds to A from A-minus and $221 million in junior lien bonds to A-minus and from BBB-plus. In June, it upgraded the San Joaquin Hills toll revenue bonds, to A-minus from BBB-plus on $2.1 billion of senior lien bonds, and to BBB-plus from BBB on $221 million junior lien bonds, maintaining a positive outlook.

Factors in this week's Moody's upgrade include a substantial and growing cash balance; stable traffic levels coupled with a policy of annual toll rate increases; and a trend of improving leverage metrics, which Moody's said it expects will continue and potentially accelerate beyond fiscal 2029. Toll revenue has recovered well post-COVID and the road benefits from its connectivity with population centers in Riverside County.

The rating incorporates elevated leverage and escalating debt service requirements because of Foothill/Eastern's $520 million capital project to connect its SR 241 toll road with the separately operated toll lanes on SR 91. The Express Connector project can largely be funded from cash flow without weakening Foothill/Eastern's financial position, and the agency will be reimbursed for its outlay from future toll revenues, Moody's said.