KBRA assigns a long-term rating of AA- with a Stable Outlook to the Pennsylvania Turnpike Commission Turnpike Revenue Bonds, Series A of 2026 and Turnpike Revenue Refunding Bonds, First Series of 2026.

Proceeds of the Series A of 2026 Bonds will be used to pay or reimburse the Commission for various capital expenditures set forth in the Commission's ten-year capital plan, make a required deposit to the debt service reserve fund and pay the costs of issuance. Estimated annual debt service requirements for this series are approximately level with final maturity on December 1, 2056.

Proceeds of the First Series of 2026 Refunding Bonds will be used, together with other available funds held by the Trustee, to current refund, redeem and defease all or a portion of the Commission's outstanding Turnpike Senior Revenue Bonds, Series A-1 of 2016 and pay the costs of issuance. A portion of this series is expected to be structured as serial maturities through December 1, 2042 while the remaining portion is to be structured as a balloon maturing on December 1, 2033. The balloon maturity is to be callable at par six months prior to maturity on June 1, 2033, following which KBRA understands the Commission intends to refund and reamortize this balloon payment. As permitted under the Indenture, the Commission plans to calculate the amortization of the short maturity for purposes of the additional bonds test and debt service reserve sizing, to reflect amortization over the period across which it plans to ultimately repay the bonds (FY 2044 through FY 2047) rather than the legal maturity of the currently offered bullet. KBRA views the balloon structure as presenting certain market access and liquidity risks but views the measured use of such structures as manageable in the context of the Commission's sophisticated financial planning, historically strong liquidity, and demonstrated market access.

Key Credit Considerations

The rating was assigned because of the following key credit considerations:

Credit Positives

• The Turnpike System is a highly essential, statewide, regional toll road system with limited competition.
• The Commission has full rate setting autonomy which, together with prudent finance management and controls, has supported strong margins and stable debt service coverage.

Credit Challenges

• The Commission’s O&M, capital and existing debt obligations, including its outstanding Act 44/89 obligations, are substantial and require annual toll increases, the cumulative effect of which may at some point dampen traffic demand, reducing operating margins and financial flexibility.
• The planned issuance of $3.6 billion in senior obligations per the 10-year capital plan may pressure subordinate obligation coverage if actual traffic demand is materially weaker than forecast, although the Commission’s capital plans remain flexible if traffic volumes are not consistent with forecasts.

Rating Sensitivities

For Upgrade

• A sustained trend of increasing net revenue resulting in debt service coverages well in excess of the Commission’s targets of 2.0x annual debt service on senior lien, 1.30x combined annual senior and subordinate debt service and 1.20x annual debt service for all obligations.

For Downgrade

• A sustained decline in net revenue DSCRs below the Commission’s targets for all obligations.

To access ratings and relevant documents, click here.

Methodologies

• Public Finance: U.S. Public Toll Roads, Bridges & Tunnels Revenue Bond Rating Methodology
• ESG Global Rating Methodology

Disclosures

A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the Information Disclosure Form(s) located here.

Information on the meaning of each rating category can be located here.

Further disclosures relating to this rating action are available in the Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.

About KBRA

Kroll Bond Rating Agency, LLC (KBRA), one of the major credit rating agencies (CRA), is a full-service CRA registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority. In addition, KBRA is designated as a Designated Rating Organization (DRO) by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized as a Qualified Rating Agency by Taiwan’s Financial Supervisory Commission and is recognized by the National Association of Insurance Commissioners as a Credit Rating Provider (CRP) in the U.S.

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