Press Release|Public Finance
KBRA Revises Outlook to Negative and Affirms Ratings for Pennsylvania Turnpike Commission Oil Franchise Tax Senior Revenue Bonds (AA) and Oil Franchise Tax Subordinated Revenue Bonds (AA-)
15 Aug 2024 | New York
KBRA revises the Outlook to Negative and affirms the long term ratings for the Pennsylvania Turnpike Commission Oil Franchise Tax Revenue Bonds at AA and Oil Franchise Tax Subordinated Revenue Bonds at AA-.
The revision of the rating Outlook to Negative reflects the secular trend of decline in motor fuel consumption that is projected to result in slowly declining pledged revenues and narrowing debt service coverage in future years to levels that may no longer be consistent with the current ratings.
Key Credit Considerations
The rating actions reflect the following key credit considerations:
Credit Positives
- Established track record for effective collection and adjustment of the OFT as well as timely distribution of the Commission Allocation.
- Statutory price floor of $2.99 per gallon used in calculation of the OFT tax rate insulates collections from motor fuel price volatility.
- Legal and statutory framework provides strong levels of bondholder protection at the senior obligation level.
Credit Challenges
- Formula driven Commission Allocation is subject to fuel consumption volatility and to periodic adjustments of the effective fuel tax rate by the legislature.
- Absent Legislative action to adjust pledged revenues, the significant downward trend in motor fuel consumption experienced over the last decade is likely to continue, pressuring pledged receipts and debt service coverage over time.
Rating Sensitivities
For Upgrade
- Sustained increase in motor fuel consumption leading to a continued increase in Commission Allocation revenues.
For Downgrade
- Secular decline in MADS coverage to a level no longer consistent with the rating level due to factors including a continuing decline in motor fuel consumption or additional borrowing.
- Failure of the Commonwealth to maintain the statutory average annual price of fuel, a key component in determination of the OFT levy each year.
To access rating and relevant documents, click here.