Press Release|Public Finance
KBRA Affirms Ratings for Pennsylvania Turnpike Commission Oil Franchise Tax Senior Revenue Bonds (AA) and Subordinated Revenue Bonds (AA-); Outlook is Stable
15 Aug 2023 | New York
KBRA affirms the long-term rating of AA with a Stable Outlook for the Pennsylvania Turnpike Commission Oil Franchise Tax Senior Revenue Bonds as well as the long-term rating of AA- with a Stable Outlook for the Commission’s Oil Franchise Tax Subordinated Revenue Bonds.
Key Credit Considerations
The ratings were affirmed because of 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 additional borrowing or a continuing decline in motor fuel consumption.
- 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.