Press Release|Public Finance

KBRA Downgrades Pennsylvania Turnpike Commission Oil Franchise Tax Senior Revenue Bonds to AA- and Subordinated Revenue Bonds to A+; Assigns Ratings to Series 2025 Bonds; Revises Outlook to Stable

13 Aug 2025   |   New York

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KBRA downgrades the long-term rating to AA-, from AA, for the Pennsylvania Turnpike Commission's outstanding Oil Franchise Tax Senior Revenue Bonds and assigns a long-term rating of AA- to the Commission's Oil Franchise Tax Senior Revenue Bonds, Series A of 2025.

KBRA additionally downgrades the long-term rating to A+, from AA-, for the Commission's outstanding Oil Franchise Tax Subordinated Revenue Bonds and assigns a long-term rating of A+ to the Commission's Oil Franchise Tax Subordinated Revenue Bonds.

The rating Outlook for all obligations is revised to Stable, from Negative.

The downgrades of the Commission’s Oil Franchise Tax (OFT) senior and subordinated obligations reflect increased leveraging of the pledged payment source coupled with a secular decline in motor fuel consumption. Both trends have resulted in a slow, though noticeable reduction in pledged revenues and a narrowing maximum annual debt service (MADS) coverage that is now no longer consistent with the prior ratings.

The revised ratings incorporate KBRA’s expectation that the declining trend in pledged revenues is unlikely to reverse absent legislative action and that the formula driven Commission Allocation, which secures OFT obligations, remains susceptible to both fuel consumption volatility and periodic adjustments to the fuel tax rate. Counterbalancing the aforementioned challenges are the Commission’s established track record for collecting and adjusting the OFT, as well as timely distribution of the Commission Allocation; limited exposure of OFT collections to fuel price volatility given the presence of a statutory price floor ($2.99 per gallon); and the strong legal and statutory framework, notably on the senior lien.

Key Credit Considerations

The ratings were downgraded 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 downward trend in motor fuel consumption experienced over the last decade is likely to continue, pressuring pledged receipts and debt service coverage over time.

The Stable Outlook reflects KBRA’s expectation that the rate of decline in pledged revenues will remain modest, which together with level debt service requirements, will yield still adequate (1.15x), though declining coverage of combined obligations by FY 2029. KBRA will continue to monitor trends in fuel consumption and pledged revenues, with further rating and/or Outlook action possible should actual MADS coverage underperform projections.

Rating Sensitivities

For Upgrade

  • Sustained increase in motor fuel consumption leading to increased Commission Allocation revenues.

For Downgrade

  • Decline in MADS coverage to a level no longer consistent with the rating level due to factors including a continuing, secular decline in motor fuel consumption and/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.

This document was revised on August 14, 2025 with additional language explaining why the ratings were downgraded and why the outlook is now stable.

To access ratings and relevant documents, click here.

Methodologies

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.

Only those ratings on securities issued by this Issuer that also are denoted on the Security Ratings tab for this Issuer on KBRA.com as “endorsed” by Kroll Bond Rating Agency Europe Limited into the European Union and/or by Kroll Bond Rating Agency UK Limited into the UK are covered by the disclosures set forth in this press release and the corresponding Information Disclosure Form. No other ratings on issuances by this Issuer have been endorsed into the European Union or the UK, and the disclosures set forth herein and in the corresponding Information Disclosure Form are inapplicable to those ratings and may not be used for regulatory purposes by European Union or UK investors in these securities.

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.

Doc ID: 1010827