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
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.