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Rating Action: Moody's assigns Aa2 to Florida Department of Transportation's Turnpike Revenue Refunding Bonds, Series 2022A; outlook stableGlobal Credit Research - 26 Jan 2022New York, January 26, 2022 -- Moody's Investors Service, ("Moody's") has assigned a Aa2 rating to the Florida Department of Transportation's (FDOT) $208.5 million Turnpike Revenue Refunding Bonds, Series 2022A. The outlook is stable.RATINGS RATIONALEThe Aa2 rating reflects the strategically vital role the turnpike system plays in Florida's economy as the turnpike system is a well-established multi-asset, statewide system that has a long history of effective tolling operations with a prudent approach to financial and capital management. The rating is also supported by sustained above-average financial metrics that we expect to continue even as the $8.9 billion large capital improvement plan (CIP) is implemented through FY 2026. We expect forecast toll revenue growth and annual debt amortization to balance the $2.1 billion of new debt forecast to be issued to support the CIP. Nearly two-thirds of the capital projects are widenings and expansions that are revenue additive over time. In addition, the turnpike system also has a declining debt service schedule that provides room to add new debt without materially increasing near-term debt service costs. The rating further incorporates the turnpike system's demonstrated strong relationship with its owner FDOT and the state through centralized debt and financial oversight, FDOT's covenant to pay the turnpike's annual operating and maintenance (O&M) expenses on a reimbursable basis since 1997, and the state legislated toll rate regime that requires inflation-indexed toll rate increases over time.Despite the pandemic, fiscal 2020 and 2021 (ended June 30) financial metrics remained strong, and we expect this to continue. For the first four months of fiscal 2022, from July to October 2021, transactions and toll revenues were 2.3% and 1.5% higher than the same period before the pandemic from July 2019 through October 2019, showing a recovery from the initial pandemic traffic and revenue losses. Toll revenues have recovered slower than traffic to date owing to a continued increase in all electronic tolling. However, we expect toll revenues to notably increase in fiscal 2023 to comply with the state's statute of adjusting toll rates by CPI at least once every five years on state-owned toll roads as the prior toll rate increase was in fiscal 2018. We also expect traffic to continue to improve moving forward due to typical broad economic drivers like population, GDP and employment growth.RATING OUTLOOKThe stable outlook reflects Moody's view that the turnpike system's traffic and revenue will continue to grow over time and in step with its forecast new debt plans to ensure strong financial metrics are sustained.FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATING- Traffic and revenue growth that produces sustained net revenue DSCRs above 3.0x and debt to operating revenues below 2.0x- Successful delivery of the CIP with planned new debt while maintaining strong financial metricsFACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATING- Declines in traffic and revenue combined with additional leverage that reduces total net DSCRs below 2.0x- Liquidity levels below 400 days cash on hand- Delays in or failure to implement timely toll increases as planned and statutorily requiredLEGAL SECURITYThe revenue bonds benefit from a senior lien on the net revenues of the state's multi-component turnpike system with a rate covenant and additional bonds test is 1.2x annual senior lien debt service and 1.0x for all other payments required under the resolution. FDOT covenanted on August 21, 1997, to pay all costs of O&M of the turnpike system from the State Transportation Trust Fund (STTF), in effect making 100% of the turnpike system gross revenues available first for debt service. The O&M costs paid from the STTF are to be reimbursed from the turnpike system general reserve fund only after the provision has been made for payment of debt service and other amounts required for the outstanding turnpike revenue bonds. The STTF is funded with transportation related taxes, fees, fines, surcharges including motor fuel and license taxes, and federal aid (15% reserved for public transportation projects).With the issuance of the 2021C bonds in fiscal 2022, the turnpike system reached the threshold (50% of principal outstanding) required to invoke a new covenant allowing the turnpike system to eliminate the debt service reserve fund (DSRF) requirement. As a result, the 2022A bonds will not have a DSRF and the turnpike system does not plan to fund DSRFs for future bond issuances. The financial covenant removing the DSRF requirement for new bonds also allows the turnpike system to liquidate the outstanding DSRFs for all bondholders that consented to the covenant, which includes bond series 2018A through 2021B. There is currently no intention to liquidate these DSRFs that are cash-funded at 125% of average annual debt service. The turnpike system has a long history of maintaining high levels of internal liquidity maintained through strong DSCRs, and the system has state support of O&M expenses if needed.According to the Florida Turnpike Enterprise Law, new turnpike expansion projects must pass a statutory test for economic feasibility: Project estimated net revenues must pay 50% of project debt service on bonds by the end of the 12th year since the project opened and 100% by the 30th year.USE OF PROCEEDSThe Series 2022A bond proceeds will refund the Series 2012A bonds maturing in 2023 through 2042 for approximately 11% net present value savings with no extension of the debt maturity.PROFILEThe turnpike system is a large, multi-asset toll system that traverses the most populous areas of the state and consists of several components totaling about 500 miles, with new miles consistently under construction and added to the system annually. The Florida Turnpike Enterprise operates the turnpike system for FDOT and all debt issued must be approved by the Governing Board of the Division of Bond Finance before being issued.METHODOLOGYThe principal methodology used in this rating was Publicly Managed Toll Roads and Parking Facilities published in March 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1091602. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.The rating has been disclosed to the rated entity or its designated agent (s) and issued with no amendment resulting from that disclosure.This rating is solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. 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