Post updated throughout with comments, background, etc.
A major rating agency downgraded the state Thruway Authority’s credit outlook on Tuesday, but maintained its bond rating as the authority deals with financial troubles and eyes how to finance a new Tappan Zee Bridge.
Standard & Poor’s downgraded the Thruway Authority’s outstanding bonds outlook from “stable” to “negative,” while keeping its long-term rating at A+.
The change comes as the authority considers how to finance a replacement for the aging Tappan Zee Bridge in the lower Hudson Valley, which initial estimates have pegged at a cost of about $5.2 billion.
Late last month, the authority unveiled a plan to deal with its current financial difficulties by paring back its capital plan and proposing a 45 percent toll increase on large trucks across the Thruway system.
The authority’s outlook was downgraded because S&P believes there is potential for lower debt coverage if “the authority does not obtain formal board approval in September this year to increase commercial vehicle tolls 45%,” according to a report from the rating agency.
“Uncertainty related to (New York State Thruway Authority’s) plan of finance and long-term tolling strategy related to the replacement of the Tappan Zee Bridge and ongoing capital needs also contributed to the outlook revision,” S&P credit analyst Joseph Pezzimenti said in a statement.
The outlook downgrade wasn’t unexpected. In unveiling its toll increase plan last month, the authority released an outside consultant’s report that detailed “potentially risky” moves by past administrations to bridge financial gaps.
A downgrade in its long-term bond rating, however, would have significant financial impacts, increasing the authority’s interest rates and borrowing costs.
In a phone interview, Thruway Authority Chairman Howard Milstein said the authority was “pleased that the rating agencies have retained our strong A+ rating, and understands the change in outlook to a negative watch.”
“The toll process is a political one, and we need to prove to the rating agencies that the tolls we proposed are the tolls that will be raised because that’s what’s needed to maintain our rating,” Milstein said.
The Thruway Authority has to take several steps before implementing the proposed toll increase, including the completion of an environmental review and at least three public hearings.
But the rating agency warns that the proposed increase may not be “enough to offset (the authority’s) significant additional debt needs.” Specifically, the authority is still faced with financing a new Tappan Zee span.
Thruway officials have said a financial plan specific to replacing the bridge will be unveiled after it receives bids. The state invited four teams of contractors to bid on the project, and final proposals are due July 27.
The credit outlook could be returned to “stable” if the Thruway system is “able to implement an aggressive tolling regime” that allows it to keep its debt coverage and asset values near their current levels, according to the S&P report.
The rating could be lowered, however, if the Tappan Zee and other projects produce a significant financial risk, the agency warned.
The 570-mile superhighway is the largest toll system in the country. The Thruway’s mainline—stretching from New York City to Albany to Buffalo—is 426 miles long.
Here’s the S&P report: