Wall Street firm says it will downgrade
San Joaquin Hills if officials don't act soon
Los Angeles Times
About $1.9 billion in bonds sold to finance the San Joaquin
Hills tollway might be downgraded to junk status if nothing
is done to prevent the failing west Orange County turnpike
from sliding into default, a Wall Street ratings agency warned
Moody's Investors Service notified the Transportation
Corridor Agencies in Irvine that it would reconsider the San
Joaquin's Baa3 rating, which is Moody's lowest investment
grade. A decision could be made within 90 days.
"We have placed the toll road bonds on our watch list
for possible downgrade," said Maria Matesanz, Moody's
lead analyst for the San Joaquin Hills corridor. "This
is not a good thing."
Ratings are an important gauge of risk to investors
because they indicate the ability of the issuing company or
government agency to pay interest and principal. Financial
experts say that downgrades to speculative ratings or so-called
junk status can hurt individual investors and institutions,
such as mutual funds, by lowering the market value of their
Analysts for the ratings agency said they took
the action because TCA board members had postponed a decision
on whether to merge the operations of the San Joaquin Hills
and the successful Foothill-Eastern toll road in eastern Orange
The plan calls for the combined debt of the
highways to be refinanced with a massive $4-billion bond issue
at the current low interest rates.
Moody's views the proposed merger as a way to
keep the San Joaquin Hills from defaulting on its bonds. The
toll road, which has seen lower than expected traffic and
revenue, could be in the first stages of default by 2006.
Last week, TCA board members delayed the vote
on the merger for as long as 50 days to evaluate other financing
possibilities. An ad hoc committee is scheduled to meet Thursday
to begin discussing the options.
"Since we began studying consolidation
two years ago, we knew that a long-term financial solution
for the San Joaquin Hills was needed," said Clare Climaco,
a TCA spokeswoman. The warning from Moody's "puts us
on notice that they will continue to closely watch the board's
Over the last year, two other Wall Street rating
agencies Standard & Poor's and Fitch IBCA
have lowered their ratings of San Joaquin Hills bonds to junk
status. Moody's is the only agency to retain its investment
grade rating for all the San Joaquin Hills bonds.