US toll road sector outlook remains stable in 2015

Weston_Toll_PlazaContinued traffic growth, rising toll revenue, and lower gasoline prices should extend the stable outlook in 2015 for the US toll road industry, according to “2015 Outlook – US Toll Roads: Slow and Steady Traffic Growth Supports Stable Outlook,” a new report from Moody’s Investors Service.

According to the report, the recovery in traffic growth will continue in 2015, growing between one and two percent on a median basis for 42 toll roads that Moody’s rates. The strengthening US economy also plays a big role in the outlook, as traffic growth largely parallels economic gains. Growing traffic translates to higher toll road revenues and financial metrics.

“Lower gasoline prices will also contribute to the recovery, increasing leisure travel,” says Maria Matesanz, a Moody’s Senior Vice President. “The drop in gas prices could also lead drivers to use less-congested toll roads that provide faster and more predictable trip times, especially in urban areas.”

In addition to lower gas prices, increases in toll rates will also support growth, leading to a 3-5 percent increase in median toll revenue in 2015. Moreover, many toll roads have recently implemented inflation-indexed or multi-year toll increases, which smooths out revenue growth and makes it more predictable.

However, increasing leverage remains a risk in the sector as some state and local governments subsidize their capital and operating needs with excess cash flow from toll roads.

“States also have used debt to finance and maintain toll roads,” adds Matesanz. Ultimately states could increasingly turn to public/private partnerships (P3s) to alleviate some of the financing pressures, if they authorize the use of P3s for transportation projects.