OREANDA-NEWS. Fitch Ratings has affirmed the 'A+' rating for approximately \$369 million of New Hampshire Turnpike System's (NHTS) turnpike system (the system) revenue bonds issued by the state of New Hampshire. The Rating Outlook is Stable.

The rating reflects New Hampshire Turnpike System's stable traffic and revenue performance generating strong debt service coverage of 2.13x in fiscal 2014. The turnpike has near-term plans to issue approximately \$50 million to fund capital projects in 2015 which will not have a material impact on coverage levels. The remainder of the current 10-year capital program is expected to be funded through operating cash-flow without plans for toll increases.

KEY RATING DRIVERS

Revenue Risk - Volume: Stronger
Important Transportation Link: The mature service area and strong competitive position of the turnpike system supports a stable traffic and revenue base for several major New Hampshire population centers. Annual traffic has been relatively flat since 2004, growing at a compound annual growth rate (CAGR) of 0.08% but revenues have grown at a CAGR of 6.01% following toll increases in 2007 and 2009.

Revenue Risk- Price: Midrange
Moderate Rate Making Ability: Toll rates have been raised in recent years to maintain financial flexibility. The turnpike has considerable economic rate-making flexibility with an average toll of \$1.07, which is comparable to other turnpike facilities in Fitch's rated portfolio, but faces some political challenges.

Debt Structure: Stronger
Conservative Debt Structure: All outstanding bonds are fixed rate. The debt service schedule is declining, with annual payments of \$39.6 million in FY 2015 decreasing to \$26.9 million by FY 2021.

Infrastructure Development and Renewal: Midrange
CIP Requires New Borrowing: The 2015-2024 capital plan totals \$279 million and focuses mostly on rehabilitation and widening projects. NHTS expects to issue \$50 MM of additional bonds to fund the current capital plan in FY 2015. The turnpike is generally in good condition based on latest renewal and replacement assessment by independent engineer.

Overall Financial Margins Remain Solid: Debt service coverage ratio is strong at 2.13x. Net Debt to CFADS (cash flow available for debt service) is moderate at 3.64x. The turnpike also has \$58.5 million of unrestricted cash equivalent to 503 days cash on.

Peers Analysis: Maine Turnpike ('AA-'/Stable Outlook) and Metropolitan Highway System-Western Turnpike (MassDOT
'AA-'/Stable Outlook) are comparable peers to New Hampshire Turnpike System which have higher coverage ratios and no additional near-term debt plans reflective of the higher rating level.

RATING SENSITIVITIES

Negative:
--Future approval of interstate aggregation legislation that could undermine the turnpike's financial position by exacerbating capital expenditure requirements and placing a heavier reliance on future toll increases on the existing system.

Positive:
--While financial metrics remain solid, given peers in the 'AA' rating category, a positive rating movement is unlikely in the near term.

Credit Update:

Traffic in 2014 is showing growth of 3.0% to \$111.5 million transactions following a few years of flat traffic mainly due to the opening of the free Manchester Airport Access Road interchange in November 2011. Revenue also increased 2.17% to \$117.9 million. Operating expenses increased slightly by 0.6% to \$42.5 million and has been well managed in recent years. Debt service coverage increased to 2.13x in 2014 from 2.05 in 2013. Fiscal year-to-date (seven months) continues to show growth with traffic and revenue up 0.8% and 1.8%, respectively.

The Turnpike plans to issue \$50 million in additional debt to fund the 2015-2024 Capital Improvement Plan which totals \$297.3 million. The remainder of the plan will be funded through cash-flow from operations with no toll increases needed. However, the plan also identifies several unfunded priorities for capacity expansion relating to economic development which may require funding through future toll increases. These unfunded projects will be discussed as part of the bi-annual update which will begin in July 2015. Fitch will monitor if these projects will be included as part of the 2017-2026 Capital Plan and evaluate the impact to the turnpike's financial profile and pricing flexibility.

Fitch conducted several sensitivity scenarios. Under Fitch's base case, which assumes an average annual traffic growth rate of 1.3% and 3% expense growth while taking into account \$50 million of additional debt, coverage ratios are expected to remain above 1.73x, and climbing back up to 2.13x by 2020. In the rating case, Fitch assumes a decline in traffic of 3% in 2015, followed by 0.5% growth until 2020, while expenses are stressed an additional 100 basis points while also taking into account \$50 million of additional debt. Under these assumptions, coverage remains above 1.67x, which is consistent with the current 'A+' rating. Breakeven analysis further supports this position, demonstrating the ability to tolerate significant sustained revenue declines without affecting its ability to service debt. Fitch would expect NHTS to raise rates if coverage dropped to levels in the rating case. Fitch notes the turnpike has the economic flexibility to raise rates and have a demonstrated history of raising rates when there is a decline in debt service coverage.

Segments of the NHTS began operations in 1950. The turnpike consists of the Central Turnpike and Eastern Turnpike. The Central Turnpike (also known as the F.E. Everett) is a 39.5-mile segment that extends from the Massachusetts state line to Nashua, NH through Manchester and up to Concord, the state capital. The Eastern Turnpike consists of the Blue Star Turnpike and Spaulding Turnpike segments. The Blue Star Turnpike is a 16-mile segment of U.S. Interstate 95 from the Massachusetts state line to Portsmouth, NH. The Spaulding Turnpike is a 33.2-mile segment extending from Portsmouth to Milton.

Security

The revenue bonds are secured by a net pledge of turnpike revenues.