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Third Wall St. Firm Lowers Tollway Bonds to Junk Status

San Joaquin Hills is put on Moody's watch list. Light traffic is a bane for the 16-mile road.

May 26, 2004|Dan Weikel | Times Staff Writer

The last of three Wall Street ratings agencies on Tuesday downgraded to junk status $1.9 billion in bonds sold to build the faltering San Joaquin Hills toll road through western Orange County.

Moody's Investors Service lowered its rating from Baa3 -- the lowest investment grade -- to Ba2, a non-investment grade. Moody's also announced that it would keep the San Joaquin Hills tollway on its watch list for possible additional downgrades.

Over the last year, Wall Street rating agencies Standard & Poor's and Fitch IBCA have lowered their ratings of San Joaquin Hills bonds to junk status.

The 16-mile tollway between Newport Beach and San Juan Capistrano has been plagued for years by lower-than-expected traffic and revenue.

In 2006, the tollway is expected to violate a pact with bondholders to take in $1.30 in revenue for every $1 of expenses.

Forecasts predict that by 2014, the road will be unable to pay interest to investors.

The San Joaquin Hills is part of a 51-mile network of highways operated by the Transportation Corridor Agencies, a joint-powers authority based in Irvine.

The Foothill-Eastern toll road and a stretch of California 133 are other sections.

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. Aaa is the best Moody's rating; C is the lowest.

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 bonds.

Moody's analysts said they lowered the San Joaquin's rating because of weak economic performance, the 2007 expiration of a federal $240-million line of credit, and the road's potential inability to meet debt payments that increase over time.

Analysts also noted that TCA board members have not reached a clear consensus on how to deal with the highway's financial problems.

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