Fitch Ratings has assigned an 'A' rating to the New Jersey Turnpike Authority's (NJTA) approximately $798 million series 2017G turnpike revenue refunding bonds. The Rating Outlook is Stable. KEY RATING DRIVERS The rating reflects continued stable traffic and revenue performance of both the New Jersey Turnpike (the turnpike) and Garden State Parkway (the parkway), NJTA's continued prudent operating cost management and ability to deliver significant capital improvements on time and budget. Additional debt is expected to be raised through 2018 and is not anticipated to be significantly detrimental to financial metrics, given toll increases implemented ahead of the capital plan. Coverage is expected to hover around 1.5x under Fitch's rating case, which is in-line with indicative guidance at this rating level. While pressure remains as debt service escalates, Fitch views the authority's economic rate-making flexibility to bolster its financial position should traffic levels not meet expectations as a significant mitigant. Management's minimum internal coverage and liquidity targets provide a further level of comfort. Mature Commuter and Interstate Traffic - Revenue Risk (Volume): Stronger The turnpike forms a vital link in the key I-95 interstate route, providing important commercial links between New York City, Philadelphia, Baltimore and Washington DC. In addition, the turnpike and parkway serve major, wealthy, established and stable commuter populations in New Jersey and suburbs of New York City, accounting for the bulk of toll revenue generated by the system. Fitch considers toll rates of $0.11 per mile and $0.05 per mile on the turnpike and parkway, respectively, as low and that future toll increases in the near to medium term would be affordable if required. Moderate Rate-Making Flexibility - Revenue Risk (Price): Midrange NJTA benefits from unlimited legal authority to change toll rates as it needs. The authority successfully implemented toll increases in the past; nevertheless, some uncertainty remains as to the level of political support any such toll increases would have within the state. Well Managed Capital Plan - Infrastructure Renewal and Replacement: Midrange NJTA's $7 billion 2009 - 2018 capital investment plan (CIP) is on schedule and on budget, with additional works included as a result of construction cost savings achieved in the original plan. The largely debt-funded CIP is nearing completion, with remaining $525 million in borrowing expected in 2018. A long-term CIP has not been finalized; it is expected to focus on state-of-good repair and rehabilitation works. State transfers made after debt service have a constraining effect on the authority's ability to build cash reserves to fund future infrastructure investment. However, revised new agreements result in considerably lower payments through 2021 compared to historical levels, alleviating some pressures over the medium term. Swaps Hedge Variable-Rate Risk - Debt Structure: Stronger Approximately 12% of NJTA's debt profile is variable-rate, almost entirely hedged with interest rate swaps with counterparties of adequate financial strength. The use of SIFMA-indexed swaps to hedge LIBOR-linked debt creates a mismatch that can distort the authority's cash flows. However, NJTA has completely reduced its exposure to basis risk through recent debt refundings. NJTA has also entirely removed reliance on sureties to support liquidity, with cash funding of the debt service reserve to covenant levels. Financial Profile Under Fitch's stressed rating case traffic assumptions, with the impact of a toll increase overlaid to ensure coverage ratios remain above NJTA's internal target levels, senior and total debt service coverage ratio (DSCR) average 1.48x and 1.24x, respectively. As of 2016, cash on hand was estimated at a strong 648 days and management has recently increased its minimum general reserve balance targets to help grow reserves. PEER GROUP NJTA's closest peer with a similar toll and transaction profile is Pennsylvania Turnpike Commission (PTC, senior and subordinate liens rated 'A+'/'A-'). PTC's ratings reflect its sizable CIP and the expectation of relatively stronger senior lien DSCR levels in excess of 2x, lower subordinate lien DSCR managed at or above 1.3x. RATING SENSITIVITIES Future Developments That May, Individually or Collectively, Lead to Negative Rating Action: Erosion of DSCR to significantly below the 1.5x range for a sustained period and/or increases in additional debt materially beyond the authority's planned issuances without corresponding toll increases. Materially increased transfers from NJTA to the state in order to support state transportation projects without commensurate toll increases to ensure system preservation and maintenance of rating case financial metrics. Future Developments That May, Individually or Collectively, Lead to Positive Rating Action: Maintenance of DSCR at the 1.7x range for a sustained period. TRANSACTION SUMMARY NJTA expects to issue approximately $798 million in series 2017G fixed rate bonds, to refund its outstanding Fixed rate bonds series 2012A and series 2013A for savings. The refunding bonds will be on parity with the existing turnpike revenue bonds and will not extend debt maturity. Performance Update Over the first 10 months of 2017, through October, toll revenue on the turnpike was up 0.9% over the same period last year. During the same period, toll revenue on the parkway increased by 0.7% year-over-year. For more information on the NJTA, please see Fitch's press release 'Fitch Rates New Jersey Turnpike Authority's 2017A Rev Bonds 'A'; Outlook Stable.' SECURITY Turnpike revenue bonds are secured by a first lien on pledged net revenues, which are defined as all tolls, revenues, fees, rents, charges, and other income derived from operating the turnpike (including Build America Bond subsidies), proceeds from business interruption insurance, amounts deposited in the revenue fund from the construction/special project reserve/or general reserve funds, and revenues from qualified swaps and investments.