2009-10-15 20:56:04 -

Fitch Ratings assigns an 'AA-' rating to approximately $1.3 billion Bay Area Toll Authority, California (BATA) San Francisco Bay Area Toll Bridge revenue bonds series 2009-F2. In addition, Fitch affirms the 'AA-' rating on $4.3 billion in revenue bonds and variable-rate demand bonds (VRDBs), all of which are on parity. The Rating Outlook on the bonds is Negative.

The series 2009-F-2 bonds will be BATA's first issuance of taxable Build America Bonds with the expected 35% federal interest subsidy being applied as a direct offset to the series 2009F-2 debt service payments.
The bonds are expected to be sold through negotiation on or about Oct.

22, 2009, with proceeds being deposited into the project fund to pay for costs of BATA's

capital program. Remaining portions of the proceeds will be used to meet the debt service reserve fund requirement, and pay costs of issuance. BATA intends to issue an additional $2.2 billion by 2015 with the potential inclusion of a subordinate lien.

The 'AA-' rating reflects the economic strength and near monopoly position of the seven-bridge system, which provides critical transportation links in the San Francisco Bay Area, a mature and relatively stable traffic base, demonstrated ratemaking flexibility, and low elasticity of demand. The rating also incorporates BATA's solid financial performance, substantial liquidity position, and the ability of this system of bridges to sustain the loss of an asset from catastrophic seismic activity. Key credit risks include continued construction risk for the Seismic Retrofit Program (SRP) that could result in costs exceeding planned program contingency and the recent inclusion of capital needs of the Antioch and Dumbarton bridges into the SRP estimated at $750 million. In addition, maintenance and rehabilitation expense growth could exceed the plan through 2014 as BATA assumes complete operational responsibility for all bridges and modernizes tolling systems to implement open-road tolling. As BATA adds leverage for the larger SRP and faces the potential to fund other non-system needs, management will have to balance toll policy with financial margins. While lower tolls may be a policy goal, lower financial metrics do impact relative credit risk.

The Negative Outlook reflects.

-- The likelihood for additional leverage to address newly identified seismic retrofit demands (discussed below) compounded by the potential for additional cost escalations on the complex San Francisco-Oakland Bay Bridge (SFOBB) East Span replacement.

-- The potential for continued increases in rehabilitation and maintenance expenditures for unanticipated needs given the large and dynamic asset base.

-- The pressure on BATA's political ratemaking flexibility in the near- to medium-term if expenses grow faster than planned and BATA is called on to fund non-system needs, including the regional plan to construct and operate a high-occupancy-toll lane network.

-- The greater likelihood that debt service coverage on net revenues will remain meaningfully below 2.0 times (x) in the medium- to long-term as BATA manages toll policy with financial margins.

The passage of Assembly Bill 1175 (AB 1175) on Oct. 12, 2009 officially incorporates the retrofitting of the Antioch and Dumbarton bridges into the SRP. While initial cost estimates for the two projects totaled $950 million and BATA continues to budget for this amount, reductions in the scope of the retrofit, specifically avoided submarine engineering, have reduced the estimated project costs to $750 million. AB 1175 also rearranged the flow of funds to create a gross lien on the bonds, with category A and category B maintenance payments after debt service. Fitch will continue to evaluate debt service coverage ratios with both category A and category B maintenance expenses in the numerator as well as the 35% federal government interest subsidy.

The critical nature of this seven-bridge system and long-term economic strength and viability of the San Francisco Bay Area continue to provide a basis for very strong investment grade credit quality, despite the dramatic cost increases of the SRP and other cost and capital pressures.
BATA manages seven of the eight major crossings in the Bay Area - the eighth being the Golden Gate Bridge, which is managed by a separate entity. These bridges provide the only viable vehicular links within the Bay Area. Given the limited ability of rail and ferry systems to serve the diverse destinations within the area, these facilities are essential to regional economic activity. These fundamentals, together with the continued retention of economic rate-setting flexibility to deal with unexpected events that materially impact financial performance, make for very strong credit quality.

Coverage of debt service as calculated by Fitch is expected to fall below 2x times in fiscal 2009-2010. Pro forma coverage quickly drops to a medium-term level of about 1.5x. The likelihood for SRP cost increases and program expansion in the medium-term further accelerates this possibility. Additionally, the potential to support a proposed managed lane network in the Bay Area could also pressure financial flexibility.
Without additional toll increases beyond the programmed $1 increase associated with the Antioch and Dumbarton bridges, debt service coverage would be inconsistent with the current rating. Important to note is the significant economic rate-making ability of the system, with a $1 toll generating approximately $110 million in additional annual revenue.
Fitch will continue to monitor BATA's approach to managing the balance between toll policy and financial margins. Lower margins over the long term could result in further rating action.

Additional information is available at ' www.fitchratings.com : '.

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Fitch Ratings, New YorkBrian Taylor, CFA, +1-212-908-0620Michael
McDermott, +1-212-908-0605Cindy Stoller, +1-212-908-0526 (Media
Relations) cindy.stoller@fitchratings.com : mailto:cindy.stoller@fitchratings.com