NEW YORK (Reuters) - Toll roads are becoming a more attractive investment as lower energy prices provide a greater incentive for drivers to use their cars and boost the use of toll roads, Gregory Serbe, portfolio manager at municipal bond specialist firm Lebenthal Asset Management, said on Thursday.
The average price of gasoline has fallen to its lowest level since December 2010, to $2.94 per gallon, driven by the slide in crude oil prices.
“As a bond investor, you want traffic on the roads, because that’s how the tolls get paid,” said Serbe, speaking at the Reuters Global Investment Outlook Summit in New York, noting that the lower gas prices will boost traffic.
Toll roads make up around $15 million of the $225 million in municipal bond assets under management that Lebenthal holds in separate accounts for clients, he said.
A key test for the market will be an upcoming issue from the New York State Thruway Authority, Serbe said. The NYSTA is to issue $750 million in general revenue refunding bonds in early December, according to a schedule on the New York state comptroller’s website.
Serbe said Lebenthal would consider the bond issue for those accounts that have cash to spare and do not already have too much exposure to toll roads.
Moody’s Investors Service on Thursday forecast median traffic growth of 1-2 percent for the 44 toll roads it rates next year, in line with 2014, as the U.S. economy continues to recover. Revenues are expected to rise 3-5 percent.
Lower gas prices could boost driving, leading to increased traffic on free roads and encouraging some drivers to use less congested toll roads, Moody’s said.
Serbe forecast that issuance of municipal bonds should rise next year, helped by recent bonds issues passing at the ballot earlier in November.
“In terms of the outlook, it’s very good,” he said. “The results of the election: most bond issues passed, there was great support for transportation-oriented bonds.”
Issuance of U.S. municipal bonds to Nov. 18 this year was down 3.8 percent from the same period a year ago at $269 million, according to Thomson Reuters data.
James Lebenthal, whose parents founded the Lebenthal business and was succeeded by his daughter Alexandra at the helm of the firm in 1995, died on Friday.
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Reporting by Megan Davies; Editing by Leslie Adler