Regional News

DART Preps $740M Deal For Projects

DALLAS - Major trends are influencing Dallas Area Rapid Transit's $740 million revenue bond deal this week.

Soaring fuel prices, rampant construction inflation, rapid population growth, turmoil in financial markets, and a weakening economy all factor into the bond issue that ranks as one of DART's largest.

For the transit system that boasts the largest public rail network in Texas, the combination of forces has drawn increasing attention to DART's role in keeping the Dallas-Fort Worth area moving.

"Our region's ridership success is drawing national attention, including stories in the New York Times and on NBC's Today show," said DART chairman Randall D. Chrisman. "Nevertheless, we think ridership still has room to grow, and we're looking for ways to do that."

Proceeds from Thursday's bond sale will refund commercial paper used to finance DART's Green Line that connects north Dallas and the suburbs of Farmer's Branch and Carrollton to downtown and other lines. Another line in the planning stages called the Orange Line will connect with the Green Line and carry passengers to the suburb of Irving and ultimately to Dallas-Fort Worth International Airport.

Merrill Lynch & Co. leads the syndicate underwriting the sale with Loop Capital Markets LLC, Southwest Securities, Citi, M.R. Beal & Co., Wachovia Securities, JPMorgan, UBS Securities LLC, and Walton & Johnson.

Estrada Hinojosa & Co. serves as financial adviser, with Vinson & Elkins LLPand West & Associates as co-bond counsel.

The deal comes with unusual credit scores after a Standard & Poor's upgrade to AAA from AA-plus and a Fitch Ratings downgrade from to AA-minus from AA. Moody's Investors Service maintained its Aa3.

"We've always had split ratings, but we've never had a situation where one went up and one went down," DART treasurer Nate Hallett said. "Obviously, the feeling at DART was that S&P got it right."

Hallett said the deal requires no insurance, and he expects a good response from the market.

"I'm kind of an optimistic individual, and I think it will be well received," he said. "A lot of people want to own our bonds, and we don't have a lot of paper out there right now."

DART's debt will grow rapidly under its five-year, $4 billion capital plan.

Green Line construction began in the summer of 2006 following the award of a $700 million full funding grant agreement from the Federal Transit Administration. DART's current expansion programs will lead to the doubling of its rail system to 90 miles by 2013. Altogether, the extensions are expected to add 60,000 weekday passenger trips, essentially doubling ridership on the DART rail system.

The Orange Line, which was threatened with delay because construction cost estimates had doubled to $1.9 billion, will branch from the Green Line near Dallas Love Field Airport to serve Irving and Las Colinas in 2011 and DFW International Airport by 2013. Service also will be extended from the eastern Dallas suburbs of Garland to Rowlett in 2012.

DART also is conducting a transit study that includes a second rail line through the Dallas Central Business District with service scheduled for 2014. A Blue Line extension from Ledbetter Station to the University of North Texas is scheduled to open in 2018.

DART saw its ridership hit a record 10 million passenger trips in April, surpassing the previous record of 9.2 million in August 2006.

The surge in ridership coincides with similar results on other major urban transit systems.

In the first quarter of 2008, public transportation ridership in the United States rose by 3.3%, according to the American Public Transportation Association. At the same time, the Federal Highway Administration has reported that the vehicle miles traveled on our nation's roads declined by 2.3% in the first quarter.

"There's no doubt that the high gas prices are motivating people to change their travel behavior," APTA president William W. Millar said.

For DART, ridership is a small contributor to overall revenue. The transit agency recovers about 13% of its cost of service through fares, according to Hallett.

"DART is heavily subsidized," he said. "Our fare recovery is probably low compared to other places, but it's a reflection of what our board wants to do. For every 10% increase in fares, we lose 3% of our riders."

The agency benefited from a new law on how Texas sales taxes are allocated. The old law sent the sales tax to the taxing agencies where the customer lived. Under the new law, the sales tax goes to the jurisdictions at the point of sale.

"Because of that, our sales tax collection is up about 3%," Hallett said.

DART's upgrade from Standard & Poor's was based on the rapidly growing service area covering 13 cities, strong sales tax collections since 1983, revenues that are coming in at four times debt service, sound management, and a record of success in handling previous economic downturns, analysts wrote.

"We believe that DART's service area's broad and diverse retail base will provide resilience in any economic cycle," Standard & Poor's analyst James Breeding said.

Fitch, on the other hand, wrote that its downgrade "reflects the increased costs associated with DART's light-rail build-out, potential cost increases to the remaining projects through 2018, the need to issue an additional $529 million in debt beyond the $2.9 billion voter-authorized limit, and a move to debt with a 40-year maturity, all of which indicate more limited financial flexibility."

While population continues to swell in the Dallas-Fort Worth area, cities, counties, and school districts are beginning to trim their budgets to match a decline in revenues. For all governments in the area, DART is seen as a key economic engine.

One reason Irving officials were so strongly opposed to delaying the Orange Line was the fact that developers already had projects in the works near the lines, Hallett said.

More than $7 billion in "transit-oriented developments" are on the drawing board, according to a November 2007 study by the University of North Texas Center for Economic Development and Research.

Development around transit stations will generate $46 million annually for school districts and $23.5 million for DART member cities, the study estimated.

"To say DART rail's impact has been substantial for the Dallas region's economy would be an understatement," said Bernard Weinstein, director of the UNT center. "It's a trend that's impossible to miss; the local business community certainly hasn't."



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