DALLAS — This week’s issue of $237 million of pass-through toll transportation revenue bonds to build a freeway serving the Fort Bliss Army Post in rapidly growing El Paso represents a series of firsts.
It will be the first debt issued by the newly created Camino Real Regional Mobility Authority, which is the first RMA in Texas created by a single city.
The tax-exempt pass-through toll bonds will be the first of their type in Texas not backed by a local tax pledge. And the project is the first use of Texas Department of Transportation funding prompted by an unsolicited bid from a private developer.
“The project is really unique,” said Raymond Telles, assistant city attorney for El Paso who also serves as legal adviser to the authority. “That an entity that was non-existent a year ago can sell this type of bond this quickly is really unusual.”
“While TxDOT has done many pass-through toll projects, this is the first one with a private entity,” said William G. “Bill” Burnett, vice president of project development for the Austin-based developer J.D. Abrams.
The authority expects to sell the bonds through negotiation with Citi on Thursday, with closing set for Feb. 7, said Raymond Telles, assistant city attorney for El Paso who also acts as a legal adviser to the authority. Steven Adams, senior vice president at First Southwest Co. is financial adviser, with Paul A. Braden of Fulbright & Jaworski as bond counsel.
Despite the name of the bonds, they do not have to be used for toll projects. The 7.4-mile El Paso highway, State Spur 601, also known as the Inner Loop, will not be tolled.
“The drivers won’t actually be charged, but the Texas Department of Transportation pays based on the number of drivers,” Telles said.
Pass-through financing was created by the Legislature as a way to speed construction of projects by allowing TxDOT to reimburse bond issuers based on the number of cars using the roadway. About 13 pass-through toll financing deals have been approved, but the Camino Real is the first in which a private developer, J.D. Abrams, is being reimbursed, said Jose Hernandez, director of debt management for TxDOT.
“The program was designed to accelerate projects rather than wait until funding was available on a cash basis,” he said. “We know that this project is very high profile. It is a vital project for the community.”
The urgency of the project stems in part from the expansion of Ft. Bliss under the Base Realignment and Closure process. The U.S. Army post will gain more than 20,000 troops by 2010, with about 40,000 dependents expected to come along. The Inner Loop will connect to another major highway called the Outer Loop and will channel traffic to and from Fort Bliss.
While the RMA is dealing with transportation issues, area school districts are on similar building binges to accommodate the additional students coming from the BRAC expansion.
Burnett, executive director of TxDOT and a district engineer for the agency in El Paso before that, said he had long been aware of the plans for the Inner Loop. An additional local angle came from the fact that JD Abrams was founded in El Paso in 1966. Armed with background and a financing plan, Burnett brought the unsolicited proposal to TxDOT’s governing board, the Texas Transportation Commission, in December 2005, recommending the use of pass-through toll bonds.
After opening up bidding to other developers, TxDOT chose Abrams, one of the top five highway construction firms in Texas. The competing bidder, Zachry America, had proposed operating the road as a tollway, while Abrams did not plan to actually operate the project after construction, Burnett said.
The TTC’s requirements were that the state would not pay more than $350 million or $35 million in any year and that the financing would not last more than 20 years.
“At Abrams, we knew we wanted to do tax-exempt bonds,” Burnett said. “We could go through TTC or we could set up a separate entity or conduit.”
The Camino Real RMA entered the picture in spring 2007. The authority was created solely by the city of El Paso, with the RMA chairman named by Gov. Rick Perry and six board seats filled by the mayor of El Paso. By June, the RMA was up and running.
To bring the RMA into the financing, an agreement between TxDOT and JD Abrams had to be amended to a tri-party agreement.
Burnett said he had already lined up a potential underwriting team at Citi before submitting the proposal to the TTC. Ron Marino, managing director of public finance at Citi, was his key contact, along with public finance directors Jamison Fehely and Brad Guilmino, Burnett said.
“I had known Ron since 1994 when I was executive director of TxDOT,” Burnett said. “Like all companies, they are always looking for new business.”
The financing agreement calls for semiannual payments from TxDOT upon completion of the roadway.
The payments, which will be made 15 days prior to the debt service due date, will be not less than $15.65 million or more than $17.5 million, the level dependant on actual vehicle miles traveled during the previous six months. The payments will come from the State Highway Fund, although the fund is not pledged to the bonds. Bondholders have a subordinate claim on the SHF, paid after existing highway revenue bonds. There is no debt service reserve.
The TTC began to issue bonds backed by the SHF in 2006, with $2.5 billion outstanding. In the last session of the Legislature, the limit on issuance was raised from $3 billion originally to $6 billion. The annual issuance was also increased by $500 million to $1.5 billion.
The bonds carry ratings of A2 from Moody’s Investors Service and A from Standard & Poor’s. The RMA will qualify the bonds for insurance but will not decide on whether to cover them until the date of issuance. Officials say potential downgrades for insurers complicates the decision.
“We have visited with six bond insurers,” Burnett said. “Citi will solicit quotes from them and make a recommendation based on that.”
Demand for the debt is expected to be strong, based on the TxDOT pledge and the track record of JD Abrams for handling major projects throughout the state, Burnett said.
Dennis Burleson, chairman of the Hidalgo County Real Regional Mobility Authority in the Rio Grande Valley and a financial consultant with A.G. Edwards & Sons Inc., said the El Paso deal is similar to a project his RMA is planning in South Texas — a $600 million loop project that will be funded by a $10 license fee in the county.
“It will be similar to this and in some ways not as strong as this,” he said of the Camino Real bond issue. “I would think that the TxDOT revenue pledge would be as good as toll revenues, if not better.”
