Delaware River Port Authority Mulls $1B Issue for Expansion Projects

The Delaware River Port Authority yesterday proposed toll and fare increases on its four bridges and mass transit system, which connects southern New Jersey to Philadelphia, as the agency considers issuing nearly $1 billion of bonds over the next three years to support large-scale expansion projects.

The toll and fare hikes, which are subject to board approval, would help financ a large-scale, $3 billion expansion plan that officials expect to have up and running by 2017 and would increase service on the authority's PATCO line in Camden and Gloucester counties and in downtown Philadelphia.

Bond proceeds would also support major bridge repair work as the authority looks to finance $950 million of its $1.1 billion five-year capital plan, according to John Hanson, the DRPA's chief financial officer. Depending on the toll and fare authorization and market conditions, the authority could sell roughly $450 million of new-money debt towards the end of 2008.

"We would plan sometime in the fourth quarter of this year, but depending upon what happens in the market - we could move into the first quarter of next year - we would plan to authorize approximately $950 million worth of bonds and maybe issue around $450 million of them at that time," Hanson said. "And then in another two years issue the balance."

DRPA officials yesterday proposed increasing bridge tolls to $4 from $3 and boosting PATCO fares by 10% beginning in September and again in 2010. After that, tolls and fares would increase every two years based on cost of living increases. Hanson said the authority would receive overall system-wide revenue gains of about 33%.

While the DRPA looks towards financing long-term infrastructure projects, more immediate financing concerns deal with the volatile auction-rate market. To date, the authority has paid $4.7 million of additional debt service costs on its auction-rate debt.

Officials anticipate refunding $358 million of Series 2007 auction-rate securities during the week of July 21 into variable-rate debt secured by letter of credit from Bank of America and TD Bank. The DRPA sold the seven-day auction-rate bonds in October to refund Series 1995 fixed-rate debt into variable-rate mode in order to better match the bonds with a derivative attached to the debt.

The auction-rate securities are insured by Ambac Assurance Corp. Attached to the Series 2007 bonds is a floating-to-fixed-rate swap agreement with UBS AG as counterparty, with the authority paying the bank a fixed rate of 5.447% and receiving 66% of the London Interbank Offered Rate from UBS. That derivative caused the DRPA some worry in the past when the bank chose to exercise the swap on Jan.1, 2006, yet the authority could not refund the fixed-rate bonds into variable-rate debt until October due to a DRPA board stalemate that lasted for more than one year.

Moody's Investors Service and Standard & Poor's rate the transaction A3 with a stable outlook and BBB-plus with a positive outlook, respectively. Fitch Ratings does not have an underlying rating on the credit.

While the UBS swaption is now in line with the authority's variable-rate bonds, officials are working on another refunding to address a floating-to-fixed-rate Lehman Brothers swaption that kicked in on Jan. 1 and is currently attached to $66.1 million of fixed-rate 1998 port district projects bonds.

The authority planned on issuing auction-rate bonds in late 2007 to match the PDP bonds to the swap, but the volatile auction-rate market delayed that transaction. Hanson said the DRPA wanted to tackle the auction-rate issue before refunding the smaller $66 million portion. Currently, the authority pays a fixed rate on the bonds as well as a fixed rate of 4.865% to Lehman and receives 66% of LIBOR from the bank.

"We found it pretty difficult to get the capacity for the LOC that we needed just for the $360 million, which was obviously the bigger problem just because of the magnitude," Hanson said. "So we decided to undertake the $360 million first and then deal with the $66 million deal after that."

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