The Pennsylvania Turnpike Commission tomorrow will sell $234.8 million of subordinate revenue bonds to help the agency meet its initial fiscal 2009 payment to the state's Department of Transportation.
Under Act 44, the Turnpike pays PennDOT four payments each year, with the authority set to give the department $850 million in total for fiscal 2009, which began July 1. Last year, PennDOT received $750 million from the PTC.
Merrill Lynch & Co. will price the fixed-rate bonds. Dilworth Paxson LLP is bond counsel and Hopkins & Co. is the authority's financial advisor. Assured Guaranty Corp. will provide insurance on the bonds, said Nick Grieshaber, the Turnpike's director of treasury management.
The transaction includes tax-exempt Series 2008B-1 for $166 million and SeriesB-2 for $68.7 million, subject to federal taxation as that portion will help support operating budgets for mass transit systems throughout the state.
"With all these quarterly payments that we're making, we're funding not only PennDOT's highway and bridge program, but also mass transit," Grieshaber said. "And when we're funding mass transit, we're funding a good portion of it for mass transit's operating budget and when you're funding operating budgets, it has to be taxable."
The tax-exempt portion offers serials and terms with maturities going out to 30 years while the smaller taxable piece contains one 30-year term bond.
Moody's Investors Service assigns its A2 rating to the transaction. Standard & Poor's has yet to release its rating on the deal but rates the Turnpike's outstanding subordinate bonds A-minus. Fitch Ratings does not rate the Turnpike's subordinate debt.
The authority has $2.5 billion of senior-lien debt outstanding and $485 million, including this issue, of outstanding subordinate bonds.
Last year, lawmakers passed Act 44, which boosts the commission's borrowing power to issue up to $5 billion of special revenue bonds over 12 years, with no more than $600 million of that debt to be issued per year.
In addition to the bonding increase, the law allows for PennDOT to lease I-80 to the PTC for 50 years in a "public-public partnership," with PennDOT receiving annual payments from the commission and the PTC managing I-80 and implementing tolls on the 311-mile roadway. The authority hopes the Federal Highway Administration will grant PTC's request to toll on I-80, with that decision to be announced possibly by early fall.
The Turnpike's subordinate bond proceeds cover the annual payments to PennDOT while the authority's senior lien bonds help finance capital projects on the Turnpike.
Officials are also working on a variable-rate $50 million senior-lien bond deal set to price in mid-August with the same bankers and outside professionals mentioned above working on that transaction and Bank of America NA supplying a letter of credit.
Grieshaber said the deal will help maintain the authority's variable-rate debt exposure of roughly 25% and that there are no current plans to hedge the $50 million with a swap agreement.
