DALLAS - Amid market upheaval and presidential warnings of a Wall Street panic, the North Texas Tollway Authority yesterday closed on $609 million of system revenue bonds as it exited a swap agreement with the defunct Lehman Brothers Derivative Products on a previous deal.
The NTTA, developing an ambitious series of toll projects in the Dallas-Fort Worth area, this year has issued a record amount of debt to finance the State Highway 121 project and must still price about $300 million of bonds before the end of November.
Officials who agreed to pay up-front costs of $3.2 billion to build SH 121 a year ago never anticipated trying to navigate the perilous conditions that now afflict the debt market.
Despite the unprecedented market troubles, the $609 million deal that priced Sept. 10 with Citi as senior manager and Lehman Brothers as co-manager was oversubscribed, NTTA officials said.
The Lehman bankruptcy had "minimal impact" on the deal, according to the NTTA, even though the investment bank is listed as underwriter on transaction reports.
The recent issue included $409 million of first-tier put bonds and $200 million of first-tier convertible capital appreciation bonds. The put bonds, maturing in 2042 and 2043 drew coupons of 5% at closing.
Spreads versus the MMD 30-year curve on the put bonds, rated A-minus by Standard & Poor's and A2 by Moody's Investors Service, have risen to 182 basis points over MMD with a yield to maturity of 4.92% this week from 179 basis points over the curve on Sept. 10.
The capital appreciation bonds have seen yields fall from 6.2% or 167 basis points over MMD originally, to 6.18% or 105 basis points over MMD in most recent activity. The CABs are insured by Assured Guaranty Corp. for triple-A ratings.
Although the final cost of exiting the Lehman swap on $85 million of 2005C revenue bonds has not been reported, the NTTA's most recent estimate is $6.1 million as of Sept. 15. The authority said yesterday that it had not received notification from Lehman on the final amount.
The NTTA received notice of the mandatory termination last week.
As one of numerous issuers who owe millions of dollars to exit the Lehman swap agreements, the NTTA is seen as being in a positive position because it is not owed money by the firm, and therefore doesn't have to await a termination payment that would be tied up in the bankruptcy process.
Even with a credit crisis, counterparties are willing to pay to replace Lehman in a trade where they collect a fixed rate that is higher than current short rates, industry officials said.
As it makes plans to complete the takeout of $3.5 billion of bond anticipation notes by Nov. 19, the NTTA is facing limited options and is reconsidering plans for expanding to roadway system amid the frozen credit markets.
"It's been a very traumatic time," said Daniel Heimowitz, managing director at NTTA financial adviser RBC Capital Markets Inc. "A very traumatic time."
Next month, the authority must decide whether to bid for the right to build the $1.3 billion State Highway 161 tollway west of Dallas.
"The NTTA's primary focus is strengthening our financial position for the bondholders and the citizens of North Texas," chairman Paul Wageman said in postponing the decision this month.
The authority last year issued $3.5 billion of bond anticipation notes for an up-front payment to the Regional Transportation Council, a planning arm for regional governments, under the auspices of the Texas Department of Transportation. The payment was for the right to build the 26-mile State Highway 121 north of Dallas, under a new system that enables public authorities to bid on the construction of an operation of toll roads legislated by the state in 2007.
Under its bond covenants for SH 121, the NTTA cannot issue additional debt if rating agencies say doing so would endanger its A-category senior-lien bond ratings.
Standard & Poor's has submitted its findings on how a new debt issue would affect the current ratings, but the reports were not made public. As of Wednesday's meeting, the NTTA board had not received the report from Moody's. Fitch Ratings was fired after it lowered the authority's rating to the triple-B category last year.
Another factor that is causing delay on the SH 161 decision is whether a federal loan under the 1998 Transportation Infrastructure Finance and Innovation Act will be available. The SH 161 financing is contingent on TIFIA financing 43% of the project's cost. There again, turmoil in Congress and the upcoming election may complicate matters further.
The SH 161 financing would be a standalone project that would have no claim to tolls from the other NTTA tollways, Wageman said. But with $7 billion of projects planned, the agency is reconsidering its financial position.
Wageman noted at this month's meeting that capital appreciation bonds will probably not be available. But the authority said it expects to complete its financing of SH 121.
"As with most issuers, market conditions influence when and how you enter the market," an NTTA spokeswoman said. "The financing plan is flexible which allows us to adapt to the market conditions."
