DALLAS - Using state loan guarantees as a new form of debt insurance, the North Texas Tollway Authority yesterday agreed to build another $1.3 billion turnpike, despite misgivings by some board members about how the financing might affect future projects.
The new project, State Highway 161, is an 11-mile north-south highway on the western fringe of Dallas that will funnel traffic through the suburb of Grand Prairie and toward a new Dallas Cowboys stadium in adjacent Arlington.
The SH 161 loan guarantee agreement with the Texas Department of Transportation comes as the NTTA is completing financing of the $3.2 billion SH 121 north of Dallas that will link with SH 161.
The authority has had to alter its financing plan to complete the takeout of about $225 million of bond anticipation notes ahead of a Nov. 19 deadline due to the credit freeze. Funding SH 161 could prove even more difficult, some NTTA officials said.
Yesterday's decision was postponed from the board's October meeting because of market turmoil, including the bankruptcy of Lehman Brothers, a counterparty on some NTTA swaps.
"As it turned out, we didn't fully understand just how unfavorable market conditions could be," said NTTA chairman Paul Wageman. "We are truly living in extraordinary times."
As a standalone project that could not claim revenue from other NTTA projects, SH 161 is expected to be profitable upon opening because it traverses fully developed neighborhoods. NTTA officials expect debt for the project to earn triple-B ratings, one notch lower than the first-tier bonds for SH 121.
With that rating and the risk aversion in the market, the deal is a strong candidate for insurance, noted financial adviser Daniel Heimowitz, managing director at RBC Capital Markets Inc. However, insurance is scarce with the ratings collapse of the monoline giants such as Ambac Assurance Corp. and MBIA Insurance Corp.
To fill the insurance gap, TxDOT in the past two weeks agreed to provide a toll equity loan to guarantee payment of eligible costs of the project. With the loan guarantee, the NTTA should be able to issue bonds with ratings of single-A or double-A, said Greg Cary, managing director of Goldman, Sachs & Co. who represented TxDOT's end of the deal.
"This loan really acts as bond insurance," he said.
TxDOT officials said the new "partnership" between the two agencies was necessary amid the unprecedented paralysis in the muni bond market and the need to complete the project.
"We wanted a partner ready to do business, and NTTA is ready," said Bill Meadows, a member of the Texas Transportation Commission board that oversees TxDOT. "We are sharing risk, sharing responsibility and building three important roads for the Metroplex."
After committing the State Highway Fund guarantee to the NTTA bonds for the first time, "we figure there will be a line out the door looking for this kind of credit enhancement," Cary said.
Despite its agreement to take on SH 161, the NTTA can still back out for any reason, including negative rating impacts to the tollway system, officials noted.
The NTTA will commit an equity contribution of $400 million to be used on the development of these projects.
Several board members sought reassurance that the agreement to build SH 161 would not affect other projects on the boards, particularly a Fort Worth turnpike known as Southwest Parkway. Under current scenarios, the parkway has a $256 million funding gap that will require additional sources of funding, officials said.
Moreover, NTTA plans about $7 billion worth of projects through 2016.
Cary and Heimowitz reassured the board that the funding plan for SH 161 is "in no way detrimental to other projects."
However, NTTA executive director Jorge Figueredo acknowledged that the new project would change next year's bond issuance from a planned $312 million to about $442 million.
The cash-flow scenarios in an uncertain financial environment troubled vice chairman Victor Vandergriff of Arlington.
"It's the government approach that we just keep spending and we'll figure out where to get the money later," he said. "I feel a little bit put upon to be under the gun, especially on a project I worked so hard on."