After Delay, Oklahoma DOT Returns With $98M Gan Sale

DALLAS - The Oklahoma Department of Transportation will get back into the debt market next week with a negotiated sale of $98.3 million of grant anticipation notes after delaying the deal for a month.

The schedule calls for retail sales of the Gans on Tuesday, with an institutional period on Wednesday.

"We could have done this deal 30 days ago, but we chose not to because of market conditions at that time," said J. Michael Patterson, chief financial officer at ODOT. "The market is now looking for this type of investment. We've seen that in two recent Garvee sales by Michigan and California, both of which were over-subscribed."

"The California transaction had orders for four times the amount of debt offered, just on the retail side," he added. "I don't know if we'll get California-type numbers, but I'm anticipating good interest on the retail side. We usually get retail sales of 30% to 35% in Oklahoma, and we could do better than that this time."

A slow but steady drop in interest rates over the past 30 days also factored into the decision to go ahead with the sale. The higher rates were a concern, Patterson said, but the state should benefit from the current lower cost of borrowing.

"We don't have to go to the market now, but the rates are coming to us," he said. "We're looking for somewhere in the 4.5% to 4.6% range."

Patterson said with an anticipated premium, the $98.3 million sale should bring in $100 million in proceeds for the state.

The 15-year grant anticipation notes are rated A-plus by Fitch Ratings and Aa3 by Moody's Investors Service.

JPMorgan is the lead underwriter on the ODOT sale. The underwriting team also includes BOSC Inc., Capital West Securities Inc., RBC Capital Markets Corp., and Wachovia Bank NA.

Financial adviser is First Southwest Co. Bond counsel for ODOT is Hawkins, Delafield & Wood LLP.

The notes are direct Garvees - grant anticipation revenue vehicles - supported by Oklahoma's apportioned share of Title 23 federal highway aid. The Federal Highway Administration has agreed in a memorandum of understanding to make semiannual debt service directly to the bond trustee rather than financing specific highway projects through payments into the Oklahoma treasury.

The sale is the fourth and final tranche from the $300 million first phase of a schedule calling for a total of $500 million in debt. ODOT sold $47.6 million of Gans in March 2004, $48.8 million in August 2005, and $96.3 million in March 2007.

The state Legislature approved a $799 million grant anticipation note program for ODOT in October 2000, but no sales could occur until a legal challenge was decided in the state's favor in December 2003.

The Oklahoma Transportation Commission adopted a $1 billion highway plan in 2004 for work in 12 designated corridors of economic importance that reduced Gan financing to approximately $500 million. The total cost was later revised to $1.2 billion due to inflation in the prices for construction materials.

"We broke that $500 million program into two phases, the $300 million first phase that we're completing with this sale, and a $200 million second phase," Patterson said. "That was primarily for scheduling purposes, but we also felt that was a natural break so we could re-evaluate the program to see if we should go into phase two."

Patterson said no decision has been made on whether to go ahead with the $200 million second phase of the Gan financing program.

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