DALLAS - The North Texas Tollway Authority is shifting its ratio of fixed-rate debt on today's $2.3 billion revenue bond deal to avoid locking in current high interest cost in the wake of market turmoil.
The original plan called for 10% of the debt to be unhedged variable rate. The new plan approved by the NTTA board at a special meeting yesterday increases the unhedged variable-rate offering to 30%.
The plan applies to the entire $4.9 billion financing plan for the State Highway 121 toll project that broke ground north of Dallas last month. After today's issue, the NTTA plans to issue the remainder of the authorized debt by November.
Turbulent market conditions created by the collapse of auction-rate debt and declining confidence in insured issues prompted the changes in the structure, said Rebecca Heflin, a financial adviser at RBC Capital Markets.
"We talked a lot about whether to sell now or later," Heflin said. "We realized over the next few months we could have a great deal of supply because of conversion of variable-rate debt to fixed rate, which would push up fixed rate."
The NTTA's rules allow it to carry as much as 25% of its debt portfolio in variable rate, so the authority has capacity for more variable-rate debt, according to Heflin.
"Since December, we've loaded up on fixed-rate debt," she said. "With a 100 basis point increase in yield, it wouldn't have been prudent to sell that much fixed-rate debt."
Susan Buse, assistant executive director for project evaluation, presented the changes to the NTTA board yesterday. She estimated that the true interest cost on the bonds has risen 42 basis points since the plan was developed in February.
"The market has improved since Monday," Buse told the board. "It's quiet and stable, so we're continuing to move toward pricing tomorrow."
The new plan eliminates $164 million of refunding bonds that were expected to be included in the deal.
The senior managers on today's deal - Bear, Stearns & Co., Citi, and Lehman Brothers - were asking for proposal-planning fees of $5 million each on the deal, but the NTTA countered with $2.7 million each. Each senior manager will earn $3.9 million in sales commissions.
"We've been negotiating them down and we're now at this point," Buse said.
The new structure shifts about $1 billion from fixed to variable rate, reducing the takedown on the negotiated deal to $1.25 per bond from a previous $5, according to Buse's presentation.
"This shift in structure has decreased total sales commission by approximately $4.75 million," her report said.
The co-managers will each earn $843,000 on the deal. They are Estrada Hinojosa & Co., First Southwest Co., Morgan Keegan & Co., M.R. Beal & Co., Southwest Securities, and Wachovia Bank.
The bulk of the debt is for the NTTA' $3.2 billion payment to the Regional Transportation Council for the right to build the highway. The authority's payment supplanted an earlier commitment from the private development team Cintra-JPMorgan that won the project a year ago.
