While Pennsylvania officials could potentially privatize the state's 530-mile Turnpike, it's still business as usual at the Pennsylvania Turnpike Commission as the authority gears up for a $405 million new-money deal to help finance capital improvement projects throughout the system.
UBS Securities LLC will price the Series 2008 B variable-rate revenue bonds on Wednesday. Hopkins & Co. is the financial adviser and Dilworth Paxson LLP is bond counsel. Bank of America will supply a letter of credit on the weekly-rate debt.
Fitch Ratings and Moody's Investors Service rate the deal A-plus and Aa3, respectively. The credit carries an A-plus rating from Standard & Poor's.
UBS is working on the PTC as the Swiss bank prepares to close down or sell the remainder of its municipal bond operations. On May 6, the bank announced it would exit the muni business. This news did not alter UBS' working relationship with the Turnpike Commission or Wednesday's $405 million sale, according to Nick Grieshaber, the agency's director of treasury management.
"It is a normal transaction," Grieshaber said. "Nothing's changed there in that respect."
The deal will offer weekly-rate debt maturing in 2038. The PTC chose to sell variable-rate securities in order to attach three floating-to-fixed-rate forward-starting swaps based on the SIFMA index to the transaction. The commission entered into the agreements in August 2004.
In the swap agreements, the PTC will pay a fixed rate of 4.887% in exchange for floating-rate payments from Goldman Sachs & Co., Merrill Lynch & Co., and Morgan Stanley. The swap agreements kick in on June 1 and total $300 million, leaving roughly $100 million of debt unhedged, Grieshaber said.
In addition to matching the SIFMA swaps with floating-rate debt, selling variable-rate bonds would help the PTC if the it were to pay down all of its $2.4 billion of outstanding debt in order to enter into a concession agreement. That amount does not include the upcoming variable-rate deal.
The authority would be required to defease its outstanding notes and bonds if the state chose to move forward with a potential $12.8 billion, 75-year lease agreement on the 530-mile turnpike with Citi and Abertis Infraestructuras.
The concession proposal would have to pass through the legislature before state officials could approve the agreement, which would allow Citi/Abertis to manage the roadway and collect toll revenue for 75 years in return for a $12.8 billion up-front payment to the state and paying the costs to execute PTC's 10-year $5.5 billion capital plan.
Gov. Edward Rendell, a Democrat, last week announced Citi/Abertis' winning bid and said potential concession proceeds would go into the Pennsylvania State Employees' Retirement System. He said investing the payment into the pension system would generate $1.1 billion of annual earnings, based on an average yearly return on 12%, that officials would then use solely to repair Pennsylvania's roads, bridges, and tunnels.
Rating analysts said that possible increase of money into the state coffers could benefit Pennsylvania, yet it was too early to determine how the potential concession agreement would affect the commonwealth's GO rating. Moody's assigns its Aa2 rating to the state. Fitch and Standard & Poor's rate the credit AA.
Analysts said if the PTC were to defease all of its outstanding debt, the authority would no longer carry a credit rating, as there would be no debt to rate.
"Whether [the bonds] are callable or not, either the ratings would go away or be withdrawn because there's no longer debt outstanding," said Standard & Poor's analyst, Joe Pezzimenti. "Or, they might be rated based on securities held in escrow, which would probably be triple-A."
Lawmakers have yet to fully support the arrangement. House Speaker Dennis O'Brien, R-Philadelphia County, expressed doubts about privatizing the Turnpike. And Senate President pro tempore Joe Scarnati, R-Cameron, last week announced that he preferred additional bonding through the Turnpike Commission and state GO borrowing to pay for needed transportation infrastructure.
