New York's TBTA Breaks 8-Year Drought With Competitive BAB Sale

New York's Triborough Bridge and Tunnel Authority's is returning to the competitive market on Thursday after a hiatus since 2001. The deal, a $158 million taxable Build America Bond offering, is coming on the heals of outlook changes to negative by two rating agencies last week.

For more than eight years, the Metropolitan Transportation Authority and the TBTA have sold their bonds solely through negotiation.

"We've seen competitive BABs get done at attractive rates and we've had a lot of interest from underwriters to participate in BABs," said MTA finance director Patrick McCoy. "This is a way to allow the widest participation possible because the competitive process allows any underwriter to bid."

The TBTA will accept bids on the Series 2009B bonds only through Ipreo's BidComp/Parity competitive bidding system until 11 a.m. Eastern Time on Sept 10, according to the preliminary official statement. The bonds will be issued on the authority's senior lien with maturities from 2035 to 2039 and will be awarded based on the lowest true interest cost.

Of $29.07 billion of BABs sold since the program was created, just $2.41 billion have been sold competitively, according to Thomson Reuters.

The TBTA is one of four credits through which the MTA sells bonds. The debt is backed by tolls on its bridges and tunnels in the New York City metropolitan area. The deal was originally expected to total $300 million and include a refunding, but that part was taken out. McCoy said the TBTA's future financing plans will be discussed at the MTA finance committee meeting later this month.

The deal is the second for the MTA under the BAB program created under the American Recovery and Reinvestment Act and allows issuers to receive a 35% subsidy on interest costs from the U.S. Treasury. The MTA sold $750 million of BABs in April, which yielded 7.34% with a 2039 bullet maturity. Some criticized the deal as having been too expensive for the authority but McCoy said the MTA was satisfied with how it priced.

MTA board member Doreen Frasca said she was glad to see the authority trying a new approach with the competitive sale.

"When you have a frequent market issuer that has a strong and identified market profile, there is a place for competitive bidding," she said.

Hawkins Delafield & Wood LLP is bond counsel and Goldman, Sachs & Co. is financial adviser on the deal.

The TBTA has sold $11.77 billion of bonds since 2000, of which $6.27 billion was new money, $5.18 billion was refunding and $325 million was combined, according to Thompson Reuters. The agency has $6.52 billion of bonds outstanding on its senior lien and $1.97 billion on its subordinate lien.

The TBTA credit received outlook changes to negative from stable by Fitch Ratings and Moody's Investors Service last week. Moody's rates the TBTA senior lien Aa2 and Fitch rates it AA. Standard & Poor's maintained its stable outlook on the credit, which it rates AA-minus.

The primary reason for the outlook change was a decline in debt-service coverage in light of declining traffic projections, Moody's analyst Maria Matesanz said in an interview.

"Compared to where they've been historically, their debt service coverage ratios have been trending down going forward even with the rate increases," she said.

Without planned rate increases in 2011 and 2013, debt service coverage could fall to 1.75 times for its senior bonds from the current 2.4 times coverage. There are risks associated with the coverage until the rate increases are actually voted on and implemented, Matesanz said.

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