N.H. Turnpike Gets Back to New Money With $218M, Including BABs

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The New Hampshire Turnpike System this week will come to market with its first new-money issuance in 10 years with a $218.1 million revenue bond transaction that includes taxable Build America Bonds.

Citi will price $150 million of BABs on Wednesday after the system sells $68.1 million of refunding debt on Tuesday. Wells Fargo Securities is senior manager of the refunding transaction. Edwards Angell Palmer & Dodge LLP is bond counsel and Public Resources Advisory Group is the financial adviser for the NHTS.

The BAB deal, Series 2009A, consists of two term bonds, with $74.9 million of debt maturing in 2029 and $75 million of debt maturing in 2039, according to the preliminary official statement. With taxable BABs, issuers receive a 35% federal subsidy on the interest costs.

Like other BAB issuers, the turnpike anticipates the taxable security and its subsidy will offer a lower cost of borrowing than issuing traditional, tax-exempt debt, according to New Hampshire Treasurer Catherine Provencher. Her department also works on turnpike debt. The system is within the state’s Department of Transportation.

“We would have issued this debt regardless, so the BABs didn’t incentive us, if you will, to issue the debt, but yes, there will be savings realized from the BABs,” Provencher said. “But the BABs have helped because ultimately they will save the toll payers in interest costs.”

Fitch Ratings rates the Series 2009A and Series 2009B bonds A. Standard & Poor’s rates the transaction A and revised its outlook to positive from stable. Moody’s Investors Service rates the credit A1.

The refunding portion, Series 2009B, includes annual maturities from 2010 through 2021, according to the POS. The fixed-rate refunding will refinance Series 1999A bonds.

“What we decided to do is offer the refunding on the short maturities and do the new money in BABs on the longer maturities, as that was more cost-effective,” Provencher said.

The turnpike anticipates the refinancing to generate a present-value savings of about $3.7 million, or 3.65%, the treasurer said. New Hampshire’s refunding threshold is 3%.

The turnpike last sold new-money bonds in 1999.

John Mousseau, portfolio manager at Cumberland Advisors, said the appeal of a turnpike credit structure in the taxable market is that turnpike bonds are a more plain-vanilla debt compared to other revenue bonds. He said the components of traffic patterns, toll collections, and debt service coverage are pretty straightforward.

“The last thing [the taxable market] wants to see is a BAB deal that has so many bells and whistles on it that it looks like a structured finance deal in drag. They don’t want to deal with that,” Mousseau said. “I think that the real appeal of BABs to the taxable market is entities that they can understand. If you’re a taxable buyer, the turnpike bonds come with less baggage then if you were trying to analyze corporate credit structures.”

Bond proceeds will help finance infrastructure developments throughout the system. Capital projects include the construction of open-road tolling at Hampton, Hooksett, and Bedford, several new bridge constructions and bridge rehabilitations, and an additional two lanes on a portion of the Spaulding Turnpike, the main north-south roadway in the eastern part of the state.

The turnpike’s capital improvement program totals $1.01 billion through fiscal 2018, with roughly half of that amount already financed with prior bond proceeds, toll revenue, and investment earnings. To help finance the remainder of the program, officials anticipate selling another $150 million of revenue bonds in fiscal 2011 and $71 million in fiscal 2013, Provencher said.

Fitch said the turnpike is considering a 20% system-wide toll increase in fiscal 2012 to generate additional revenue to support capital projects and help offset an anticipated revenue decrease in fiscal 2013 due to a new Manchester Airport Access Road set to open at that time. The new road will allow drivers to access the airport from the turnpike without paying a toll. Currently, drivers pay a toll when exiting the turnpike for the airport.

Provencher said the second new-money transaction set for fiscal 2012 would rely on an anticipated toll increase.

“What would happen is we would likely not do our second tranche without the toll increase,” she said.

Construction of the access road is an economic development plan for the area that will open up roughly 1,000 acres for commercial development that will create jobs near the airport.

The turnpike’s total toll transactions will decrease by 3.8% in fiscal 2013 and by an additional 1.2% in fiscal 2014 as a result of the traffic diversion, according to a traffic and revenue study complied by Jacobs Engineering Group Inc. and included in the POS.

Fitch pointed to the expected revenue loss and the need to increase tolls in fiscal 2012.

“The turnpike is currently proposing an additional 20% system-wide toll increase in fiscal 2012 to mitigate the effects of the anticipated traffic diversion on the system’s revenue profile against a backdrop of growing debt service,” according to a Fitch report. “Without this toll increase, projected debt service coverage levels would decline ­dramatically.”

The turnpike increased tolls on July 1 at the Hampton Mainline Toll plaza. The additional revenue will help finance the purchase of 1.6 miles of Interstate 95, called the Eastern Turnpike Expansion, from the state. In return for buying the stretch of roadway for $120 million, state lawmakers earlier this year approved open tolling at the Hampton Main Line toll plaza on I-95. Officials anticipate additional revenue once the open tolling project is completed on May 30.

The turnpike system includes the 39.5-mile Central Turnpike, or F. E. Everett Turnpike, that connects the cities of Concord, Manchester, and Nashua, the 33.2-mile Spaulding Turnpike, and the 16.2-mile Blue Star Turnpike that runs from the Massachusetts border to Maine’s border.

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Transportation industry New Hampshire
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