WASHINGTON — The North Carolina Turnpike Authority’s board moved forward with a $650 million toll road bond deal — its first and the largest of any issuer in the state — after obtaining bond insurance from Assured Guaranty Corp.
The deal, which could be priced as early as June, will finance North Carolina’s first toll road to be built in a century — the 18.8 mile Triangle Expressway around Raleigh. The highway is expected to provide congestion relief around the Research Triangle Park and three universities.
The authority has been seeking credit enhancement for the last 10 months, unwilling to test the market with an underlying rating that would have been in the triple-B category, sources said. It had planned to obtain insurance from Assured before the bond insurer was downgraded to AA on Monday by Fitch Ratings. Now the Turnpike is watching the market to gauge investors’ reaction.
For smaller issuers, Assured Guarnaty’s downgrade “is not having a significant impact and Standard & Poor’s is continuing to hold” its AAA rating on the issuer, said David Joyner, executive director of the authority. Moody’s Investors Service rates the insurer Aa.
“At the time of pricing, if Assured is not trading well, then we won’t use them,” said David Miller, a managing director at Public Financial Management Inc., the authority’s financial adviser. “As of right now we think it makes sense.”
The Turnpike also is watching legislation in the General Assembly that Assured Guaranty underwriters have said must be approved as part of the insurance contract. The legislation would to allow a refunding deal to extend beyond the maturity date of the original bonds.
Authority officials expect to issue 40-year bonds as part of the $650 million deal. Under current law, if the agency refinanced in 10 years, the refunding bonds must mature in 30 years or less. The legislation would allow the refunding bonds to have 40-year maturities.
The state Senate has already passed the bill and Joyner said he sees no problem in the House. The bill has not yet been scheduled for a hearing in the finance or transportation committee. Joyner said he is confident that the bonds will price by mid-June.
The $650 million deal includes $315 million of bonds that will be supported by toll revenue. North Carolina will provide $25 million annually to secure $335 million of state appropriation bonds, which are rated double-A without credit enhancement. The funding is also authorized under the legislation.
A federal loan under the Transportation Infrastructure Finance and Innovation Act will provide an additional $400 million in financing for the project. The loan will be subordinate to the toll revenue for the revenue bonds. The TIFIA loan will be needed before the Turnpike issues an official statement of the bonds to investors, Joyner said. The authority is in the “final throes” of securing the loan, he said.
