CHICAGO — The Missouri Highways and Transportation Commission enters the market this week with $185 million of Garvee bonds to complete the financing of its Safe and Sound bridge program and to fund its share of a new span across the Mississippi River.
The MHTC will take retail orders on Tuesday and open up the sale to institutional buyers on Wednesday. Bank of America Merrill Lynch is the senior manager, Public Financial Management Inc. is the financial adviser and Gilmore & Bell PC is bond counsel.
About $100 million will go to wrap up funding for the state’s bridge program and $85 million to cover the state’s cost of the new Mississippi River bridge with Illinois and federal funds covering the remainder of the $640 million price tag.
The bonds mature serially through 2025. The deal may include some Build America Bonds, but the amount depends on interest rates. “The market has really moved around so we are not sure yet where the BABs would sit or even if there will be BABs,” commission chief financial officer Roberta Broeker said Friday.
The state issued $600 million of grant anticipation revenue vehicles, or Garvees, last year. They included a good chunk of BABs on the long end of the yield curve. The commission decided to move then, given the low interest rates on long-term debt and to “fill in on the shorter end” the planned borrowing for this year.
The $600 million sale carried a final 24-year maturity, covering four cycles of federal multi-year transportation spending reauthorization. Although such a lengthy term is unusual for Garvee issues, the commission’s bonds are further secured by a subordinate pledge of state transportation funds.
The state’s Garvee bonds carry a AA-minus from Fitch Ratings, a AA-plus from Standard & Poor’s and a Aa2 from Moody’s Investors Service.
“The ratings reflect our opinion of a state grant anticipation revenue vehicle program with high debt service coverage, a strong subordinate backup pledge of dedicated state transportation funds, and sound bond provisions,” Standard & Poor’s analyst Adam Torres said.
Fitch said its rating reflects the “strength of the secondary pledge of state gas tax and motor vehicle fee revenues which are expected to exceed” two times coverage of debt service. Federal grants provide five times coverage.
Moody’s said the credit’s challenges include congressional reauthorization risk associated with the federal program, uncertainty and shortfalls in the Federal Highway Trust Fund that have forced Congress to step in to replenish it, and a recent slowing in motor fuel taxes and vehicle sales taxes.
Total pledged state funds declined by 6.6% in fiscal 2009 and are forecast to decrease by 2.8% in the current fiscal year. Motor fuels tax collections declined by 4.0% in fiscal 2009, motor vehicle and driver’s license fees by 2.7%, and motor vehicle sales and use taxes by 9.6%, according to Moody’s.
The deal will mark the agency’s last financing until a new revenue stream is identified to finance transportation projects. After its Garvee sale last year, the agency issued $300 million of its traditional road bonds secured by transportation revenues to mark the final installment of a $2.2 billion construction program.
The MHTC began a new legislatively approved borrowing program in 2000. It expanded the program after voters in November 2004 approved a constitutional amendment to accelerate state road projects by ending the diversion of some road-related taxes to the general fund, but those funds are now fully tapped.
Broeker added that the commission also does not want to over leverage its federal grants. It will have $928 million of debt secured by federal grants after the sale. The MHTC limits debt service to no more than 20% of its annual revenues and after the new deal is completed will be at about 16% of revenue.
