WASHINGTON — The Maryland Department of Transportation on Wednesday expects to competitively sell $140 million of bonds, including what could be MDOT’s first Build America Bonds.
The bonds are being issued to finance construction projects in the department’s six-year, $9.1 billion capital plan. Officials expect to issue $14 million of Series A tax-exempt bonds.
Underwriters for the $126 million of Series B bonds have the option of bidding on the bonds as tax-exempt or taxable BABs.
The Series A bonds have maturities between 2013 and 2015, while the Series B bonds have maturities between 2016 and 2025.
The point where BABs become more cost effective than tax-exempt bonds “has gotten closer,” leaving just three maturity years on the tax-exempt side, said June R. Hornick, MDOT’s director of debt management.
The bonds are rated Aa1 by Moody’s Investors Service, AAA by Standard & Poor’s and AA-plus by Fitch Ratings.
McKennon Shelton & Henn LLP is the bond counsel and Public Financial Management Inc. is the financial adviser.
The size of the department’s capital plan has been scaled back over the last two years as revenues have declined amid the recession.
The fiscal 2010 to 2015 plan totals $9.1 billion now, compared to $10.6 billion for fiscal 2008-2013.
Federal funds account for about 36% of the costs and bonds consist of about 15%, according to Fitch. MDOT also expects to receive a total of $635 million in federal stimulus funds.
To keep projects going in the face of declining revenues, the department lowered one of its internal measures of maximum annual debt-service coverage.
Investors are protected by a maximum coverage of two times the prior-year net receipts.
But MDOT had a management policy of keeping the ratio at 2.5.
“In order to keep the capital projects on the street, [Transportation Secretary Beverley K. Swaim-Staley] has allowed us to go below 2.5,” for fiscal 2010 to 2014, Hornick said.
It’s a “balancing act” to protect bondholders and keep projects flowing, she added.
Maryland has “demonstrated repeatedly over the last couple of years that they would cut their planned borrowing in order to insure that coverage remains solid,” said Douglas Offerman, the lead analyst on the credit for Fitch, who added that MDOT does not come close to breaching the 2.0 coverage covenant with investors.
“We feel fairly confident that their management is conservative,” he said.
MDOT’s total pledged revenues are expected to decline by 1.7% in fiscal 2010, according to Moody’s.
Revenues increased 8.2% in fiscal 2009 because a state-approved portion of sales taxes was directed to the department for the first time.
Revenues are estimated to grow 2.0% in fiscal 2011, Moody’s said in a ratings report.
Many state deparments of transportation have faced declining revenues as drivers have reined in their fuel spending and car purchases.
Maryland, like other states, has turned to public-private partnerships as a way to get projects finished with the help of private investment funds.
In March, Baltimore’s Seagirt Marine Terminal broke ground on a new $105 million berth project.
The project is part of a 50-year lease agreement between the port and Ports America Chesapeake, which is owned by the private infrastructure investment firm Highstar Capital LP.
Maryland is also requesting bids to redevelop its two major travel plazas along Interstate 95.
On Friday, the Maryland Transportation Authority postponed the date potential bidders must complete a request for proposal to Sept. 9 from July 15.
