Colorado E-470 Restructures with $105M Refunding

DALLAS — Even with ratings at the low end of investment grade, Colorado’s E-470 Public Highway Authority sees an opportunity for favorable interest rates on a $105 million toll revenue bond refunding this week.

The authority, which built and operates a toll highway east of Denver, is not anticipating significant savings but is seeking flexibility as it restructures a portion of its $1.42 billion debt. The bonds will be split between Series A capital appreciation and Series B current refunding bonds.

The refunded debt includes put bonds of $30 million due in 2011 and $40 million in 2013. Pricing is expected Tuesday or Wednesday, said E-470 finance director Joe Donahue. The senior manager is Morgan Stanley with George K. Baum & Co. and RBC Capital Markets as co-managers.

Piper Jaffray & Co. is financial adviser and Kutak Rock LLP is bond counsel.

With interest rates hovering near record lows, the authority sought to quickly bring its deal to market, according to Donahue. It will not carry insurance, unlike previous authority issuances.

“To bring in another insurer ... would be way too complicated,” he said. “We didn’t think we would be able to do that with the speed we would have liked.”

The authority earned ratings of BBB-minus from Standard & Poor’s and Fitch Ratings, and a Baa2 from Moody’s Investors Service. Fitch and Moody’s have negative outlooks on their ratings, while S&P’s is stable.

Despite those ratings, Donahue said the market has been receptive to riskier debt in recent weeks.

This issue restructures debt service and extends the final maturity by four years to improve coverage ratios. Back-loaded debt results in steadily increasing debt service through 2020.

Coverage would likely slip below covenanted revenues of 1.3 times debt service without the restructuring. Debt-service coverage margins are expected to widen to nearly 1.6 times by 2021, Moody’s ­reported.

“Part of the concerns with the ratings agencies is the continuing stepping up of the debt service,” Donahue said. “In the 10 years I’ve been here, this is the lowest it’s ever been.”

However, traffic levels indicates E-470 toll revenue may be rising from the bottom it hit in 2009.

“This year, we’re actually seeing an uptick,” Donahue said. “Traffic growth through September was up about 6.3% and we had been down over 7% from '08 to '09. We’re still a few years behind what we thought we would be.”

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Transportation industry Colorado
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