Missouri Agency Goes Competitive For $140M Road Bond Refunding

CHICAGO — The Missouri Highways and Transportation Commission will take competitive bids Wednesday on a $140 million refunding of top-rated senior-lien state road bonds in hopes of achieving about 6% to 7% in present-value savings.

The commission is set to join the ranks of rare borrowers after completing the new-money issuance needed for a $2.2 billion road construction program in 2009 and exhausting its internal limits on borrowing against anticipated federal grants earlier this year with a $185 million sale.

The commission typically uses negotiated transactions to issue its refunding bonds, but opted for a competitive sale due to the timing of its selection of a new pool of underwriters. The three-year term on the commission’s last pool expired June 30.

Given the significant changes in the broker-dealer landscape following the 2008 financial crisis, officials decided to establish a new pool of qualified underwriters instead of extending the existing pool by a year, said Ben Reeser, finance manager at the Missouri Department of Transportation.

The commission launched the request for proposals in early September and closed it Sept. 27. The agency is still reviewing proposals and will not seek approval for the new pool from the board until an early December meeting. In the meantime, interest rates moved, making the potential refunding more attractive.

“Working with our financial adviser, we are pretty comfortable doing it competitive — it’s a triple-A credit and pretty straight-forward,” Reeser said. “We have the option to pull the deal if the market changes.” Public Financial Management Inc. is financial adviser. Gilmore & Bell PC is bond counsel and the Martinez Law Firm LLC is co-bond counsel. The bonds being refunded are callable in 2012.

Ahead of the sale, all three rating agencies affirmed their existing ratings on the commission’s bonds. About $625 million of senior-lien bonds carry top marks from the trio. The senior-lien indenture was closed in 2005 to all but refunding issues.

Fitch Ratings rates $929 million of first-lien road bonds AAA, $512 million of second-lien bonds AA-plus, and $359 million of third-lien bonds AA. Standard & Poor’s rates the first- and second-lien bonds AAA and the third-lien bonds AA-plus. Moody’s Investors Service rates the first lien Aaa, the second lien Aa1, and the third lien Aa2.

“Senior-lien bonds issued under the closed 2000 indenture benefit due to the capping of diversions for collection costs and the removal of the prior claim of highway operations costs on state road fund revenues, effectively changing a net pledge to a gross pledge,” Fitch wrote.

The bonds are special revenue obligations of the commission, payable from revenue from various highway user fees as well as motor fuel and other transportation taxes that have historically provided a stable revenue stream, even though they declined in 2009. Based on a no-growth forecast, the road fund revenues should provide at least 8.6 times coverage of senior-lien debt service.

“We expect that pledged net revenues will likely continue to provide strong debt service,” Standard & Poor’s analyst Corey Friedman wrote. “We also expect continued strong management of state transportation projects.”

The commission began a new legislatively approved road bond borrowing program in 2000. It was expanded after voters approved a constitutional amendment in November 2004 to accelerate state road projects by ending the diversion of some road-related taxes to the general fund. Those funds are now fully tapped.

The commission sold $185 million of Garvees earlier this year to fund its share of a new span across the Mississippi River and pay for a bridge repair program, but that deal marked its last as the agency does not want to over-leverage its federal grants. It has $928 million of debt outstanding secured by federal grants. No new borrowing is planned until a revenue stream has been identified, officials said.

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Transportation industry Missouri
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