Arizona to Price $165 Million of Transportation Bonds

DALLAS — The Arizona Transportation Board is scheduled to sell $164.5 million of excise tax revenue bonds in a competitive deal Tuesday.

The serial bonds will have annual maturities through 2025 and carry ratings of AA-plus from Standard & Poor’s and Aa1 from Moody’s Investors Service. Both have stable outlooks.

RBC Capital Markets is financial advisor and Squire, Sanders & Dempsey is bond counsel.

The board issues two types of revenue bonds. The regional area road fund bonds like those offered Tuesday are backed by an excise or sales tax in Maricopa County. Highway user road fund bonds are backed by fuel taxes and fees levied by the state.

The current offering is secured by a first-lien pledge on two-thirds of the revenues generated from a half-cent transportation excise tax levied within Maricopa County. Bond proceeds from the current offering will help finance the construction of or improvements to freeways and other major routes throughout the county.

The board’s previously issued senior-lien debt totals about $878 million, according to Moody’s.

“Reduced borrowing has resulted in adequate combined debt service coverage at 2.0 times,” analyst Dan Steed noted.

Despite the strong security, Arizona continues to face fiscal challenges amid slowing growth and a housing market that remains in a deep slump, analysts said.

“The rating assignment and stable outlook recognizes the continued economic stress in the state and region, resulting in unprecedented declines in pledged revenues in prior years that have only recently improved, albeit slightly,” Steed said.

Until fiscal 2008, transportation tax revenues had never declined year over year since enactment of the tax in 1985, Moody’s reported. Pledged revenues declined for the first time in 2008, down 3.2% from 2007 levels. Pledged revenues fell by 13.7% in fiscal 2009, followed by a third annual decline in fiscal 2010 of 8.9% with collections equal to $199.4 million.

According to the Arizona Department of Transportation, total pledged taxes in fiscal 2011 finally rose by more than 3% over the previous year to $205.7 million, after a cumulative 23.7% decline in the previous three years.

Standard & Poor’s said that current debt service ratios provide “strong protection against dilution of future senior debt service coverage due to parity debt issuance.”

“Should pledged revenue trends begin to decline, reducing currently strong coverage, we could lower the rating,” added analyst Sussan Corson.

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Transportation industry Arizona
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