BRADENTON, Fla. — Two Virginia issuers that plan to price a combined $806 million of double-A rated tax-exempt bonds early next week should find plenty of investors to snap up the high-grade paper, according to market participants.
The Fairfax County Economic Development Authority starts the week off with the negotiated pricing of $206.3 million of transportation district improvement revenue bonds to finance a portion of the northern Virginia Metrorail extension to Washington’s Dulles International Airport. Pricing begins Monday for retail and concludes Tuesday with institutional sales.
The Virginia Commonwealth Transportation Board will competitively price $600 million of capital projects revenue bonds on Wednesday as part of a $3 billion statewide transit and rail financing program.
“Obviously we’ve come to a period of very reduced supply and even though there have been some high-grade deals on the calendar, I don’t expect [Fairfax and Virginia] will have trouble getting them done at very reasonable prices,” said Thomas Spalding, senior investment officer at Nuveen Investments.
The bond market has seen “fairly strong” retail and institutional sales the past two weeks, he said, adding, “We expect that to continue at least through next week.”
The Fairfax County EDA deal represents the first of two tranches supporting a portion of the county’s $400 million obligation toward phase 1 of the 11.7-mile project to extend the rail service from Dulles airport to Tyson’s Corner and eastern Reston, both highly developed commercial and residential areas in northern Virginia.
The transaction is structured with serial bonds maturing between 2012 and 2031, and a $62.7 million term bond due in 2036 to provide level debt service through the final maturity.
There also is a cash-funded debt-service reserve, a 1.2-times additional bonds test, and additional revenue stabilization reserves.
The bonds are secured by a limited ad-valorem tax assessed on commercial and industrial property in a transportation improvement district that encompasses Tyson’s, Reston, and other areas along the phase 1 rail line.
“We anticipate strong reception for these bonds and do not anticipate any problem selling the bonds within the financial parameters of the district,” said Len Wales, the county’s former debt manager who is now a financing adviser on special projects. “This is a new credit with very limited plans for future debt issuance, which provides investors a rare and limited opportunity to purchase this credit.”
The bonds are rated AA by Fitch Ratings and Standard & Poor’s, and an equivalent Aa2 by Moody’s Investors Service.
Wales said there is no conflict with two Virginia transportation deals pricing in the same week, even though both have longer maturities than the 10-to-15-year range that investors have preferred in recent years.
“We believe there is sufficient demand for both bond sales,” he said.
Spalding also said both issuers should have no difficulty pricing their transactions.
“Virginia continues to be highly regarded with ratings that are safe and stable, so that’s key,” said Spalding, who noted that both offerings should see participation from investors with new money and those who are reinvesting cash flow.
The book-runner for the Fairfax deal is JPMorgan. Other underwriters on the deal are Citi, Edward Jones, Morgan Keegan & Co., Morgan Stanley, and Piper Jaffray & Co.
Public Financial Management Inc. is financial adviser. Sidley Austin LLP is bond counsel. Hunton & Williams LLP is underwriters’ counsel.
The Fairfax County EDA expects to sell a second, $70 million tranche for phase 1 of the project next year, according to Wales. The county has also provided $94 million in cash from the special tax district toward its share of the project.
Construction of the Dulles Metrorail extension project, often called the Silver Line, is managed by the Metropolitan Washington Airports Authority.
The MWAA has issued $1.3 billion of toll revenue bonds in two deals toward the first phase cost, which is estimated at $2.75 billion.
In addition to funding from Fairfax and the MWAA, the federal government has agreed to provide $900 million through its New Starts program.
So far, more than one-third of the first phase has been constructed. Service is expected to begin in December 2013.
Phase II of the Dulles project will cover 11.5 miles that will extend rail access from Reston to Dulles and into Loudoun County.
Funding for this portion of the project is expected to be shared between Fairfax and Loudoun counties and the MWAA.
When both phases are completed, the 23-mile rail line will provide a no-transfer ride from Washington to northern Virginia and Loudoun County. The completed line will be operated by the Washington Metropolitan Area Transit Authority as an addition to its 106-mile system.
The Virginia Transportation Board deal is structured as serial bonds maturing from 2012 to 2036. Maturities can be combined into term bonds by the successful bidder, according to bond documents.
The bonds are rated AA-plus by Fitch and Standard & Poor’, and Aa1 by Moody’s.
John Lawson, chief financial officer for the Virginia Department of Transportation, said the offering supports an initiative by Gov. Bob McDonnell to accelerate more than $3 billion of projects over the next few years.
“We’re anxious to move this [deal] forward and issue these bonds,” he said. “This is the first step to advance construction and provide transportation enhancements to help leverage dollars, and to help put Virginians back to work.”
Lawson said there should be plenty of demand for high-quality paper next week. “I think it’s going to be a good week for everyone,” he added.
The financial adviser for the deal is Public Resources Advisory Group. Bond counsel is McGuireWoods LLP.
The bonds are the second series to be issued under the state’s Capital Projects Bond Act, which requires a minimum of 20% of the proceeds to be used for transit capital, 4.3% to be used for rail capital, and the remainder be used to match federal highway funds and regional projects.
The first issuance under the act was the sale of $492.6 million of bonds in May 2010. They were rated AA-plus by Fitch and Standard & Poor’s and Aa1 by Moody’s.
The 2010 transaction was sold as $85.5 million of tax-exempt serial bonds maturing from 2011 to 2016, $407.15 million of taxable Build America Bonds with serial maturities between 2017 and 2024, and a $266.1 million term bond due in 2035.
The BABs priced to yield 3.86% in 2017, 4.71% in 2024, and 5.35% in 2035.
