DALLAS — Arkansas will begin work soon on a highway renewal effort financed with proceeds from Tuesday’s competitive sale of $225 million of grant anticipation revenue vehicle bonds, which also benefit from the state’s full faith and credit pledge.
The sale is the first tranche from a $575 million Garvee program authorized by voters in November 2011.
The sale, the muni market’s largest competitive transaction this week, will begin at 10 a.m. Central Daylight Time.
The Arkansas Highway Commission will meet in November to award the first $120 million of contracts from the proceeds for the Interstate Rehabilitation Project to maintain, repair and upgrade heavily traveled segments of interstate highways in the state.
The bonds will be supported by Arkansas’s federal highway grants and an existing state diesel fuel tax, but are considered general obligation debt backed by a pledge of full faith and credit from the state.
They are rated Aa1 by Moody’s Investors Service and AA by Standard & Poor’s.
Dennis Hunt, senior vice president at Stephens Inc., financial advisor to the Arkansas State Highway Commission, said the structure and size of the sale should be attractive to investors.
“The bonds have fairly short maturities, with a maximum of 12 years, so the block sizes are fairly large,” Hunt said. “There is a 10-year call on the 12-year bonds, and that should also be appealing.”
Friday, Eldredge & Clark LLP is bond counsel.
The bonds are supported by four cents of the state’s diesel fuel tax of 28.4 cents per gallon as well as the federal highway grants. Approval of the bond program did not require an increase in the diesel tax.
Voters approved the first Garvee program as a constitutional amendment at a statewide election in 1999. The General Assembly approved a bill allowing the governor to put the program’s extension onto a statewide ballot in 2007, and again in 2009.
Gov. Mike Beebe called a special election to put the amendment on the ballot last November. The renewal was approved by a 4-to-1 margin.
The new bond-financed effort is coming to market at a good time, Hunt said.
“This schedule has turned out well for the state,” he said. “Interest rates are low and construction costs have not yet gone up.”
“We should be looking at interest rates at about half what they were when the first bonds from the first program were sold in 2000 and 2002,” Hunt said. “The timing probably couldn’t be any better.”
Scott Bennett, director of the Arkansas Highways and Transportation Department, said officials expect to receive a premium with the bond sale.
The state received a total of $44.6 million of premiums from the 2000 and 2002 sales from the initial authorization, as well as a 2010 refinancing.
Interest costs of the first program totaled $246.6 million, but the premiums and the $13 million in debt service savings realized in fiscal 2011 from the 2010 refinancing cut the total interest paid on the 12-year bonds to $208 million, Bennett said.
The last of the bonds issued in 2002 will mature in August 2014. The 2010 refinancing of $253.2 million of outstanding Garvee bonds did not extend the maturity.
The schedule calls for sales in 2013 and 2014 to complete the authorization for the $575 million program. The authorization expires at the end of 2015.
Total spending for the second phase of the Interstate effort is expected to total $1 billion, including bond proceeds, fuel tax revenue and interest.
The authorization provides for up to $575 million of outstanding debt at any time, Hunt said, but added that he does not expect the state to issue additional bonds as debt matures.
“The deadline at the end of 2015 will probably not allow that to happen,” he said. “It looks like $575 million will be the total amount issued.”
Bennett said work on the interstates will begin in early 2013.
“The Garvee bond program remains well-suited to help us rehabilitate our Interstate highways quickly,” he said. “Our 1999 program was a tremendous success, and we have equally ambitious plans this time around. Motorists can expect to see work getting underway across the state beginning in early 2013.”
More than half of the projects will be underway by 2015, he said. The work program is to be completed by the end of 2017.
Contracts for nine road projects valued at $170 million will be awarded by the end of 2013, Bennett said.
Bennett said the state expects to use the proceeds from this sale and the two remaining tranches to renew and repair more than 450 miles of the 650 miles of interstate in Arkansas.
Nearly $1 billion worth of improvements were made to approximately 375 miles of interstate roadways under the first $575 million program.
Two of the road projects to be awarded this week were part of the 50 projects to be financed with the state’s initial interstate repair program. However, the proceeds ran out before the work could be bid. One of the projects is for a stretch of road that was not part of the interstate system when the 1999 repair program was developed.
Bennett said it costs between $1 million and $4 million to rehabilitate one mile of interstate highway, and $5 million to fully rebuild it.
Arkansas voters will face another road bond constitutional amendment on the November ballot.
The ballot measure would provide for a 10-year, 0.5% increase in the state’s sales tax.
The revenue will support up to $1.3 billion of state highway bonds to build a network of four-lane roads between major cities.
If the tax increase is approved by voters, the highway department expects to receive $160 million a year over the levy’s 10-year life, or 70% of the revenue.
The state must use the proceeds of the bonds to build four-lane highways or add capacity to existing highways.
Cities and counties will split the remaining 30% of the revenues, about $40 million a year.
