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Booming Harris County, Tex., to Refund $353M of Toll Bonds

DALLAS — With its economy continuing to gain momentum, Harris County, Texas, plans to refund $353.7 million of toll revenue bonds in a negotiated deal Oct. 2.

Officials expect net present-value savings of $39.1 million on Series 2004A and 2004B-1 bonds with the new 2012 tax-exempt Series C and taxable Series D. Wells Fargo Securities is senior underwriter, with First Southwest Co. as financial advisor.

The refunding comes nearly three months after the county issued $200 million to take out Series 2011 put bonds.

With interest rates remaining near historic lows despite signs of economic revival, issuers are rushing to refund even bonds that were recently offered.

The county backs the bonds with a general obligation pledge, even though revenues from the Harris County Toll Road Authority are more than sufficient to cover debt service.

Senior maximum-annual debt service occurs in fiscal 2022 coverage ratios at what rating analysts consider a strong 2.2 times debt service requirements.

Standard & Poor's affirmed its AA-minus long-term and underlying rating on the county's existing toll road revenue bonds.

"The AA-minus rating reflects what we consider to be the authority's extremely strong historical growth in traffic and revenues, which have contributed to the toll road's healthy financial position," said S&P credit analyst Todd Spence.

"Further supporting the rating is our view of management's policy of not funding new road projects unless it can provide a minimum of 1.25x net revenue debt-service coverage, which we believe is prudent and conservative."

HCTRA's capital improvement plan has varied in size over the past decade but is centered on the development of demand-driven projects.

The list of possible projects through 2020 totals nearly $2 billion.

The authority — which is known for maintaining rigid autonomy and avoiding the use of federal funds — decided not to participate in the Grand Parkway Project, an outer loop around the Houston metro area that was developed by the Texas Department of Transportation.

The adjoining Fort Bend County Toll Road Authority did agree to participate in a section of the Grand Parkway.

HCTRA operates a loop outside of Interstate 610 and within the Grand Parkway called the Sam Houston Tollway. It also operates the intersecting Hardy Toll Road and Katy Managed Lanes. The system has seen traffic increase almost every year since fiscal 1988.

The authority's toll policy, set in June 2007, provides for annual increases at the greater of 2% or inflation. However, tolls have increased only twice, in fiscal 2008 and 2010. Traffic grew in those years by approximately 4.4% and 4.9%, respectively, analysts noted.

"The essential nature and monopolistic position of HCTRA's transportation links in the Houston metropolitan area as well as the primarily commuter nature has resulted in a growing traffic-demand profile," Fitch Ratings analyst Jeffrey Lack wrote. Fitch rated the upcoming deal AA-minus with a stable outlook.

With more than $2 billion of senior-lien debt, HCTR carries a "significant amount of debt," according to Moody's Investors Service, which assigned a stable outlook to the Aa3-rated July issue.

"Debt per roadway mile is above the median for established toll roads, and potential bond issues for a number of large but as yet not approved expansion projects could weaken future debt-service coverage ratios and introduce an element of construction and ramp-up risk," Moody's observed.

The county has $490.2 million in outstanding toll road unlimited-tax bonds that are secured by a pledge of property taxes, but it is the county's practice and policy to fully support debt service with toll revenues on a subordinate lien, after payment of senior-lien debt service.

As the nation's energy hub and operator of one of the busiest ports on the Gulf Coast, Houston and its suburbs are expected to benefit from the doubling of ship traffic capacity through the Panama Canal in 2014.

New drilling techniques and development of alternative energy sources are also seen as promoting growth in Houston's energy industry.

Texas also boasts a population that is younger than the U.S. average and the rate of job growth in the Houston area is expected to be double the national average this year and next.

With the county seat of Houston ranked as the nation's fourth-most-populous city, Harris County is home to 29 of the 100 most-congested roads in Texas, including eight of the top 20, according to an annual study by the Texas Department of Transportation and the Texas A&M Transportation Institute.

One stretch of Interstate 45 between the Interstate 610 loop and Beltway 8 in southern Houston was number three on the list.

That stretch logs about 3.12 million annual hours of delays, the study found. The economic cost in lost time and wasted fuel for that segment is $116.49 million, the most of any segment on the list.

To compete with the congested freeways, HCTRA sets its toll policy to keep traffic moving during rush hours.

On Sept. 8, drivers who use electronic E-Z Tags saw tolls increase 10 cents to $1.40. Drivers who pay cash experienced a 25-cent increase to $1.75 from $1.50. Tolls on the Katy Freeway's managed lanes increased by $1 during peak times.

Electronic tolling has led to massive amounts of unpaid tolls in Harris County and other major Texas tollways, such as those operated by the North Texas Tollway Authority in the Dallas-Fort Worth area.

In the largest settlement in HCTRA's 29-year history, Enterprise Rental Car agreed last month to pay the county $1.15 million for 100,000 toll violations going back to 2003. The firm had been facing a $4.5 million bill for private attorney and administrative fees.

In the settlement, approved by Harris County Commissioners Court on Aug. 7, the unpaid tolls totaled $283,541, just a fourth of the total amount.

The county settled four years' worth of toll violations by Avis customers for $190,000 four years ago, and accepted a $30,000 check for unpaid tolls from another rental firm.

County officials and rental company representatives, however, say the problems that led to such backlogs largely have been solved. If rental companies provide a toll violator's information to the tolling authority within 30 days of the violation, Texas law requires the authority to find the person.

The challenge was getting the paperwork processed quickly enough, even after the company and toll road authority installed software several years ago to speed the process, officials said.

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