DALLAS – Dallas Area Rapid Transit will close out its commercial paper program with Bank of America by issuing $128.3 million of sales-tax revenue bonds in a deal that was originally scheduled to go to market Wednesday but has been postponed due to the storm on the East Coast.
“At the moment a new selling date has not been finalized,” said DART spokesman Morgan Lyons.
Loop Capital Markets is senior manager on the negotiated deal, with M.R. Beal & Co., Ramirez & Co., and Siebert Brandford Shank & Co. as co-managers.
Estrada Hinojosa & Co. is financial advisor, with Bracewell & Giuliani and West & Associates as co-bond counsel.
The senior-lien bonds carry ratings of AA-plus from Standard & Poor’s and Aa2 from Moody’s Investors Service. Outlooks are stable. Fitch Ratings did not rate this issue.
With the 2001 Bank of America commercial paper agreement coming to an end, DART is evaluating options for providing its own liquidity for a $100 million to $150 million commercial paper program in the second quarter of 2013. Providing its own liquidity is expected to save DART 50 basis points or $750,000 per year, according to its 2013 business plan.
Moody’s downgraded Bank of America’s short-term rating on June 21. As a result of the downgrade, DART paid down $100 million of $150 million in commercial paper debt earlier this year, according to rating agency reports. DART then issued an additional $100 million in commercial paper backed by Bank of America.
Under its 2013 business plan, DART plans to issue $552 million in debt over the next five years.
With this week’s issue, DART will have $3.3 billion of senior debt outstanding, according to Moody’s.
Established by voter referendum in 1983, DART provides bus, light rail, commuter rail and other transit service to 13 member municipalities across a 700-square-mile service area with a population of 2.3 million. Since launching its first light rail line in 1996, DART has become one of the largest light-rail and commuter rail operators in the nation.
The system is governed by a 15-member board appointed by member cities based on a population-based formula. No member, including the city of Dallas, is able to appoint more than 65% of the board.
The DART board recently added Paul N. Wageman as an appointee from the north Dallas suburb of Plano. Wageman, an attorney with the law firm of Winstead PC, led the North Texas Tollway Authority through the largest period of debt issuance in its history as chairman of the board. Wageman stepped down in 2010 after a decade on the NTTA board. He had been chairman for his last four years on the board.
At DART, Wageman will be facing some familiar issues, including managed lanes on freeways that collect tolls, and regional politics.
DART’s board last month cut spending nearly 7% under a $1.07 billion budget for fiscal year 2013 that continues construction of the first direct rail connection to Dallas-Fort Worth International Airport, scheduled to begin operations in 2014.The new budget supports the December opening of two light rail projects: the second phase of the Orange Line to Irving in the western suburbs and the Blue Line extension from the east Dallas suburb of Garland to Rowlett.
The lower budget includes a decrease in capital spending as the expansion of light rail slows. However, the operating budget is up as DART continues to add service.
"This budget allows us to continue meeting our commitments to our service area cities," DART board chairman John Danish said in a September news release.
Although DART’s sales tax revenue has grown by an average annual rate of 3.8% over the past two decades, it declined for three straight years starting in fiscal 2001 during the first recession of the decade. It fell again in the second recession, which was considered the worst since the Great Depression.
“The dedicated sales tax has proved volatile through the last two economic downturns, both of which have coincided with ramp-ups in DART's capital financing plan,” noted Moody’s analyst Xavier Smith.
During the economic upswing of the past four years, DART sales tax collections recovered more rapidly than from previous economic declines. After a 9.1% decrease in sales tax collections in fiscal 2009 compared to the prior year, revenues declined by only 0.8% in fiscal 2010, according to Moody’s.
Fiscal year 2011 growth was 7.2%, or $6 million more than forecast. DART is projecting fiscal 2012 sales tax revenues to increase 7.26% over the prior year , which Moody’s considers conservative given that year-to-date revenues are 11% ahead of the same time last year.
“The DART service area economy is fundamentally strong, and we expect healthy growth to continue in the long-term,” Smith wrote. “Employment in the region remains favorable relative to U.S. averages with unemployment at 6.9% as of August 2012 compared to 8.1% nationally.”
Per capita personal income in the Dallas area also is stronger than the nation’s at 108% of the U.S. level based on the most recent figures available, Moody’s noted, although that gap has been closing in recent years.
DART’s fiscal 2012 sales tax revenue coverage is 2.2 times maximum annual debt service, including anticipated Build America Bond subsidies, according to S&P. Without the subsidy, the ratio is 1.9, analysts said.
The bonds are secured by a pledge of a 1% sales tax collected across a broad area of the Dallas metropolitan area, as well as by pledged farebox revenues. Farebox revenues were added to pledged revenues in DART's seventh supplemental debt resolution, adopted Sept. 14, 2010, primarily to allow the system to issue long-term debt in excess of the $2.9 billion in sales tax revenue bonds.
“Because DART relies on sales tax revenues to support operations, we believe that it would be unlikely that farebox revenues would be available for debt service if sales tax collections declined below the level of required debt service payments,” wrote S&P analyst Russell J Bryce.
DART's board has approved an amendment to the master debt resolution that would include the BAB subsidy revenues in the additional bonds test calculation, which requires two-to-one coverage. The amendment has received approval of the majority of bondholders and will become effective if approved by the bond insurers, according to DART.
DART is also negotiating to privately place a $120 million senior lien bond with the U.S. Department of Transportation under the Transportation Infrastructure Finance and Innovation Act. The TIFIA debt will be an additional senior lien parity obligation under the master debt resolution and is subject to the additional bonds test.
The TIFIA debt is expected to have a 35-year maturity and lower interest cost that DART’s traditional bonds. It will replace $120 million of approximately $220 million of senior lien sales tax revenue bonds DART had planned to issue in 2014.
DART plans to use the TIFIA debt to cover the cost of completing the Orange line to DFW Airport.