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OOCEA Comes to Market With Deal To Refund and Restructure its Debt

NOV 7, 2012 9:43pm ET
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BRADENTON, Fla. - The Orlando-Orange County Expressway Authority in central Florida hopes to take advantage of low market rates for savings and reduce its variable-rate exposure in a $463 million refunding Nov. 15.

Bond proceeds will be used to refinance outstanding 2003B bonds, , and to restructure 2003C bonds to reduce the OOCEA’s variable-rate portfolio to 30% from 38%.

Next week’s deal is structured to sell in two series with no extension of maturities. The two refundings are expected to generate more than $10 million in present-value savings, authority officials said.

The $207.5 million of traditional 2012 fixed-rate refunding bonds have large-blocks maturing serially between 2017 and 2025.

The $255.7 million of forward-refunding bonds, designated as Series 2013A and to be delivered in April, also have good-size serial blocks maturing from 2026 to 2032.

Both series were rated A by both Fitch Ratings and Standard & Poor’s, and A2 by Moody’s Investors Service.

The agencies also affirmed those ratings on $2.6 billion of outstanding debt.

While Fitch and S&P have stable outlooks on the Expressway Authority, Moody’s maintains a negative outlook reflecting continued uncertainty tied to the economy and reduced operating support from the state.

The A-rated bonds should be well received because of the size of the deal and the fact that the Expressway Authority is a known credit, according to a muni bond trader who deals with many Florida credits.

“Most accounts these days are looking for a decent rating of A or better with some spread to it,” the trader said.

On Wednesday, the muni market rallied and saw some substantial scale bumps around .05 basis points from 2018 and in later years on the curve, according to the trader.

“Everything that is halfway decent has traded, so if the [Expressway Authority deal comes next week, I think it will really be in big demand subject to the market conditions, and relative value pricing by the underwriters,” the trader said.

In addition to the refunding next week, the OOCEA plans to take a subordinated loan with SunTrust Bank to terminate swaps with UBS AG and Citi.

Both counterparties sought to terminate swaps at discounts totaling $3.97 million, according to Nita Crowder, the authority’s chief financial officer.

Crowder said the banks had different reasons for wanting to terminate the swaps, and said UBS wanted to eliminate its swap for some time because of the bank’s exit from public finance.

JPMorgan recently approached the authority to terminate another swap at a discount, and negotiations were under way with SunTrust to upsize the loan for that payment along with termination fees to UBS and Citi.

A final decision on whether to include the JPMorgan swap was not available at press time.

Crowder declined to estimate the termination payments due to the fact that they are tied to market conditions at pricing.

She has said that because of good bank ranks, using a combination of fixed-rate bonds and a subordinate loan structure would lower borrowing costs better than only issuing bonds.

“There are very attractive rates in the bank loan space right now,” Crowder said. “Since the bank loan is being done on a deeply subordinated basis, the new structure reduces the authority’s senior lien debt service payments and improves senior lien debt service coverage.” Restructuring to fix interest rates on the bonds tied to UBS and Citi’s swaps will also continue the Expressway Authority’s goal of eventually reducing outstanding variable-rate debt to 25%.

Next week’s offering will restructure debt tied to those two swaps, bringing the portfolio’s variable-rate exposure to 30%.

While the JPMorgan swap may be terminated, the underlying bonds would remain outstanding unhedged for the time being. When those bonds are restructured the variable-rate exposure will drop to 26% or 27%, though the authority is still reviewing options to deal with that outstanding debt.

The Expressway Authority’s governing board, which has become risk-averse in recent years with new board members, hailed the upcoming transaction and the opportunity to dispose of some derivatives.

“I think it’s a magnificent opportunity to get rid of a bunch of these swaps that were put in place when none of us were sitting on this board, but continue to be kind of an anchor that keeps us from going forward as well as we should,” said board chairman Walter Ketcham.

Bank of America Merrill Lynch and JPMorgan are lead underwriters for the 2012 bond sale, which also includes Barclays Capital, Goldman, Sachs & Co., and Wells Fargo Securities.

Citi is the book-runner for the 2013 forward-delivery bonds, and the syndicate consists of Loop Capital Markets, Morgan Stanley, Raymond James | Morgan Keegan, and RBC Capital Markets.

For both the 2012 and 2013 bonds, Broad and Cassel and D. Seaton & Associates are co-bond counsel. Greenberg Traurig PA and Debi Rumph are co-disclosure counsel.

Foley & Lardner LLP is underwriters’ counsel for the 2012 bonds, while Nabors, Giblin and Nickerson PA are counsel to the underwriters on the forward transaction.

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