The Delaware River Port Authority will sell $156.7 million in barely investment grade debt Thursday.
The port district project refunding bonds, series 2012, are rated Baa3 by Moody’s Investors Service and BBB-minus by Standard & Poor’s. The bonds’ interest will be exempt from federal taxes. Residents of Pennsylvania and New Jersey will also find the interest exempt from personal income taxes of their respective states.
The bond has serial maturities from 2014 to 2027. While there is no retail order period, Pennsylvania and New Jersey retail investors will have priority on some maturities, authority chief financial officer John Hanson wrote in an e-mail.
The bonds are being sold with an option for a 10 year par call, Hanson wrote.
The bond proceeds are being used to refund port district project series 1998B, 1999B and 2001A bonds.
The refunding is being done now to take advantage of low interest rates, Hanson wrote. The authority will achieve significant net present value and annual debt service savings, he wrote.
The authority operates four bridges across the Delaware River in or near Philadelphia. It charges tolls to use the bridges. It also owns a rapid transit system between Philadelphia and Lindenwold, New Jersey. Finally, it operates a ferry between Philadelphia and Camden, New Jersey.
RBC Capital Markets is the senior manager on the deal. Morgan Stanley and Janney Montgomery Scott are the co-managers.
Parker McCay P.A. of New Jersey and Stevens & Lee of Pennsylvania are the bond counsel. Acacia Financial Group and Public Financial Management are the authority’s financial advisors.
According to Moody’s, among the authority’s strengths are: “Positive revenue performance trends, in light of recent toll increases; Establishment of scheduled toll increases biannually, indexed to the consumer price index; Reduction of debt outstanding by almost $100 million through cash redemptions in 2012; Reduction of five-year capital plan by over $450 million over the past two years, with a view towards affordability.”
Moody’s specifies the authority’s negatives as: “Political risks associated with having both the states of Pennsylvania and New Jersey represented on the board, with competing priorities; Lack of specific security pledge for port district project bonds; Large negative fair market value associated with [the authority’s] swap program; Delaware River Port Authority is currently rated on the cusp of a termination trigger; Variable rate obligations accounts for 56% of outstanding debt.”
The bonds sold Thursday are “general corporate obligations of the authority, payable from all legally available revenues after the authority’s 1998 Indenture Revenue Bonds.” The port district project bonds will have a debt service reserve equal to the maximum annual debt service.
Moody’s has a stable outlook on its Baa3 rating of the bonds.
For bond strengths, Standard & Poor’s points to: “The importance of the [authority’s] bridge system, which provides important transportation links across the Delaware River between southern New Jersey and Pennsylvania; Solid debt service coverage of 2.07 times in fiscal 2011 (year ended December 31), which we expect to remain consistent in 2012; The authority’s long history of stable transaction and revenue growth; The diversity of bridge assets, with no bridge accounting for more than 40% of revenue.”
S&P raised the following concerns about the authority: “[Its] use of revenues to subsidize transit operations in the region; Additional debt plans to finance the authority’s proposed $863 million capital improvement program; The ‘BBB-minus’ rated port district bonds, which have weak bond provisions and lower debt service levels.”
S&P has a positive outlook on its BBB-minus rating of the authority’s bonds.
