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OOCEA Back With Another New Deal

DEC 12, 2012 5:59pm ET
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BRADENTON, Fla. – Hoping to entice buyers looking for reinvestments in January, Florida’s Orlando-Orange County Expressway Authority will be back in the market Thursday offering various coupon options with its sale of up to $500 million of revenue bonds.

OOCEA decided to take advantage of market momentum to sell this week’s fixed-rate refunding after generating greater-than-anticipated savings in the market less than a month ago.

As a high-profile agency with name recognition in the bond market, the expressway authority’s offering should be attractive to all kinds of investors depending on its structure, according to a trader, who predicted that institutional buyers would be very interested if good block sizes are offered.

Thursday’s deal, which kicks off a year-long plan to restructure $1.2 billion of variable-rate debt and terminate associated derivatives, was prompted by recent record low market rates as well as offers to discount swap terminations from counterparties facing new rules under the Dodd-Frank Act.

The board overseeing the authority has set a goal of  restructuring all or most of its synthetically fixed variable-rate debt, and developing a conservative portfolio.

“The authority’s interest-rate swaps and variable-rate bonds have been performing well in the current market,” said chief financial officer Nita Crowder. “The authority is simply opting to refinance its debt portfolio given positive market dynamics.”

Proceeds of this week’s offering will be used to refund the authority’s 2003C2, 2003C4, 2003D, and 2008B2 bonds, and a portion of the 2008B4 bonds.

The deal could be resized depending on market conditions. Some or all maturities may be insured.

The authority also expects to terminate swap agreements with JPMorgan, Morgan Stanley, Capital Services Inc., UBS AG, and Citi.

Some of those counterparties have other swaps with the authority, and are discussing those terminations in future offerings.

The structure of Thursday’s transaction, designated as Series 2013B, was not available at press time.

The authority made a strategic determination to close on the bonds Jan. 2, because billions in principal and interest payments on existing bonds will be paid off, Crowder said.

“We’re hopeful the Jan. 2 closing date would be attractive to investors who might have money freeing up the first of the year,” she said. “We certainly would be offering a variety of coupon options as well.”

Fitch Ratings assigned an A rating to the transaction, affirmed the A rating on $2.5 billion of outstanding revenue bonds, and said the rating outlook on all the debt is stable.

Moody’s Investors Service and Standard & Poor’s had not released ratings for this week’s sale at press time. They assigned ratings of A2 and A, respectively, to the $444.3 million the authority sold in November.

“I’ve traded the [Expressway Authority’s] bonds in the past, and there are plenty of buyers out there,” a muni trader said on Tuesday. “It’s a non-health care bond with A ratings, and people who care, such as institutions, will be on the deal.”

Without insurance, the bonds could price with spreads in the range of 90 basis points to 100 basis points to the Municipal Market Data scale, he said.

“Pricing could get tighter than that if there are serial bonds,” said the trader. “If it is insured, then I think they’ll be looking in the range of 65 basis points to 75 basis points” over MMD.

The expressway authority decided to move quickly back into the bond market this week because of the unanticipated results achieved in last month’s sale.

The authority sold $201.9 million of Series 2012 refunding bonds and $242.3 million of 2013A forward-refunding bonds on Nov. 16 as market rates began sliding to new lows.

Before the pricing, the authority and its deal team estimated there would be present-value savings of $11.4 million.

The transaction actually generated nearly $34 million in present-value savings, which enabled the authority to terminate more than $241 million in swaps and convert the same par amount of variable-rate debt into long-term fixed-rate bonds.

The 2012 bonds, which priced on the morning of Nov. 16, were oversubscribed 11 times and sold with an all-in, true-interest rate of 2.34%.

All maturities of the bonds, from 2017 to 2025, were insured by Assured Guarantee.

Investor interest in the 2012 bonds enabled underwriters to reduce yields up and down the curve.

It also set the tone for reducing yields during the afternoon pricing of the 2013A forward-refunding bonds, which had maturities between 2026 and 2035 and an April delivery date, according to Crowder.

Though the 2013A forward refunding included a premium and was uninsured, the transaction sold with an all-in, true-interest rate of 3.92%.

The November offering reduced the synthetically fixed rate portion of the authority’s portfolio to 30% from 38%.

The authority was “encouraged” by the response of the market in November, and anticipates a good reception again this week, Crowder said.

“While we’re not expecting the incredible number of orders we saw in November, given the level of oversubscription on those deals, we’re hoping that investors who did not get their orders filled will remain interested in the 2013B bonds,” she said.

“We expect aggressive pricing that reflects the current tone of the market, but the ultimate deal size will be a function of the strength of the market in conjunction with the planned swap unwinds.”

If all the refunding bonds are sold this week as planned, the Expressway Authority’s outstanding synthetically fixed debt will drop to 14% of its portfolio.

The authority plans to restructure remaining $350 million of variable-rate debt and swap exposure within the year, depending on market conditions.

At one time, the agency had $1 billion of variable-rate debt in its portfolio.

Public Financial Management Inc. and National Minority Consultants Inc. are co-financial advisors for Thursday’s sale.

Bank of America Merrill Lynch, JPMorgan, and Citi are lead underwriters.

The syndicate also includes Loop Capital Markets, Raymond James | Morgan Keegan, Barclays Capital, Goldman, Sachs & Co., Morgan Stanley, RBC Capital Markets, and Wells Fargo Securities.

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.

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