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Orange County, Calif. Tollway Agencies Under Scrutiny

LOS ANGELES -- An oversight panel chaired by California Treasurer Bill Lockyer is analyzing the bond debt of two Orange County, Calif. toll roads to determine if they can take on more debt to fund a planned extension of one of two tollways.

Lockyer asked the California Debt and Investment Advisory Commission, which he chairs, to analyze the agency’s “debt status and ability to take on more debt,” said Tom Dresslar, a spokesman in the treasurer’s office.

Lockyer made the decision after receiving a letter from former Newport Beach state assemblywoman Marilyn Brewer and concluding that the letter raised some legitimate questions, Dresslar said.

Brewer, a Republican and former member of the state’s Little Hoover Commission and the Orange County Transportation Commission, said she has been following actions taken by the Transportation Corridor Agencies and they have raised concerns.

“I question the feasibility of what they have done,” Brewer said. “They claim they have made the bond payments, but each year they accelerate and they have balloon payments at the end.”

The Jan Joaquin Hills Transportation Corridor Agency and the Foothill/Eastern Transportation Corridor Agency are legally separate operations but are jointly run by the same management team under the auspices of the TCA.

The San Joaquin tollway in particular has struggled for years against a heavy debt burden amid weak traffic.

The San Joaquin Hills agency restructured $2.1 billion in debt in April 2011 gaining approval from bondholders to lower the debt-service coverage requirement to 1.0 times from 1.3 times and extending maturities to 2042. The bonds were originally slated to be repaid in 2033.

Analysts told The Bond Buyer at the time that the restructuring offered relief in the early years, but weakened the credit.

The restructuring was expected to save the toll road agency $550 million in debt service costs from fiscal 2012 through fiscal 2024, but debt service in each fiscal year from 2025 through 2036 would rise by $43 million, according to disclosure filed with the Municipal Securities Rulemaking Board.

Following the restructuring announcement, Standard & Poor’s put San Joaquin Hills BB-minus rating on negative credit watch. Moody’s has an underlying rating of Ba2 on San Joaquin Hills bonds with a negative outlook, while Fitch Ratings rates them BB with a negative outlook.

“I’m saying there should be an independent record indicating how much bond burden they are able to carry into the future and whether they have the ability to pay for current debt and support future bonding,” Brewer said.

Dresslar said CDIAC has no regulatory authority, but will provide an analysis sometimes after the new year that will “contribute to the public debate.”

Lisa Telles, TCA’s chief executive officer, said the restructuring conducted in mid-2011 on the San Joaquin Hills toll road debt was a proactive move.

“We have never missed a bond payment,” Telles said.

Telles contends that environmentalists opposed to the five-mile extension of the agency’s Foothill/Eastern toll road are behind questions into the agency’s finances.

The restructuring of bonds related to the San Joaquin Hills toll road came about because traffic on the road did not live up to the original projections the orignial repayment schedule of the bonds were based on, she said.

Even as the finances are being called into question, the TCA is preparing to do a refunding on $2.4 billion in outstanding debt.

Unlike the restructuring of last year, this refinancing is being conducted to see if the agency can achieve lower interest rates than the current average of 6.09% and is expected to result in present value savings, said Amy Potter, the Transportation Corridor Agencies’ chief financial officer.

Foothill/Eastern’s board Friday approved moving forward on the refinancing. Staff will return to the board with a report from underwriters in February in the hope of conducting the refinancing in March, she said.

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