The New Jersey Turnpike Authority is expected to issue $141 million of revenue bonds on Wednesday to refund its Series 2004C-1 bonds.
The authority, which owns and operates the New Jersey Turnpike and the Garden State Parkway, expects around $13 million in net present-value savings from the refunding, said spokesman Thomas Feeney.
JPMorgan is lead underwriter. First Southwest Co. is financial advisor and Wolff & Samson PC is bond counsel.
The deal is structured with both serial and term bonds that will be subject to redemption. The serial bonds will mature in 2031 through 2033 and the term bonds will mature in 2035.
The bonds are secured by pledged revenues, including all toll revenues. According to the NJTA’s 2011 audited financial statements, toll revenue collected in 2011 totaled $948 million, slightly down from $952 million in 2010.
Earlier this year, Moody’s Investors Service said the outlook for the U.S. toll road sector is negative, but last week it revised the Turnpike Authority’s outlook to stable from negative.
“The change to a stable outlook incorporates debt-service coverage ratios consistent with forecast due to stabilization of tolled traffic and aggressive operating expenditure cuts,” Moody’s analysts said in a report.
Despite the improved debt-service coverage ratios, coverage of total obligations remains low, according to analysts.
Moody’s rates the bonds A3, saying the authority’s system faces little high-speed competition and that toll increases implemented in 2008 and 2012 have bolstered revenues.
The A3 rating reflects the inelastic demand for the authority’s toll roads and the essential inter- and intra-state connectivity they provide.
Standard & Poor’s assigned an A-plus rating and Fitch Ratings assigned an A. Both gave stable outlooks and, like Moody’s, cited the roads as a critical transportation link.
Duane McAllister, portfolio manager of the BMO intermediate tax-free bond fund at BMO Funds, also noted the characteristic.
“It’s an essential service,” McAllister said, adding that his fund already includes some of the authority’s bonds.
The debt service coverage isn’t great, he said, so he would have to assess whether the bonds would offer appropriate compensation for the risk.
According to the preliminary official statement, the authority’s debt-service coverage ratio dipped slightly in 2011 to 1.58 times from 1.66 times in 2010. It estimates a ratio of 1.84 times for 2012.
Fitch said an erosion of the coverage ratio in the medium term below 1.5 times could trigger a rating action.
Another challenge the authority could face is the ability to implement further toll rate changes, if necessary, to achieve forecasted coverage, Moody’s said. Political opposition and a lack of autonomy from the state could limit that ability.
Since 2008, the Turnpike Authority has been financing its 10-year capital improvement program, estimated to cost around $7 billion through the end of 2018. Some of the projects under the program include Interstate widening, bridge construction and interchange improvements.
The program is funded through bond proceeds and the authority expects to be in the market again around the first quarter of 2013, Feeney said.
Its last bond sale was a $1.85 billion new-money deal in 2010.
