With a Growing Rail Transit System, Denver Area's RTD Plans More Bond Issues

DALLAS – Colorado’s Regional Transportation District plans to issue $225 million of certificates of participation this month as its $7.9 billion FasTracks rail and bus network achieves major construction milestones.

The negotiated deal is expected to price April 23 with RBC Capital Markets as senior manager, and JPMorgan, Loop Capital Markets and Stifel Nicolaus as co-managers. First Southwest Co. acts as financial advisor, with Sherman & Howard as bond counsel.

The deal will come about a month after RTD refunded $96.6 million of revenue bonds for interest rate savings of 4.19%.

“The low interest rates have created a couple of refunding opportunities and helped reduce the interest cost of financing our FasTracks project,” said RTD spokesman Scott Reed.

With ratings of AAA from Standard & Poor’s, Aa2 from Moody’s Investors Service and AA-plus from Fitch Ratings, the refunding yielded 95 basis points above treasuries on 2.207% coupons maturing in 2021.

Interest savings from three refundings this year should add financing capacity to accelerate construction of the North Metro Rail Line from Denver Union Station to 72nd Avenue, according to RTD chief financial officer Terry Howerter.

After the April deal, RTD expects to offer a $235 million revenue bond refunding, and a $240 million grant anticipation financing. By the end of the year, the agency expects to issue $120 million of revenue bonds to finance part of the FasTracks project, which is adding rail and bus rapid transit project throughout metro Denver.

This month’s issue will provide new money to buy buses and other equipment and also refund a 2005 issue of COPs that purchased light rail cars.

“With long-term interest rates near historic lows, RTD has the potential to advance refund the remaining outstanding 2005 certificates on a callable basis to realize, subject to market movement, a savings of approximately $1.5 million or 4% of the principal of the refunded bonds,” Howerter told the RTD board last week.

The board resolution authorizing the sale was approved March 26 and requires a minimum of 3% savings. The 2005 certificates are callable June 1, 2015 at par.

The certificates going to market this month earned ratings of AA-plus from Standard & Poor’s, Aa3 from Moody’s, and AA from Fitch Ratings. Outlooks are stable.

After this issue and refunding, the district will have about $685 million in parity sales-tax-backed obligations outstanding.

Moody’s said the rating “reflects the district’s credit fundamentals which include the size and diversity of the service area’s economy, and recent growth in sales tax revenues.”

The COPs will be paid from available sales tax revenues after the payment of debt service on the district’s sales tax bonds and two obligations that have a subordinate lien.

Total sales tax revenues for 2012 of $449.8 million provide approximately 1.8 times coverage of peak debt service on the sales tax-secured debt, according to Moody’s.

RTD’s “capacity to continue to leverage resources to fund expansion projects and fleet replacement may be limited in the future if financial performance does not come to fruition,” cautioned Fitch analyst Jose Acosta in a ratings report

“RTD must delicately balance debt financing for the sizeable capital program with current expenditures, which rise annually,” Acosta noted. “Political pressure to deliver additional FasTracks segments will require RTD to implement operating efficiencies and cost reduction measures and find options for additional revenue generation.”

RTD’s system includes 34.8 miles of rail in the Denver metro area. That is expanding dramatically with the FasTracks program designed to reach areas in the most heavily traveled corridors.

The initial estimate of $4.7 billion for the full FasTracks system approved by voters in November 2004 has risen to an estimated $7.4 billion.

With the original 0.4% sales tax for FasTracks now proving inadequate to complete the project as expected by 2017, RTD has for the past two years entertained plans to call for a new election to increase the tax. However, economic conditions and the political atmosphere have caused the RTD board to wait.

“RTD has no current plans to call a sales tax increase election,” Reed said.

Despite the revenue shortfall, there is visible progress on FasTracks.

The first completed FasTracks rail project, the 12.1-mile West Rail Line between Denver and Golden, will open on April 26.

At Denver International Airport, a rail bridge that will pass over the airport’s main entrance road, Pena Boulevard, is reaching toward DIA’s South Terminal. The South Terminal includes a 519-room Westin Hotel and Conference Center, a public transit center with a commuter rail station for RTD trains and a public plaza that will include entertainment and dining facilities.

Airport officials told a Denver City Council committee recently that the South Terminal project, budgeted for $500 million, is expected to increase 8.8% to $544 million. City officials attribute $29 million of the budget increase to unforeseen factors, such as improving market conditions that are making construction work more expensive.

The project is rising skyward, with a sheer wall now visible from the main terminal. The project is expected to be complete by late 2015, with RTD operating commuter trains from Denver’s Union Station to DIA in early 2016.

In Denver, the Union Station work is gaining notice as the vintage train station is converted into a combination transit hub, residential complex and entertainment center in the fashionable end of Lower Downtown.

Crews have erected a steel canopy for the commuter rail train hall and are building commuter rail train platform extensions.

The Denver Union Station Project Authority is responsible for the financing and construction. The Authority is a partnership of RTD, the City and County of Denver, the Colorado Department of Transportation, the Denver Regional Council of Governments and the Denver Union Station Metropolitan District.

As a key step in financing the Union Station project, the partners received an investment-grade rating from Fitch Ratings in 2009. That gave investors a reading on the quality of the senior loan used to finance the public-private partnership and allowed the partners to apply for federal loans.

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Transportation industry Colorado
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