Illinois tollway deal sheds debt risk and cancels swaps

CHICAGO — The Illinois State Toll Highway Authority's $430 million deal Tuesday will further trim its floating-rate liquidity and swap exposure.

The refunding of floating-rate debt issues in 2007 and 2008 is “aimed at reducing the amount of third party liquidity support the authority is required to maintain,” said Fitch Ratings.

Crews install an exit sign along the Illinois Tollway's new Route 390 Tollway west of Chicago's O'Hare airport in October 2017.

The deal may also refund some fixed-rate 2009 paper “for savings if market conditions permit,” according to tollway documents. “The refunding is not expected to materially impact the current aggregate debt service schedule.”

The authority has nearly $1.2 billion of floating-rate debt with seven swaps attached that were negatively valued at $144 million as of mid-November, according to the offering statement. Overall, the system has about $6 billion of debt and has been trimming floating-rate exposure in recent years.

JPMorgan and Goldman Sachs are joint bookrunners. Hilltop Securities is financial advisor. Katten Muchin Rosenman LLP is bond counsel. PFM Swap Advisors is the swap advisor.

Ahead of the sale that matures from 2021 to 2031, Fitch Ratings affirmed its AA-minus rating of the tollway, S&P Global Ratings affirmed its AA-minus and Moody’s Investors Service affirmed its Aa3. All assign a stable outlook.

The bonds are secured by net tollway revenues that primarily come from toll collections, and the authority pledges to set rates at a level sufficient to cover debt service.

The tollway recently unveiled a $1.5 billion 2019 budget, up $55 million or 3.8% from this year with $1.47 billion of toll revenues and evasion recovery fund expected. The budget directs $365 million to fund maintenance and operations, $441 million for debt service, and $704 million for 2019 capital spending.

The board approved the 15-year, $12 billion Move Illinois program in 2011 and expanded it in 2017 to $14.3 billion. The board has raised toll rates to help finance the program.

The authority has issued $2.8 billion so far of about $6 billion of borrowing planned for the program with $700 million expected next year, $1.4 billion from 2020-2022, and about $800 million from 2023-2025.

“The amount, timing and structure of new money bond issuance is subject to change based on cash flow need and market conditions,” the 2019 budget documents reported on the new money planned next year.

Fitch said its rating reflects the system’s essential nature to the region supported by growing traffic levels, prudent debt management, and strong debt service coverage ratios. Debt service maxes out in 2030 at $486 million in 2030 but will rise to $642 million after all program debt is issued.

“The potential risks posed by ISTHA's sizeable capital program are largely mitigated by a history of delivering capital programs on time and under budget, a very robust balance sheet position, and an already implemented 60% aggregate commercial toll increase phased in since 2015, which complements the 88% passenger vehicle toll increase in 2012,” Fitch said.

“The stable outlook reflects our expectation that the ISTHA will continue to manage its operations and capital program effectively, while maintaining debt service coverage levels near 2 times,” S&P said.

For the first six months of the year, toll revenues were up 4.4% and transactions grew by 3.2%.

While the authority pays some penalty for its location in Illinois, where even top-rated borrowers can't escape the shadow of the state government's weak credit, the authority escapes any excessive penalty given its fiscal autonomy from the state and the insulation of pledged revenues.

“As an independent authority ISTHA's credit strength is rooted in its strong financial metrics, autonomy to set toll rates to recover costs, and state statute and the bond indenture requirements that keep all excess revenues in the system to be used only for tollway system purposes,” Moody’s said.

The 11-year bond in a November 2017 deal landed at a 25 basis point spread to the Municipal Market Data AAA benchmark and five points over the AA benchmark. The yield on the 25-year bond landed at a 50 basis point spread to the AAA and 29 basis points over the AA.

The governor hand-picks the top leaders at the authority including the executive director and 11 board members, which means change is coming after Gov.-elect J.B. Pritzker takes office next month. The board directors serve four-year terms, and no more than five of the members may be from one political party.

The veteran finance team led by Mike Colsch has remained through several administrations, both Democrat and Republican.

The authority operates 294 miles of interstate tollways for 12 counties in northern Illinois, including the greater Chicago area.

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Primary bond market Transportation industry Toll revenue bonds Illinois
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