DALLAS - The Texas Transportation Commission will bring $800 million of refunding bonds to market in its first issue since the Legislature approved a record funding increase for highway projects.
The negotiated deal is expected to price the week of June 29.
Proceeds will refund outstanding bonds without extending final maturities. The present value savings from the lower interest cost is expected to exceed 8%, officials said.
The joint senior managers will be Citi, as bookrunner, and Bank of America Merrill Lynch. The team of lead bankers includes Ron Morrison and Paul Creedon, managing directors at Citi and Mitch Gold, managing Director at BofAML.
Co-managers will be Barclays, Blaylock Beal Van, LLC, Frost Bank, Mesirow Financial, Morgan Stanley, Ramirez & Co., Inc. and RBC Capital Markets.
Estrada Hinojosa is the financial advisor.
"The State Highway Fund is a very strong credit and has typically received strong demand from investors," said TxDOT chief financial officer James Bass. "Despite some recent market volatility, we remain in a very favorable interest rate environment from a historical perspective. Given the strong AAA/Aaa credit ratings of the State Highway Fund Revenue financing program, the Commission, TxDOT and our banking team expect broad investor participation and a successful pricing."
The issue backed by the State Highway Fund comes after a record year for issues from the TTC that produced record savings.
In 2014, the Texas Transportation Commission ranked second among issuers nationally with $5.52 billion of new money and refunding bonds. The commission began 2015 with a $1.68 billion restructuring of debt for the Central Texas Turnpike System, which is managed by the TTC.
This month's TTC deal is a revenue bond, but the debt carries the state's triple-A rating from Moody's Investors Service and Standard & Poor's.
"Given the first-tier revenue bonds (and existing parity debt) have a rating above the sovereign rating of the U.S., we view the pledged revenue stream as having the ability to maintain stronger credit characteristics than the sovereign in a stress scenario," S&P analyst Kate Choban wrote.
The State Highway Fund is made up of revenue from the state fuel tax, registration fees and other income.
Texas voters approved the first $3 billion of bonds backed by the fund in 2003.
In the 2007 Legislature, the maximum bond issuance was raised to $6 billion, with a limit of $1.5 billion per year. With this deal, TTC will have about $4.2 billion of Highway Fund bonds outstanding, according to S&P.
"The Aaa first tier State Highway Fund rating reflects the strong debt service coverage provided by a pledged revenue stream that includes both state and federal funds," Moody's analyst Nicholas Samuels said.
Analysts have not issued any comments on how the 2015 session of the Texas Legislature might affect the TTC and its operating agency, the Texas Department of Transportation. But state officials are boasting of a record increase in funding for transportation under a series of measures receiving strong approval in both houses of the Texas Legislature.
In ceremonies above a major downtown Dallas freeway interchange reconstruction project called "The Horseshoe," Gov. Greg Abbott on June 2 signed three bills related to transportation and voiced support for a proposed constitutional amendment the Legislature advanced this year that would provide an estimated $3 billion per year for transportation.
In his inaugural address, Abbott made transportation an emergency measure and vowed to add $4 billion per year for highway projects from the state's $209 billion budget. Meeting that pledge will require voter approval in November of a proposal passed as Senate Joint Resolution 5.
The proposed amendment would create a funding formula that dedicates a share of state sales tax revenue to transportation and diverts a percentage of revenue from state vehicle sales taxes to highway projects.
The new revenues are contingent on a growing economy. The agency would get about $2.5 billion a year when annual sales tax revenues hit $28 billion. The state raised a little more than $27 billion in the last fiscal year, but the revenue is expected to rise.
The proposal would also send 35% of motor vehicle sales tax revenues that exceed $5 billion to the state highway fund, which is expected to initially give TxDOT $250 million and grow from there.
"At the outset of this legislative session, I called for investing in infrastructure and declared transportation an emergency item so the State of Texas could continue growing jobs, alleviate the strain on its roadways and allow Texans to lead more productive lives," Abbott said at the signing ceremony.
"Gov. Abbott made transportation funding one of his top priorities this session, and the additional funding provided by the Legislature is a huge step forward for Texas," Bass said.
"TxDOT will be prepared to deliver projects from SJR5," Bass said. "That's what we do. We are doing it now with funding from Proposition 1."
The bills Abbott actually signed would have little effect on actual funding and were mainly symbolic measures.
House Bill 20 creates a performance-based transportation planning process while House Bill 2612 authorizes a study on how to convert state-subsidized toll roads to freeways.
House Bill 1187 designates a section of U.S. Highway 287 as the "Chris Kyle Memorial Highway," honoring a late Texan Navy SEAL who was the subject of the film "American Sniper."
To reach his promise of $4 billion of new funding for transportation, Abbott includes about $1 billion diverted from the state's rainy day fund under Proposition 1, approved by voters in November.
At a meeting in May, the TTC approved 28 projects using more than $203 million of the Prop. 1 funding. Commissioners have now approved final contract awards on 60 of the 200 planned Proposition 1 projects.
"The commission has again acted in a prudent manner, and our state's transportation system will benefit because of it," said TxDOT Executive Director Joe Weber. "The message from community leaders and local planning organizations, as well as the message sent by voters when they approved Proposition 1 last November, is that transportation concerns must be addressed in a manner that is both efficient and effective."
The 200 planned Proposition 1 projects will provide than 800 miles of rehabilitated highways, nearly 500 miles of new highway lanes, and replace 114 bridges, according to TxDOT.
Metropolitan Planning Organizations and TxDOT districts created the list of projects after a series of public hearings.
Several TxDOT districts plan to use maintenance funds to improve highways pummeled by traffic created through increased production in energy sectors.
The funds, along with Proposition 1 funds specifically allocated for energy sector needs, will allow projects in affected areas to receive nearly 30% of total 2015 Proposition 1 funding.
Over the past five years, 248 traffic fatalities and more than 23,000 crashes were recorded on the highway segments where the Proposition 1 funded projects are located, according to TxDOT.
