BRADENTON, Fla. – With an eye on fueling infrastructure investment, a Florida toll road agency plans to refinance debt and increase future bonding flexibility.
The Central Florida Expressway Authority said it expects to bring the negotiated issuance of $425 million in advance-refunding bonds during the week of Sept. 19.
The "combination of continued low interest rates and reduced negative arbitrage due to [a] shorter escrow period" created the large advance refunding opportunity, authority officials said.
The authority's policy is to require a minimum savings of 3% on refundings. However, a 6% threshold was established for the upcoming transaction partly to account for the negative arbitrage in the refunding escrow account until the bonds are called and refunded.
The 6% minimum savings requirement means the size of the offering could fluctuate significantly, depending on market conditions, officials said.
The 2016B bonds will refund all or portions of CFEA's 2007A, 2010A, 2010B, and 2010C bonds.
The estimated net present value savings will be about $37.1 million, or 7.4% of refunded par, according to Fitch Ratings.
Fitch affirmed its A rating ahead of the refunding deal, and continued its stable outlook.
Moody's Investors Service affirmed its A2 rating, and revised its outlook to positive saying that it reflects CFEA's "significantly" better than forecasted traffic and revenue performance and improved financial metrics in recent years.
S&P Global Ratings affirmed its A rating and maintained the positive outlook first assigned in March based on its view of CFEA as a "regional system of toll facilities that has historically experienced strong system growth."
Growth, which fuels the drive to fund more projects, triggered last week's board action to repay a loan from the Florida Department of Transportation in an action that will remove restrictions on the authority's ability to issue debt in the future.
The move will provide more flexibility to fund work in the $1.3 billion, five-year capital program, according to CFEA officials.
Central Florida is experiencing a resurgence of tourism, job and business growth following the recession that is helping to drive new traffic to the authority's toll roads.
U.S. toll road operators began to see a rebound in their financial metrics as a result of higher traffic levels in fiscal 2015, Moody's said in a report last Friday.
"An improving economy, sustained low gas prices, and increased traffic continue to drive stronger financial and operational performance across the toll road sector," said analysts Maria Matesanz, Kurt Krummenacker, and Jenna Schlags.
Median traffic and revenue growth rose "considerably" at 4.9% and 6.6%, respectively, for government-owned toll roads in fiscal 2015, the analysts said.
Toll road operators that embarked on significant capital spending plans saw debt service coverage ratios remain essentially flat, they said.
"In line with our positive outlook for the U.S. toll road sector, we expect traffic and revenue growth to reflect growth in the economy for the remainder of 2016," said Moody's, which rates 44 facilities with $114 billion in toll revenue-secured debt.
The Central Florida Expressway Authority saw year over year revenue growth of 10.3% in fiscal 2016, yielding a senior debt service coverage ratio of 2.44 times and total DSCR of 2.09 times including junior lien debt, according to Moody's.
Traffic was up 11.4% in fiscal 2016.
For July, the first month of fiscal 2017, toll collections were up 8.7% year over year - 7.2% higher than forecast.
The last toll rate increase was in July 2012 when CFEA also ordered future increases to take place at five-year intervals tied to the consumer price index or 3% per year, whichever is greater.
In 2014, the Florida Legislature created the Central Florida Expressway Authority to assume control of the former Orlando-Orange County Expressway Authority.
The service area was also expanded to include surrounding Seminole, Lake, and Osceola counties in addition to Orange County.
CFEA currently operates a 109-mile system made up of six toll roads, some with competing freeways.
Completing a beltway around densely populated Orlando is a priority. The 25-mile Wekiva Parkway toll road, which is under construction by CFEA and the Florida Department of Transportation, will close the remaining gap in the bypass system.
In March 2015, the authority received a $200 million loan to fund portions of the Wekiva Parkway project from the federal Transportation Infrastructure Finance and Innovation Act program.
The 25-year TIFIA loan closed with a 1.23% interest rate, at the time the lowest long-term financing rate ever obtained through the program, according to the U.S. Department of Transportation.
The expressway authority issued new debt for the first time under its new name in May 2015 with the sale of $193 million in senior-lien revenue bond anticipation notes to provide bridge financing for the Wekiva.
The Wekiva Parkway project is on schedule and within budget for a planned opening in January 2018, according to S&P.
The CFEA board voted last week to repay a $151 million loan from the Florida DOT. In 2011 and 2012, Gov. Rick Scott vetoed state appropriations that had been earmarked to fund FDOT's continuing maintenance obligation.
FDOT entered a new agreement obligating CFEA to repay the state for past maintenance funding, and the authority has been paying $20 million a year with the last payment scheduled in 2024.
The agreement also gave FDOT the right to authorize or reject future bond issuances by the authority.
Eliminating those debt restrictions by paying the loan off early will give the authority flexibility to issue bonds "to address the mobility needs of the central Florida region," said Chief Financial Officer Lisa Lumbard.
The $151 million payment in the current fiscal year will be made from the authority's $343 million in unrestricted reserves, according to Fitch.
When the payment is made "cash on hand is expected to remain solid at about 1,000 days based on unrestricted balances and in excess of 2,000 days when incorporating CFX's approximately $164 million debt reserves," said Fitch analyst Tanya Langman.
The authority "has maintained its facilities to a high standard with robust historical financial performance supporting a sizable portion of pay-as-you-go and debt-funded capital investment," she said.
The expressway authority has $2.61 billion in senior bonds outstanding.
The authority had planned to current refund all or a portion of its 2013C bonds held by SunTrust Bank in next week's deal.
"SunTrust…has offered to lower the interest rate in hopes of preventing the loan from being refunded," authority officials said. "The proposal is under evaluation."
The expressway authority was last in the market to competitively refund $151.7 million of senior lien revenue bonds in March.
Bank of America Merrill Lynch was the winning bidder with an all-in true interest cost of 3.306%, a net present value savings of $27.2 million or 17.5% of refunded par.
The bonds priced to yield between 0.88% on a 3% coupon in 2017 and 3.27% with a 4% coupon in 2037. The 2027 maturity yielded 2.45% on a 5% coupon.
Spreads to the triple-A benchmark were 33 basis points on the 2017 maturity, 55 basis points on the 2027, and 73 basis points on the 2037.
Public Financial Management Inc. and National Minority Consultants Inc. are CFEA's co-financial advisors.
Bank of America Merrill Lynch is the book-runner for next week's advance refunding.
The syndicate includes Barclays Capital Inc., BMO Capital Markets GKST Inc., Citi, Jefferies LLC, JPMorgan, Loop Capital Markets LLC, Morgan Stanley & Co. LLC, Raymond James & Associates Inc., RBC Capital Markets LLC, and Wells Fargo NA.
Broad and Cassel is bond counsel.
Nabors, Giblin, Nickerson PA is disclosure counsel.
Foley & Lardner LLP is counsel to the underwriters.
