DALLAS – The North Texas Tollway Authority is refunding more debt this week, as a long stretch of low interest rates continues to present opportunities to reduce borrowing costs.
The $947 million deal on Wednesday's calendar is the largest of the week and one of NTTA's largest in recent years.
The fixed-rate tax-exempt bonds are coming in two series. The $738 million Series A will reach final maturity in 2036. A $209 million term bond will mature in 2039.
NTTA chief financial officer Horatio Porter said the ultimate size of the deal will be based on market conditions.
"There's still a tremendous amount of interest and demand for municipal bonds, particularly for tollways," he said.
Net present value savings are expected to come to $125 million or 12.5%, according to a presentation to the NTTA board.
Marshal Kitain, executive director at bookrunner JP Morgan Securities, is lead banker on the deal.
Ron Davis, managing director at First Southwest Co. is financial advisor with co-financial advisors U.S. Williams, managing director of Estrada Hinojosa, and Pam Mobley, president of RSI Group.
Sharing bond counsel duties are Greg Schacher, partner at McCall, Parkhurst & Horton, and Bill Mahomes, partner at Mahomes Bolden.
The bonds refund Series 2008A, B and K and 2009A bonds, issued when NTTA was financing the $3.2 billion Sam Rayburn Tollway amid the global financial crisis.
"To call those times tumultuous would be putting it mildly," Porter said. "When we issued bonds in 2008 or so, the MMD 30-year was at 6%. Now the 30-year MMD is averaging below 3%."
With interest rates remaining low throughout the economic recovery of the past eight years, NTTA has aggressively refunded the $3.2 billion of debt issued during the recession.
NTTA refunded more than $2 billion in bonds in less than 12 months. The authority received $11.5 billion in orders for those bonds after extensive marketing efforts, Porter said, achieving $242 million in net present value savings.
Ahead of this week's deal, Moody's Investors Service affirmed its A1 rating on NTTA senior-lien debt, and S&P affirmed its A rating. Outlooks remain stable.
Debt service coverage ratios in peak years are expected to improve with this refunding, according to Moody's analyst Maria Matesanz. Maximum annual debt service is expected to fall to about $589 million from $616 million.
For NTTA's main system, which does not include toll roads in Tarrant County or a separately financed tollway west of Dallas, first-tier debt is $6.1 billion, or 79% of the total. Second-tier debt is $1.1 billion or 14% of the debt load. Third-tier and subordinate debt is $531 million or 7%, according to Standard & Poor's.
"Overall, Standard & Poor's views the NTTA's credit quality as highly leveraged and dependent on both toll growth and the economic development necessary to support forecast transaction projections in a region that has demonstrated strong, historically supportive demographic trends," said S&P analyst Todd R. Spence.
"The system's size and strength and the higher toll-setting flexibility it affords can support a highly leveraged profile in our view, assuming management adjusts toll rates to maintain financial margins," Spence said. "Management has indicated that it does not plan to issue additional debt to fund the current five-year capital improvement plan."
NTTA does have expansion plans that involve adding additional lanes to three of its major tollways, Porter said. But the project can be financed without issuing bonds.
The system backing the bonds is made up of four toll roads, two bridges and a tunnel. It includes 744 lane miles of roadway that produced $617.4 million in toll revenues from 676 million transactions in 2015, according to Porter.
From an economic viewpoint, NTTA has been on a major winning streak after struggling to finance the Sam Rayburn Tollway during the recession. The heart of its service area north of Dallas is in a boom period, with the addition of Toyota's national headquarters in Plano and a number of other corporate relocations. The Dallas Cowboys have moved their training facilities and headquarters to the affluent suburban area, and team owner Jerry Jones is launching a major residential development.
"The 'A' rating on the first-tier bonds reflects our view of the economic strength of the region, with significant development along the corridors where NTTA's roads are located," Spence said. "In addition, management has introduced measures to enforce toll collection in cases of habitual violators," he said. "These include changes in state law that allow for blocks on vehicle registration, banning users from using the roads, and impounding of vehicles."
NTTA is also working with Oklahoma to allow interoperability of toll tags on roads in Oklahoma and Texas.
According to the authority, approximately 79% of vehicles on its roads have transponders, with about 2.8 million toll tags issued.
"The high toll tag usage is credit-positive in that the cost of collection for toll tag users is lower and they have a much higher revenue collection rate," Spence said.
