TTC Looks for More Savings With $800M Refunding

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DALLAS – The Texas Transportation Commission will look for savings in an $800 million deal expected to price Thursday.

The deal is the first of the year for TTC, which has issued more than $24 billion of debt since 2005. Brian Ragland, chief financial officer for the Texas Department of Transportation, will oversee the transaction for the TTC.

Barclays Capital is book runner on the negotiated deal, with six co-managers. Paul Jack, managing director at Estrada Hinojosa & Co., is financial advisor, with McCall, Parkhurst & Horton as bond counsel.

The general obligation bond deal is made up of a $300 million Series A reaching final maturity in 2034 and a $500 million Series B with final maturity in 2036.

"We will either refund or remarket the $300 million in State Highway Fund variable rate debt that has a mandatory tender date of April 1, 2017," said TxDOT spokesman Mark Cross.

Over the past three years, the TTC has captured millions of dollars in savings with a flood of refunding bonds. While interest rates have drifted higher, highly rated issuers are still seeing opportunities for savings.

The upcoming bonds are rated triple-A by Moody's Investors Service, S&P Global Ratings and Fitch Ratings with stable outlooks.

This issue represents the 15th backed by the state's Mobility Fund since 2005, according to the preliminary official statement.

GO mobility fund bonds were authorized by voters under a 2001 constitutional amendment. About $6.2 billion of the authorized limit of $7.5 billion are outstanding.

Fees backing the bonds include driver's licenses, motor vehicle inspection, certificate of title and others.

The ratings agencies see little risk to the state's top credit rating, despite ongoing weakness in the oil and gas market.

"The oil price plunge that began in late 2014 interrupted a long period of economic and revenue growth," said Fitch analyst Douglas Offerman. "But diversification over time leaves the state better positioned relative to past cycles to weather the energy sector downturn.

Recent revenue collections for the state have trended lower due to weakness in taxes from the oil and gas downturn. Fiscal year-to-date through Oct. 31, total revenues excluding federal funds and interfund borrowing were 2.8% below the forecast level and 0.8% below the prior year's figure, according to Fitch.

While some state agencies may have to trim spending amid tighter state revenues this year, TxDOT will enjoy record funding.

Over the next two fiscal years, revenues for the transportation system are expected to exceed $25 billion, according to state Comptroller Glenn Hegar's recent estimate for the upcoming budget. That represents a doubling of dedicated revenues in a decade.

Under Proposition 7, which received statewide voter approval in 2015, TxDOT is authorized to receive up to $5 billion over the next two years from sales tax revenue.

For other agencies of the state, the diversion means a reduction in available revenues. Hegar said that a 2.7% reduction in revenue to $104.9 billion is due in part to Proposition 7.

Despite the higher level of funding, TxDOT expects lower bond issuance in 2017 than it has provided in the past three years. Annual bond issuance from the TTC, which hit a record $5.5 billion in 2014, tapered to $3.3 billion the following year and $1.89 billion in 2016, according to data from Thomson Reuters.

The TTC is a five-member board appointed by the governor that governs the Texas Department of Transportation. TxDOT is facing legislative review in the current session under the state's Sunset law.

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