DALLAS - The Utah Transit Authority expects major savings and a more manageable debt-service schedule with an $831.6 million refunding that ranks as the largest deal in its 45-year history.
The deal's pricing was originally scheduled to conclude Tuesday after Monday's retail order period, but given the winter storm that is expected to shut down much of the Northeast Tuesday final pricing was moved forward to Monday.
"There seems to be good investor focus this morning, and so the window may be open to get it all done today," financial advisor Brian Baker, vice president of Zions Bank Public Finance, said earlier Monday.
What was previously UTA's largest issue of $700 million in 2008 will be partially refunded with the new bonds, Biles said Robert Biles, UTA’s chief financial officer.
"When the bonds were originally issued, there were certain expectations of how the revenues would come in," Biles said. "The recession of that year reset everyone's expectations. We've been watching the 2008 series for some time, and we have been looking for refunding opportunities."
If market conditions remain favorable, UTA could see a historic opportunity. Issuers have enjoyed record savings since the year started a continuation of the pattern late in 2014.
"Savings continue to improve, and we are now looking at over $80 million in gross savings," Baker said.
Such large tranches of Utah debt are rarely available, a fact that is expected to draw strong interest from institutional investors.
From UTA's perspective, the deal will allow the authority to smooth debt service over the years 2017 through 2022, Biles said. Peak debt service was scheduled for 2018 when the bonds were issued in 2008, but the recession blunted sales tax revenues.
Other features of the deal include crossover refunding of subordinate lien 2007 capital appreciation bonds into current interest bonds and increasing its additional bonds test on the subordinate lien to 1.2 times from 1.1.
The authority is also looking at replacing an "all-in" debt service reserve fund requirement for senior-lien bonds with reserve requirements by series.
Morgan Stanley is book-runner with co-managers Goldman Sachs & Co. and Wells Fargo Securities. Charles Cook, executive director at Morgan Stanley, is lead banker.
The bonds will come in two tranches.
The $639.4 million senior-lien bonds are rated AAA by Standard & Poor's, Aa2 by Moody's Investors Service and AA by Fitch.
The $192.2 million subordinate-lien bonds are rated A-plus by Fitch Ratings and A1 by Moody's.
Standard & Poor's Thursday assigned an A-plus rating and stable outlook to the new subordinate-lien; the authority's outstanding A-rated subordinate-lien bonds were placed on CreditWatch with positive implications, because of higher coverage under the additional bonds test.
When the new bonds are issued and indenture language is finalized as expected, S&P plans to upgrade the outstanding subordinate-lien bonds to A-plus, matching the newly issued bonds, with a stable outlook, S&P analyst Jen Hansen said in a news release.
With this deal, UTA will have about $1.1 billion of senior sales tax revenue bonds and $985 million of subordinate-lien bonds outstanding, according to Fitch.
The bonds are backed by sales and use taxes generated within the service area. The revenues are pledged through agreements with the counties of Salt Lake and Utah through at least 2045, which is beyond the 2038 final maturity date of the bonds.
"The outlook on the authority's ratings is stable," Moody's analyst Kenneth Kurtz said, "reflecting recovery in sales tax revenues following three years of economically driven declines and stagnation, and the expectation that peak coverage levels will improve in the near term."
Audited sales tax revenues in 2013 were $203.8 million, according to Richard Swenson, deputy treasurer and finance manager for UTA.
"The sales tax has shown steady growth since 2009," Swenson said.
UTA finished its FrontLines capital expansion projects originally scheduled for completion this year two years ahead of schedule, Biles said.
"That was a major construction project, completed two years early, under budget," Biles said. "There is no new debt associated with those projects."
FrontLines 2015 program is a group of five UTA rail projects that added 70 miles to the authority's existing 64-mile rail network.
FrontLines 2015 was approved by voters in 2006, providing increased sales-tax revenue to fund the project, which includes five extensions to the rail transit system.
A 2012 bond issue of $297 million financed expansion of the FrontRunner South commuter train project and construction of the Draper and Airport Trax light-rail lines.
The FrontRunner South is a 44-mile-long rail line from Salt Lake City to Provo in Utah County. The line has six stations, including two intermodal centers. Two additional stations are planned for the future.
The recently added Draper Trax line includes 3.8 miles of light rail and three stations at a cost of about $191 million. Another recently completed project, the airport light-rail line, extends 5.5 miles from the northern end of the North-South line to Salt Lake City International Airport. The line has five stations.
The Trax light rail system is ranked ninth in the U.S. by ridership.
The rail system began operating Dec. 4, 1999 with the Blue Line, an initial route of 17.3 miles from Sandy, Utah, to downtown Salt Lake City. The Blue Line was expanded in April 2008 to Salt Lake City Intermodal Hub, and as part of FrontLines 2015, the line added three stations with an extension to Draper, Utah.
In March, UTA will mark its 45th anniversary since its official creation as bus transit system.
The system saw a nearly 17% increase in ridership in the third quarter of 2014 compared to the third quarter of 2013, according to the most recent data.
UTA's growth was much higher than that of public transit nationally.
Around the U.S., use of public transit increased 1.8% year-over-year to more than 2.7 billion trips in the third quarter of 2014, according to a December report by the American Public Transportation Association.
"The investment in public transportation by the federal government has paid off with new rail and bus rapid transit lines or extensions that have opened up in recent years," said APTA president Michael Melaniphy.
"High and volatile gas prices have played a part over the past nine years in convincing people to try public transportation," Melaniphy said. "Now that gas prices are declining, many people are still choosing to ride public transportation. They have discovered that there are other benefits to taking public transit besides saving money."
