DALLAS – In one of the largest deals in Texas history, the Grand Parkway Transportation Corp. is preparing to price $2.86 billion of toll revenue bonds to extend a planned 184-mile loop around the Houston metro area.

The sale -- which would be the municipal market’s largest of 2013 -- is currently planned for the week of July 15, about two months later than originally expected. Approvals from the U.S. Army Corps of Engineers on the project caused the delay, according to Robert Kline, executive director of the Texas Bond Review Board.

“It was a very complex deal,” Kline said. “It took a number of meetings with the financial advisor, with TxDOT, with the attorney general’s office and others.”

Senior manager Goldman, Sachs & Co. is leading a syndicate of 17 underwriters, including JPMorgan, Bank of America Merrill Lynch, Barclays and Citi.

Underwriters are planning a series of private meetings with investors during the week of the pricing.

The issue comes amid uncertain market conditions. The Municipal Market Advisors and Municipal Market Data yields jumped nearly 60 basis points late last month, the biggest three-day increase since April 1987. The sharply rising yields led several large issuers to postpone pricings.

“We will monitor market activity and do what is in the best interest of the project,” TxDOT spokeswoman Veronica Beyer said.

Goldman Sachs spokeswoman Tyffany Galvin declined comment on the deal, referring only to an announcement about the date of the sale and the underwriting team.

“Now is not the appropriate time to be talking about it,” she said last week.

The deal will be the third-largest long-term bond sale in Texas history, according to Thomson Reuters data, behind $3.03 billion deals from Houston in 2004 and the North Texas Tollway Authority in 2008.

The NTTA deal in part refinanced a $3.5 billion bond anticipation note issue in 2007.

The largest bond authorization from the Texas Bond Review Board was $4 billion for the TxDOT Mobility Fund in 2005, but those bonds were divided into separate issues.

Jeffrey Timlin, managing director and portfolio manager at Sage Advisory Services in Austin, said that the current market’s appetite for such large volume could depend whether there’s more news like Federal Reserve Chairman Ben Bernanke’s comments last month about plans to “taper” its quantitative easing, which roiled the markets.

“You’d think that the size of the deal would be a detractor, but actually I think it could be an attractor,” Timlin said. “As long as we don’t go into another panic selloff there should be enough interest to come in and help with liquidity.”

Timlin pointed to the June 25 pricing of Illinois’ $1.3 billion of general obligation bonds as guide. Rated A-minus by Standard & Poor’s and Fitch Ratings and A3 by Moody’s Investors Service, the Illinois deal was eight times oversubscribed, Timlin said.

“It’s going to be a bit of a timing issue,” Timlin said. “We’ve seen a sharp pullback.  We went from one extreme of almost no volatility to extreme volatility.”

On Friday, the last day of the second quarter, market conditions were more routine, as investors adjusted portfolios, Timlin said.

Most of the Grand Parkway deal will come at double-A level ratings though a portion will be in the triple-B category.

The longest bonds reach final maturity in 2054, but shorter maturities for some series have not been set. Call dates have not been established yet, either.

Estrada Hinojosa & Co. and Public Financial Management Inc. are co-financial advisors on the deal.

McCall Parkhurst & Horton serves as bond counsel.

The Grand Parkway Transportation Corp. was created by the Texas Transportation Commission last year to finance the outer beltway around Houston, which includes some non-tolled segments already open to traffic.

Texas Department of Transportation chief financial officer James Bass serves as president of the GPTC, with other TxDOT executives as officers of the corporation.  Benjamin Asher, TxDOT’s officer for innovative financing and debt management, serves as secretary-treasurer. The board members are not paid and the nonprofit corporation has no staff.

The financing of the parkway involves five series of bonds, four of which are backed by a financial guarantee from TxDOT known as a “toll equity loan agreement” or TELA.

The $2.66 billion of TELA-backed Series B-E bonds carry ratings of AA from Standard & Poor’s and AA-minus from Fitch. Outlooks are stable.

The $107.4 million Series D and $360.8 million Series E bonds are taxable.

The $200 million Series A bonds do not include the TELA and carry ratings of BBB from Standard & Poor’s and BBB-plus from Fitch Ratings.

“We base our rating on the first-tier toll revenue bonds on traffic risk and an ascending debt service schedule, mitigated by the strong Houston economy and significant support from the Texas Department of Transportation, especially as evidenced by the availability of loans to benefit the subordinate lien,” said Standard & Poor’s credit analyst Adam Torres.

The TELA guarantee was created to help the North Texas Tollway Authority finance $1.3 billion of projects in 2011 when insurance for toll revenue bonds was becoming increasingly scarce and NTTA was warned of a ratings downgrade if it took on more debt.

Unlike the Grand Parkway Corporation, the NTTA was planning tollways along corridors that were heavily traveled in the heart of the Dallas-Fort Worth metroplex.

The Grand Parkway includes a large area where development has yet to occur. The Harris County Toll Road Authority, the major toll developer in the Houston area, opted out of the Grand Parkway project, leaving it to suburban authorities and TxDOT.

In October, TxDOT awarded 37 miles of Grand Parkway segments to Zachry-Odebrecht Parkway Builders. The project includes more than 50 bridges, frontage roads and drainage, as well as utility infrastructure.

Zachry-Odebrecht is one of three design-build joint ventures working on the $6 billion project.

Though some critics questioned the viability of the parkway, studies indicate potential for growing revenues, starting with a base toll rate of 40 cents per mile, according to the preliminary official statement.

Annual toll revenue is expected to be about $46.3 million in 2016, rising to $415.1 million by 2035 and $922.1 million in 2054. One section of the parkway linking U.S. 59 and Interstate 10 has been open since 1994 and is already heavily traveled. New sections north and southwest of Houston traverse suburbs that are already heavily populated.

The project to be financed includes about 55 miles of construction in Harris and Montgomery counties. Suburban governments have formed coalitions to help plan development around the corridor.

“Things are going great,” said David Gornet, executive director of Grand Parkway Association, a separate organization that works on issues related to the beltway. “I live by a section of the parkway that’s already open, and it’s having a very positive effect on the southwest side of Houston.”

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.