MIAMI — With the potential expiration of popular Build America Bonds at the end of the year, issuers looking to finance transportation projects should not rule out using variable-rate debt in their portfolios or wrapping bonds with insurance, experts said here Monday.
Even though variable-rate debt remains at attractive interest levels, vast numbers of issuers have moved away from using it since many made costly decisions to terminate swaps and the prices for letters of credit soared, according to Swap Financial Group managing director Peter Shapiro. LOC costs are dropping and new players are coming into the market, such as small U.S. banks, he said at the The Bond Buyer’s 11th Annual Transportation Finance/Public-Private Partnership Conference.
“It’s worth it to consider how much of a portfolio should be floating rate,” Shapiro said. “We think a moderate course makes sense.”
The market will not remain dislocated forever, he said.
If BABs are not reauthorized, some market experts at the conference said that issuers most likely will have to rely on a patchwork of funding sources to accomplish transportation projects, especially large, major ones.
“My bet is on not seeing Build America Bonds reauthorized and the market going back to a more traditional issuance structure,” said Mary Francoeur, managing director of Project Finance and Utilities, Americas, for Assured Guaranty Corp.
Francoeur said issuers should consider using bond insurance because it still adds value and saves issuers money.
“We are selective [in the bonds we insure] and borrowers need to be selective where they use us,” she said.
In Georgia, transportation officials are getting prepared for a difficult time going forward because voters defeated several ballot initiatives in the recent general election, and the new makeup of Congress could mean a smaller federal transportation funding bill, said Gena Evans, executive director of the Georgia State Road and Tollway Authority and the former commissioner of the state’s Department of Transportation.
Georgia voters on Nov. 2 defeated a constitutional amendment that would have allowed GDOT to use a cash-flow accounting method and enter multi-year construction agreements that would have given the agency the flexibility to do more projects with limited funding, leverage funds, and enhance the use of public-private partnerships.
Voters also defeated an initiative seeking to add a $10 fee to the cost of license plates to fund trauma centers, Evans said, suggesting that that sentiment may not bode well for a referendum planned for 2012 in which Georgians will be asked to approve a new transportation structure that would increase funding for the sector.
With the growing emphasis on local support for transportation projects that include transit to leverage federal dollars, Evans said state officials are concerned.
“We feel we have an extremely difficult path in front of us,” she said, noting that Georgia is continuing to work on transit projects, including the installation of high-occupancy vehicle lanes around congested Atlanta and its P3 program.
“We are one of those states running short on transit funding,” Evans said.
In another discussion on prospects for P3s going forward, panelists said there are a variety of factors leading to a “modest” evolution of such projects in the United States.
Over the last year, there were successful P3s that were overshadowed by failures, said Eric Zampol, a vice president at BMO Capital Markets. “Overall, I am still bullish on the P3 market,” he said.
Christophe Petit, a principal at Greenhill & Co., said there is approximately “$140 billion in equity on the sidelines” for P3s with pension funds and others seeking alternative investments. “I think it’s all excellent news for the [P3] sector,” Petit said.