Mississippi will issue $279 million in gaming tax revenue bonds to fund an emergency bridge and road replacement program across the state.
The 20-year limited obligation bonds price Thursday with Wells Fargo as the senior book running manager. Raymond James is co-senior manager and Stephens Inc. is co-manager.
Of the proceeds, $250 million will seed the state’s emergency bridge and road repair fund and $50 million will go to the state’s 2018 transportation and infrastructure fund.
The bonds are expected to be structured with serial maturities from 2019 to 2038. They are payable from the first $3 million of state gaming tax and fee revenues collected each month from casinos.
The deal marks the second time the state will issue this kind of debt, which is believed to be the first of its kind to use casino revenues as the sole security, according to lead banker Jim Perry at Wells Fargo.
Perry said other issuers have sold similar bonds, but with casino tax revenues as a component of the security along with other sources of funding.
“This [deal] uses a revenue stream that the state for a while now has dedicated to transportation projects,” said Perry. “So by using this approach these bonds don’t have any impact on the state general fund or the state’s general obligation credit ratings.”
The bonds will be on par with $200 million issued for transportation projects in 2015, of which $184.6 million is outstanding.
Fitch Ratings and S&P Global Ratings have assigned ratings of A-plus to the bonds. Both have stable outlooks on the debt.
The bonds were authorized in an August special session of the Legislature after hundreds of bridges in the state were closed or posted with weight restrictions.
Keeping unsafe bridges open would have jeopardized federal funding received by the state, Gov. Phil Bryant said April 10 when he declared a state of emergency. The Mississippi Department of Transportation’s map of the state currently shows there are 287 closed or posted bridges.
The emergency financing program approved by the Legislature and governor was in response to the bridge problem, even though the state has provided funding for repairs in past years, said Laura Jackson, executive director of the Mississippi Department of Finance and Administration.
“We clearly had an issue,” Jackson said Monday. “There were several bridges in the state that the governor closed to protect the citizens.”
Mississippi has 28 casinos, most along the Gulf Coast, although Caesars Entertainment Corp. has announced that Tunica Roadhouse Casino, though not its hotel, will close around Jan. 31.
Gaming is allowed in nine of the 14 eligible counties, according to a roadshow presentation.
Perry said the casino industry has existed since 1992 and has endured several stress events, including floods, Hurricane Katrina in 2005, and the recent recession.
Through the stressful events, the state still had “robust coverage levels” of more than three times debt service coverage, he said.
“The point we tried to make to the rating agencies is that this is a revenue stream that’s gone through some crises through the years,” Jackson said. “It’s been robust even despite all those things. We’re excited about getting some of these [bridge and road] programs going.”
Analysts said they recognized the state’s strong coverage levels and additional bond test as well as limited future issuance plans, but they consider the revenue stream volatile and sensitive to a variety of factors, including weather events and competition.
“Mississippi casinos directly compete with facilities in neighboring states as well as two Native American casinos in central Mississippi,” said Fitch analyst Karen Krop. “Voters in Arkansas recently approved an amendment to their state constitution authorizing establishment of four casinos, which are likely to draw visitors away from those in Mississippi.”
Although casino revenues have trended flat or down, Krop said the state’s Gaming Commission reported a spike in revenues in September due to the addition of sports betting, which began Aug. 1.
The revenue from betting is being deposited into the state’s highway fund for repair and maintenance of roads and bridges through 2028. That revenue does not secure the bonds being sold this week.
During last year’s special session, officials also authorized the state’s first lottery, which also could impact casino gambling revenues. Games are expected to begin this year or next.
Through 2028, the first $80 million in revenues from lottery sales will fund highway and bridge projects and the remainder will go toward education. After 2028, the revenues will flow into the general fund, with a portion dedicated to education.
Hilltop Securities is the state’s financial advisor. Butler Snow is bond counsel. Watkins & Eager PLLC is underwriters’ counsel.
