BRADENTON, Fla. — Pricing a triple-B rated start-up toll bridge deal a week ahead of a major hurricane proved to be advantageous for Chesapeake, Va.

Investors chasing yield oversubscribed to the city's offering last Wednesday by more than 12 times.

Closing on the deal, currently set for Nov. 15, is not expected to be affected by market disruptions due to Hurricane Sandy, if any, officials said Monday.

There were $1.86 billion of orders for the $151 million transaction rated BBB by both Fitch Ratings and Standard & Poor's.

Of the orders, $950 million were placed for $43 million of convertible capital appreciation bonds, a structure expected to be increasingly popular for projects with upward-sloping revenue streams such as other toll roads, seaports, and airports, according to David Miller, managing director at Public Financial Management Inc., financial advisor on the Chesapeake project.

"I think investors were just looking for yield," Miller said.

The demand for the bonds enabled Chesapeake to significantly reprice the deal downward 8 basis points to 9 basis points, move and combine maturities, and target level debt-service coverage to toll revenue projections, he said.

The deal sold as $108 million of current-interest bonds maturing between 2018 and 2047, and $43 million of convertible CABs maturing in 2032 and 2040, which will convert to current interest bonds in mid-2023.

The "hybrid" CAB structure was used because stand-alone capital appreciation bonds are expensive, due to the compounding of interest, which is paid at maturity, according to Miller. The convertible CABs priced 40 basis points to 50 basis points better than traditional CABs, he said.

The combined transaction won a final true-interest cost of 4.56%.

"We were pretty thrilled for a triple-B rated deal to end up with that amount," Miller said.

Bond proceeds are being used as a portion of the financing to widen Dominion Boulevard to four lanes from two lanes, as well as to replace a two-lane drawbridge over the Elizabeth River with a 95-foot, fixed-span, four-lane bridge that would not have to open for boat traffic.

The boulevard and bridge projects, long planned to relieve severe congestion, will be part of the Chesapeake Transportation System, which now includes the 10.2-mile-long, tolled Chesapeake Expressway.

In addition to the bond proceeds and toll revenues, the project is being financed with a contribution from the city and the first loan ever granted by the new Virginia Transportation Infrastructure Bank, for up to $152 million.

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.