DALLAS – Like most high-speed tollways, Colorado’s E-470 is designed for drivers who don’t want to stop. But for those who must, there may soon be a place on the 47-mile thoroughfare to buy fuel and snacks.
With tollbooths along the electronically tolled highway no longer needed, the E-470 Public Highway Authority is beginning the search for proposals to convert one of five vacant toll plazas into a convenience store with fuel pumps – and rest rooms.
If the first store works out, others could be developed at the remaining plazas. The existing toll plaza buildings and land would be offered on the basis of a long-term lease.
“Our toll road’s a little different than toll roads like the New Jersey Turnpike that have had these services since the outset,” said Stan Koniz, chief financial officer for the E-470 Authority. “We’re kind of flying by the seat of our pants.”
The tollway that skirts the eastern frontier of the Denver metro area was ahead of its peers in 1991 when it opened the first electronically tolled, high-speed lanes in the United States. In 2009, the authority eliminated cash tolls and converted the entire system to 70 mph, electronically tagged lanes. That left the toll plazas in mothballs.
Toll Plaza B has about 15 acres of developable land and a 5,600-square-foot building. Two separate studies found that site had the best prospects, Koniz said.
“The idea is to make some money on the deal. That’s all going to come out in the RFP (request for proposals),” Koniz said. “We’re not going to put millions into it, but I could see a hundred-thousand bucks or so.”
In Texas, the Texas Department of Transportation is pursuing a similar plan on the recently opened SH 130 tollway on the eastern outskirts of Austin. TxDOT’s plan to find a happy median on its lightly-traveled and controversial Austin bypass is still in the preliminary stages, but if approved for SH 130, it would be the first on a tollway in Texas.
Like SH 130 in Texas, E-470 is a high-speed bypass through largely undeveloped land that requires high tolls to travel. Driving the entire 47 miles of E-470 can cost nearly $16 one way.
Punishment for unpaid tolls is another threat drivers face. Under a new law, drivers with unpaid tolls will not be eligible to renew their Colorado vehicle registration beginning in October.
Some of the worst offenders owe thousands of dollars in unpaid tolls, fees, and civil penalties, according to the authority. Those in that group are each liable for at least $200 in unpaid tolls as established in an administrative hearing officer’s final order. Collectively, the group represents 2,030 vehicles and more than $1 million in tolls, fees and civil penalties, officials said.
“The non-paying customers in this first grouping are not casual or occasional users of the road and they have either ignored or disregarded their responsibility to pay their bills,” said John McCuskey, E-470’s executive director. “It amounts to theft of service.”
As the authority seeks to reduce the fiscal risks of electronic tolling, it is still dealing with the fallout from the 2008 financial markets collapse that left it holding obsolete auction-rate securities.
A year after issuing $423 million of auction-rates in 2007, the authority converted the debt to a series of fixed-rate debt in May 2008. The 2008 refunding included swap agreements valued at $120 million, including one with the ill-fated Bear Stearns. JPMorgan acquired Bear Stearns and the E-470 swaps when Bear was on the verge of collapse. One of E-470’s original underwriters, Lehman Bros., did collapse into bankruptcy, creating widespread havoc for the entire public finance sector.
The authority still has four interest rate swaps, two floating-to-fixed rate and two offsets that are fixed-to-floating rate, with a notional amount of $408.2 million, according to Moody’s Investors Service. The aggregate mark-to-market of the swaps was negative $40 million as of July 23.
Koniz, who was chief financial officer at Denver International Airport at the time, recalls the 2007-08 period as “hell.”
With more than $400 million of ARS, “DIA was the same scenario, only magnified four or five times over,” Koniz recalled. “Everything was just going to hell. The auction rates were all in some failed state and were paying 12%. It was not a good time for anyone.”
On Wednesday, E-470 will remarket some of those 2007 refunding bonds that are callable this year. This time, the $66 million tranche will go back to variable-rate mode through negotiation with Morgan Stanley, George K. Baum & Co. and Stifel, Nicolaus & Co.
Morgan Stanley’s executive director Charles Cook in Denver and vice president Darryl Davis in New York are leading the deal.
With the current coupon on the 2007 C-D bonds at 5%, the conversion will be based on SIFMA plus an expected 130 to 180 basis points over four years, said Michael Lund, financial advisor at Piper Jaffray in Denver. “It may be SIFMA plus 200 if they go out a little longer,” he said.
“They’re still considered a put bond,” Lund said. “But they’re soft puts.”
Lund joined Piper Jaffray public finance team as an analyst in 2002 and is now the senior investment banker on most of his transactions. Lund has worked on more than 200 transactions totaling more than $1 billion in par on bonds issued and $1.4 billion in par on notes issued. In addition to the E-470 Authority, Lund’s clients include Boulder, Colo., and the state of Montana.
Bond counsel Tom Weihe, a partner at Kutak Rock, serves as bond counsel to government entities ranging from small towns and districts to large cities, counties and state-level issuers, with a specialty in transportation.
With this week’s deal, the E-470 is getting a welcome lift in its Standard & Poor’s rating to BBB from BBB-minus.
“The raised rating reflects our view of recent growth in transactions, which have passed the previous peak in 2007, high liquidity levels and a debt management plan that since 2004 has reduced maximum annual debt service from approximately $160 million to $136 million, with plans to further reduce MADS to $120 million,” wrote analysts Todd R. Spence and Mary Ellen E. Wriedt.
“The authority still has an ascending debt structure that requires increases in traffic and toll rates to maintain financial margins,” the analysts said.
Moody’s rates the bonds Baa2. Both agencies provide a stable outlook.