The newly created Bexar County Rural Rail District yesterday named EstradaHinojosa & Co. as its new financial adviser, paving the way for what many industryprofessionals believe will be the first rail bonds issued in Texas since the 1800s.
Representatives from the firm said one possible structure for the deal would be grantanticipation notes, with revenues coming via federal sources such as the TransportationInfrastructure Finance and Innovation Act of 1998 or the Railroad Rehabilitation andImprovement Financing Program.
The firm was selected as FA after the three finalists for the position - EstradaHinojosa, RBC Dain Rauscher Inc., and Southwestern Capital Markets Inc. - madepresentations to the board. The three were chosen from a pool of seven that submittedapplications in response to a request-for-proposals, largely on the basis of theirexperience with transportation and structured financings.
| Robert Estrada |
"We are delighted to be chosen and we are ready to start working," said Robert Estrada,president and chief executive officer of Estrada Hinojosa.The firm will take the lead on the issuance of up to $20 million of revenue bonds.Proceeds from the bonds would finance an eight-mile rail spur that would link BurlingtonNorthern Santa Fe Corp. rail lines to a soon-to-be-built $800 million truckmanufacturing plant in San Antonio for Toyota Motor Corp. of North America.
The rail spur is part of a massive incentive package put together by state and localofficials during Toyota's quest for a plant site. Company officials - who had looked atapproximately six other possible locations for the highly coveted plant - wanted railservice from two separate rail companies. Although Union Pacific Railroad currently hasaccess to the site, San Antonio officials vowed to create a second line for BurlingtonNorthern to maintain Toyota's interest.
Rail district officials had initially hoped Union Pacific might allow BurlingtonNorthern to use its rail line to the Toyota site. However, they now agree it is time tomove forward with plans to issue bonds for a second rail line.
"The situation seems to spell bonds to me," said former Secretary of Housing and UrbanDevelopment Henry Cisneros, a member of the rail district board. "There doesn't seem tobe any ongoing discussion between Union Pacific and Burlington Northern that would leadto any kind of substantive agreement."
Focusing on his firm's financial advisory services on rail bond deals for Dallas AreaRapid Transit and the Brownsville Navigation District - as well as an expected offeringin coming months by the Nueces County Rural Rail Transportation District - Estradaoutlined a plan for Bexar County's rail district that includes heavy attention from boththe Dallas headquarters of his firm and the San Antonio office.
Donald Gonzales, an executive vice president with Estrada Hinojosa and the head of thefirm's San Antonio office, will serve as lead banker for the deal, with Estrada himselftaking the second chair. Noe Hinojosa, co-founder and vice chairman of the firm, wouldalso serve as a support banker for the rail district.
"The first step we have to take is to define and determine the funds available for debtservice," Gonzales said.
The rail district has already received approval for a $15 million state grant from Houseand Senate committees, although the full Legislature and the governor must also approvethe measure. In addition, Gonzales said, because this deal is likely to mark the firstrail bond deal since Texas approved a law allowing the issuance of such debt in 1981,the legal ins and outs of the transaction would have to be investigated.
In addition to grant anticipation notes or bonds, or debt backed by a combination ofstate and federal grants, Gonzales suggested that revenues from rail operating and leaseagreements might also add to the creditworthiness of the offering.
Gonzales said the Nueces County rail deal is likely to be worth as much as $24 million.That deal will finance the expansion of an existing rail facility that serves the Portof Corpus Christi and will likely sell with a letter of credit from Bank of America.
He said the structure of the deal would likely revolve around when and how much grantmoney was available to service debt, as well as whether the grants could be used to takeout the debt if it were issued on a short-term basis.
