The Idaho Housing and Finance Association will face a choppy market when it introduces a new transportation credit to the market within the next several days.
Citi and Barclays, lead managers in an eight-bank syndicate, will price $270 million of sales tax revenue bonds on March 29 for IHFA, the conduit issuer for the Idaho Transportation Department, to support a $1.6 billion transportation program.
“The primary calendar has been small, so there won’t be much to compete with, but that doesn’t make up for all the bids-wanted the secondary market is getting hit with,” said Craig Brothers, senior portfolio manager and co-head of fixed income/partner of Bel Air Investment Advisors.
Mutual funds have been sellers, not buyers, for the past six or seven weeks, Brothers said, making it a tough time to price bonds.
Bids wanted, a listing indicating an investor wants to sell, hit $1.178 billion on Monday, the 20th time so far this year they have eclipsed the $1 billion mark, according to a
Though they carry high ratings, the Idaho bonds won’t benefit from the flight to quality because the state issues so little debt, so the credit will be viewed as illiquid at a time that investors are prizing liquidity, Brothers said.
The Idaho finance team is somewhat nervous about bringing the deal given the volatility in the market, but transportation department Controller David Tolman said with double-A bond ratings and introduction of a new credit, “it should do pretty well.”
The bonds will be repaid from the Transportation Expansion and Congestion Mitigation fund, which will receive $80 million in sales tax annually for large highway projects. Last summer, Idaho Gov. Brad Little signed House Bill 362, which increases the sales tax distribution to the TECM fund from 1% to 4.5%
The funding program championed by Little included a one-time $126 million infusion from surplus funds as well as the contribution from sales tax revenue. The program is part of Little’s “
“Last year, we passed the largest transportation funding package in state history,” Little said in his speech. “Our sustainable transportation funding solution added historic amounts for new infrastructure to improve safety and ease congestion, giving all Idahoans more precious time with their families.”
He allocated $200 million in ongoing funding for road maintenance locally and statewide and $200 million for bridges in his fiscal 2022 budget too.
Referencing the new transportation program in this year’s speech, the governor said he was “unwilling to put the safety of Idahoans and the maintenance of our state’s roads and bridges at the whims of the feds,” possibly an allusion to Idaho’s heavy use of grant and revenue anticipation bonds. Garvees are bonds in which states leverage future funding they expect from the federal Highway Trust Fund, allowing them to fund projects upfront with federal aid that comes later.
Gridlock in Congress
Idaho’s Garvee program expanded the highway system or enhanced safety by taking highways on the eastern side of the state from two lanes to four lanes, and also one near the capital, Tolman said. “We expanded and did major highway improvements with Garvee. This program is intended to continue that.”
For instance, the state was able to fund two miles of a project on Highway 16 in the Boise area, the new funding will take the extension to Interstate 84, Tolman said.
“We are planning to modernize the road system in 13 corridors in the state,” Tolman said. “We are also rebuilding bridges that were built in the late 1960s and early 1970s.”
The deal has no financial advisor, but five law firms represent different aspects of the transaction: Skinner Fawcett as bond counsel; Richard Skinner, as counsel to the issuer; Orrick, Herrington & Sutcliffe, as underwriter’s counsel; Gilmore & Bell, P.C. as disclosure counsel and Richard Hart, the state’s deputy attorney general, as counsel to the transportation department.
The bonds received an AA-plus rating from Fitch Ratings and Aa1 rating from Moody’s Investors Service. Both assigned stable outlooks.
“The rating reflects the gross prospects for the revenue and resilience of the bond structure,” said Marie Coritsidis, a Fitch director. “We look at the ability to cover debt service. We capped it at one-notch below the triple-A it has for the underlying rating, because the Legislature has the ability to repeal it.”
Idaho also received ratings upgrades in recent months from both Fitch and Moody’s with the latter citing the state’s continued positive economic and demographic outlook, while the former pointed to its handling of a population boom, and governing that has resulted in robust reserves.
Fitch
The finance team was hoping to receive AA ratings on the new transportation bonds, so “that was a pleasant outcome,” Tolman said. “Idaho is growing really quickly. We have a really low unemployment rate and revenues coming into the general fund from sales tax collection did amazingly well when the rest of the country was shut down.”
Sales tax collection have increased by over 5% every year since 2015, Coritsidis said.
“The growth in sales tax, people moving to Idaho and the building boom have fueled a solid base,” Tolman said.
Idaho’s unemployment rate was 3% in January, compared to 3.8% for the nation, according to the U.S. Bureau of Labor Statistics.
Though Tolman is concerned about demand for the bonds with the redemptions seen from mutual funds this year, he’s not concerned about the Federal Reserve’s 25 basis-point
“We are anticipating that one,” Tolman said. “They have been discussing it for so long that I think it’s baked into the market discussion,” Tolman said.
“We think it’s going to be fine,” he said. “Clearly, the proof is in the pudding as to where we land, but we think the flight to quality and interest in this deal will provide a good result.”
