Idaho is the midst of a $857 million Garvee bond-funded transportation project.

LOS ANGELES — The Idaho Housing and Finance Association plans to price the final $82 million of a multi-year series totaling $857 million in grant anticipation revenue vehicle bonds on Jan. 14, amid concern that the Highway Trust Fund that provides subsidies might be unsustainable.

Fitch Ratings expressed concerns about how uncertainty in the federal transportation programs might affect the bonds, but affirmed its' A-plus rating on the Idaho Transportation Department's $584.6 million in outstanding Garvee bonds. The rating agency also gave the planned issuance an A-plus rating.

Idaho officials said they have taken steps to lower the risk for purchasers the state's Garvees. The issuance will be the final and seventh series of bonds totaling $857 million issued starting in 2005 to pay for the state's massive highway improvement program underway in six transportation corridors.

"We have looked at and modeled the bonds based on what would happen if the federal trust fund were to change drastically," said Dave Tollman, the Idaho Transportation Department controller. "Everyone knows the fund has been subsidized by funding from the [federal government's} general fund for the last five or six years."

Historically, the Highway Trust Fund had allocated revenue from federal gas taxes to states to pay for roads and transportation projects across the country.

Revenues received from federal gas taxes have been declining for years as cars become more fuel efficient and vehicles powered by alternative fuels gain in popularity, a trend expected to continue into the future.

Enacted in 2012, the Moving Ahead for Progress in the 21st Century (MAP-21) Act makes up the shortfall in the Highway Trust Fund with transfers from the general fund. The current authorization relies on an $18.8 billion transfer from the general fund, but only runs through the end of fiscal year 2014 on Sept. 30, according to a Fitch Ratings report.

In Fitch's view, "the unsustainable trajectory of the HTF may lead to policy changes that could affect bondholders."

Tollman said he thinks Congress will replace the subsidy with something else in the coming fiscal year. It would be "politically difficult" for Congress not to replace it with a different kind of funding given the impact it would have on the nation's highways, he said.

The bonds are structured in such a way that bond payments will be made either way.

The trust indenture's additional bonds test limits annual debt service to 30% of annual apportionments expected to be received, allowing ITD to retain sufficient flexibility even when outlays from the highway trust fund are cut to match projected gas tax receipts, Fitch analysts said.

Tollman said IFHA has "modeled it so that if Idaho had to live within the amounts accrued through gas tax receipts, we would still be within the additional bond test limits."

The debt service coverage levels are set at a 4.5 times ratio to the debt, Tollman said.

Debt service also gets first dibs on transportation funding allocated by the state. So if the federal funds didn't come through, the debt service would still be paid, but it would harm the transportation department, Tollman said.

Citigroup is the lead underwriter of the 15-member syndicate pricing the bonds. Other members of the finance team include Ballard Spahr as bond counsel, Skinner Fawcett as co-bond counsel. IHFA acts as the conduit issuer and financial advisor.

The bonds are paying for improvements to two corridors of U.S. 95 in the northern part of the state near the Canadian border; state highway 16 in the Boise suburbs; two corridors on I-84, one on the east side of Boise and the other on the west side of the capitol city; and U.S. Highway 30, a major trucking route from McCammon to Soda Springs. All of the projects are expected to be finished by Fall 2015.

"The program has been successful," Sager said. "You can see the improvements around the state. It's eased traffic congestion."

The state's transportation department has managed costs well reducing the originally anticipated cost of $989 million by $132 million, Sager said.

The bonds are expected to do well, because Idaho bonds always seem to attract a good order book on holiday issues, he said.

In 2012, IHFA issued $38 million in one to 18-year maturities with a premium coupon structure of .25% yields for the one years and 3.26% yields for the 18-year maturities.

They are anticipating the bonds will price a little higher based on changes in the market, Sager said.

"I still expect there will be good, strong interest in the bonds," Sager said. "There are not a lot of Idaho names to choose from because the state is debt averse, so it's a good way to participate if you want Idaho bonds."

In the past, the bonds have attracted a good mix of institutional and retail investors, he said.

"There are a lot of retail municipal bond buyers in Idaho and they like Idaho names," he said.

IFHA plans to sell the bonds to both retail and institutional investors on Jan. 14.

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