Construction on the Illinois State Toll Highway Authority's Tri-State Tollway.
Construction on the Illinois State Toll Highway Authority's Tri-State Tollway. Illinois Tollway

CHICAGO – The Illinois State Toll Highway Authority plans $900 million of new money borrowing next year to help support a record $1.4 billion 2014 infrastructure program as the agency enters the third year of its 15-year, $12 billion capital plan.

The project work is included in the agency’s proposed budget for next year which was unveiled last month. About $1.1 billion of the capital budget will fund projects under the 15-year program known as Move Illinois. The tollway’s 2014 budget also provides $295 million to cover operations and maintenance.

“The 2014 budget provides for $1.4 billion in capital investments that will create an estimated 15,200 jobs and help stimulate the local and regional economies,” said the authority’s executive director, Kristi Lafleur. “This is the largest amount committed to infrastructure improvements in the agency’s history.”

The agency began borrowing for the 15-year program earlier this year with a $500 million new-money issue and plans to issue as much as $900 million in new bonds in 2014 to provide funding for new and future capital investments, said agency spokeswoman Wendy Abrams.

The authority operates 286 miles of interstate tollways in 12 counties in Northern Illinois. The new long-term capital program was approved by the tollway board in 2011 and work began last year.

Some of the projects planned in 2014 include continuing work to rebuild and widen an interstate, continuing construction on a new interchange, construction of the new Elgin O’Hare Western Access toll road that provides airport access, and systemwide roadway and bridge work and planning studies. 

The tollway is funding planning studies for the controversial proposal by Illinois and Indiana to build what’s known as the Illiana toll road. Chicago, Cook County, and several local planning agencies oppose the project but it recently won inclusion in the region’s long-term transportation plan, which paves the way for federal funding. The project is being overseen by the Illinois Department of Transportation.

Both states intend to use public-private partnerships to fund and build the road linking northwest Indiana to Illinois far south of Chicago. IDOT plans to issue a request for qualifications for potential bidders as soon as this week.

The tollway projects an increase in operating revenues of $29 million next year, bringing them across the billion-dollar mark to $1.015 billion. The majority will come from tolls and recovery fees with investment income and concessions also contributing to the pot.

Operating costs are up by 4% over the previous year due to rising wages, health care and pension costs and other expenses and initiatives. The agency said it is attempting to keep operating costs down through various management efficiencies that have generated one-time or multi-year savings totaling $63 million since 2010.

The tollway hopes to wrap up a refunding in the coming weeks.

“We refunded a portion of the 2005 bonds in July, but market conditions were not conducive to refunding all of the bonds we were authorized to refund,” Abrams said.  The original deal was set for $425 million but the agency only ending selling about half.

Goldman, Sachs & Co. and Jefferies are the senior managers on the refunding. Bank of America Merrill Lynch and Siebert Brandford Shank & Co. are co-seniors. No change to debt structure or maturity is anticipated as part of the refunding.

The agency also continues to eye the market to complete a long-planned conversion of $570 million of floating-rate bonds to a fixed-rate while eliminating associated swaps. The authority currently has nine interest rate swap agreements outstanding on $1.3 billion of debt. As of September 30, the authority’s swaps had a negative mark-to-market of $174 million, Moody’s said.

The agency has selected a finance team led by Citi and Barclays Capital to manage either the next new money or the floating-rate refunding, whichever comes first. No teams have been selected for future deals.

“We do not have a specific timeframe for other future deals,” Abrams said.

Move Illinois –approved in 2011 -- is aimed at reducing congestion and pollution, expanding the more than 50-year-old system, improving roads, and creating jobs and economic development in the region. The plan funds $8 billion for improvements to existing roads and $4 billion for new and expanded roadways.

To support the program, the board adopted a steep one-time 87% increase in passenger tolls that took effect last year and a 60% increase in commercial vehicle tolls that will be phased in and then adjusted annually based on inflation in 2018. The tollway saw a 39% jump in operating revenues in fiscal 2012 due to the toll increase, producing 2.86 time debt service coverage.

The agency carries ratings in the low-double-A category from all three rating agencies. The agency’s $4.4 billion of senior lien bonds are secured by a pledge and lien on the net revenues of the tollway system after operating expenses are paid.

In a report issued last week, Moody’s Investors Service affirmed the tollway’s Aa3 rating.

Analysts said the significant addition of $5.1 billion of debt to support both the capital program and provide $300 million in additional debt service reserve funding is a challenge but offset by other positive factors. They include approved toll increases; a demonstrated track record for delivering large, complex capital programs within budget and without significant traffic diversion, strong liquidity, and forecasted coverage ratios of more than two times.

Strong liquidity helps mitigate the tollway’s above average exposure to variable rate debt which represents 30% of its debt portfolio. Floating-rate securities are expected to drop to about 21% of the portfolio by 2015.

A key challenge is completing large and complex projects. Analysts also said traffic projections pose a risk as they could be impacted by the toll increases.

The tollway is projecting higher annual growth levels than it has averaged recently.

“The increase in leverage and the impact of cumulative toll increases may exert stresses on the authority that are difficult to measure at this time,” Moody’s wrote, noting that the toll authority saw a less severe drop than expected in passenger levels after the 2012 toll hike. Passenger traffic dropped 4.2%, though it had been projected to fall by 5.2%.

“While we note that there are risks to achieving forecasted traffic and revenue growth rates and executing the capital improvement program, the essential nature of this multi-asset system as a transportation provider for commuters and commercial traffic in the congested metro Chicago area is an important credit strength,” Moody’s wrote.

Gov. Pat Quinn holds significant sway over the agency’s leadership with control over board appointments. The tollway has some exposure to rising state pension funding costs but it stresses to investors that bond repayment is insulated from the state’s fiscal woes.  Even with little state exposure, most Illinois-based issuers still typically pay some interest rate penalty simply for their location in Illinois.

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