Illinois Toll Authority Readies Refunding

CHICAGO - The Illinois State Toll Highway Authority returns to the market Tuesday with a $270 million senior lien revenue bond sale for savings.

The authority will refund 2006 toll revenue backed bonds for expected savings of about $24 million in years 2018 through 2025, the authority's debt manager, William O'Connell, said in an investor presentation attached to the preliminary offering statement.

Siebert Brandford Shank & Co LLC and RBC Capital Markets are co-senior managers with another seven firms rounding out the syndicate. Public Financial Management Inc. and A.C. Advisory Inc. are advising the authority and Katten Muchin Rosenman LLP is bond counsel.

The agency was last in the market in October to raise $400 million of new money to finance its ongoing $12 billion, 15-year capital program launched in 2012 to expand and upgrade the 286-mile system. The plan relies on $5 billion of borrowing. The authority recently adopted a $1.6 billion in capital spending for 2015.

Ahead of the sale, Moody's Investors Service affirmed the tollway's senior-lien Aa3 rating and stable outlook that applies to about $5 billion of debt. Fitch Ratings and Standard & Poor's affirmed the authority's AA-minus rating and stable outlook.

"The ratings reflect our view of the system's essentiality and strong financial risk profile," said Standard & Poor's analyst Adam Torres.

The ISTHA bonds are secured by toll revenues and the authority's pledges in bond covenants to charge a rate sufficient to repay debt, fund reserves and maintain a targeted debt-service coverage ratio.

The capital program relies on the issuance of around $1.7 billion between 2015 and 2016, and $2 billion tentatively through 2022. The remaining cost of the program is paid with toll revenues on a pay-as-you-go basis. Projects planned in 2015 include the ongoing rebuilding of Interstate 90 and ongoing work on a western access to O'Hare International Airport.

The ISTHA projects an increase in revenues to $1.17 billion, almost all from tolls, next year from $1.02 billion this year, primarily due to a truck toll-rate increase previously approved by the authority board in 2008. About $300 million of toll revenues cover operations.

To support the agency's capital program, its board adopted a one-time 87% increase in passenger tolls that took effect in 2012 and a 60% increase in commercial vehicle tolls that will be phased in and then adjusted annually based on inflation in 2018.

Rating agencies have described the authority's significant addition of debt to support both the capital program and additional debt-service reserve funding as a challenge, along with managing a big capital program and its high floating-rate and swap exposure.

The forecasted traffic growth rate is also higher than historic growth over the last decade, and if projected growth fails to come to fruition, ISTHA's ability to meet projected debt-service coverage ratios could be pressured.

Positive factors include rapid debt amortization, forecasted over two times debt-service coverage ratios including all planned debt, maintenance of strong liquidity levels, and slightly better than forecasted financial results for fiscal 2013, according to Moody's analysts.

The authority enjoys strong liquidity that helps mitigate above-average exposure to variable-rate debt. The agency in 2013 had $812 million of cash on hand. All of the authority's floating-rate securities are swapped to a fixed rate under nine swap agreements with seven counterparties. The agency has no collateral posting requirements.

The authority has nine liquidity or credit providers on its floating rate bond portfolio. The bonds are swapped to a synthetic fixed-rate under nine swap agreements with seven counterparties. The swaps had a negative $208 million valuation as of September.

The new money sale priced with 5% coupons ranging in yield from 2.82% in 2027 to 3.53% in 2039. The generic, triple-A general obligation bond in 2039 yielded 2.89% at the time of the pricing, according to Municipal Market Data.

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Transportation industry Illinois
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