CHICAGO — The Illinois State Toll Highway Authority tomorrow enters the market with its second Build America Bond sale of the year — a $280 million revenue bond issue that marks the final borrowing needed for the agency’s five-year-old $6 billion rebuilding and expansion of the Chicago-area toll highway system.
The tollway expects to sell all of the bonds in a 2034 maturity under the Build America Bond program. “The bullet maturity fits nicely around our existing debt portfolio,” said the authority’s finance chief Michael Colsch.
The authority would apply for the federal government’s direct-pay interest subsidy. The offering statement leaves open the option of issuing some or all of the bonds as tax-exempt. The finance team plans to decide today on call features depending on preliminary pricing figures today.
The tollway in May sold $500 million of BABs with a 15-year maturity for $100 million offering a traditional 10-year municipal call and a $400 million 25-year term bond with a make-whole call. The authority saved $6.1 million on the $100 million series and $53.7 million on the $400 million in present value savings by using the BAB program over a tax-exempt structure, officials said.
JPMorgan and Loop Capital Markets LLC are senior managers on the new sale. The issue marks the end of new-money borrowing needed for the $6 billion program, but Colsch said the agency expects next year to restructure at least half of its $1.46 billion of synthetically fixed variable-rate bonds into a fixed-rate. That move would ease rating agency concerns over bank and liquidity risks that could drive up debt service costs.
The tollway has a total of $3.8 billion of debt, including $3.4 billion sold to fund the $6 billion program to rebuild and expand the 286-mile tollway system and shift to open-road tolling with an electronic system to relieve congestion at tollbooths. Net toll and other revenues of the system secure the bonds.
Ahead of the sale, Fitch Ratings affirmed its AA-minus and negative outlook while Standard & Poor’s affirmed its AA-minus and stable outlook and Moody’s Investors Service affirmed its Aa3 and stable outlook. “The ratings reflect the tollway system’s size, essentiality, and strong financial profile,” Standard & Poor’s analyst Mary Ellen Wriedt wrote.
Fitch attributed its decision earlier this year to assign a negative outlook to concerns over the possible weakening of two-times debt service coverage levels “should toll transactions and revenues not meet relatively steep recovery rates reaching 20% above current levels over the next three years following the substantial completion of capacity enhancement projects.”
Moody’s described the system’s essential nature to the Chicago region’s transportation network, healthy coverage levels and good management as credit strengths while the authority is challenged by a high reliance on commercial traffic and strong traffic growth requirement to maintain coverage levels.
Debt service rises rapidly from $167 million in 2009 to more than $264 million in 2013. Toll revenues were up nearly 1% for the year as of September. Current traffic growth estimates forecast a 4.23% increase between 2009 and 2016 and revenue growth of 4.48%.
The authority’s 2010 $696 million budget includes $265 million for operations and $231 million for debt service. Bond proceeds and capital reserves will fund $341 million in capital projects.
The capital program — which is on time and on budget — has generally won favorable reviews, but the tollway has come under scrutiny from lawmakers and federal authorities for some of the contracts awarded, including ones given to contributors to indicted former Gov. Rod Blagojevich’s campaign coffers.
A proposed $1.8 billion second phase to the capital program that calls for the construction of car pool or “green lanes” and other projects was put on hold after accusations in court documents that the former governor used the program to shake down contractors for contributions. The authority had intended to issue junior-lien bonds to finance the program.
