CHICAGO — The Illinois State Toll Highway Authority plans in early to mid-June to sell $400 million of refunding bonds as it moves to shift a chunk of synthetic floating-to-fixed-rate debt to a traditional fixed-rate structure to reduce bank and liquidity risks.
Bank of America Merrill Lynch and Siebert Brandford Shank & Co. are joint book-running senior managers. Morgan Stanley and William Blair & Co. are co-senior managers. First Southwest Co. is financial adviser and PFM Asset Management LLC is swap adviser.
The deal could sell as early as June 10, but may be pushed into the following week depending on the release of updated ratings. Moody’s Investors Service on Friday affirmed the Aa3 rating on the transaction and the authority’s $4 billion of debt. The rating did not change in Moody’s recent recalibration of municipal ratings.
“The rating reflects the authority’s status as an essential component of the Chicago area’s transportation network, a long history of strong debt-service coverage and operating reserve levels, on-budget and on-schedule capital plan implementation, as well as increased revenue concentration in commercial traffic,” analysts wrote.
The upcoming sale will refund outstanding 2008 variable-rate bonds that carry a standby bond purchase agreement from Dexia in order to reduce the agency’s exposure to synthetic fixed-rate risks. It will use bond proceeds or cash on hand to cover swap termination costs.
The tollway has 10 floating-to-fixed interest rate swap agreements on $1.6 billion of debt that carried a negative valuation of $117 million at the end of April. The refunding will reduce that number to eight. The refunding will lower the level of variable-rate bonds that make up the debt portfolio to 30% from 39%.
The authority is planning to refund another chunk of variable-rate bonds later this year under a prior authorization by its board for the issuance of up to $850 million in refunding debt, tollway officials said.
The late last year it wrapped up borrowing for its six-year-old $6 billion rebuilding and expansion of the 286-mile Chicago-area toll highway system. A proposed $1.8 billion second phase to the capital program, which calls for the construction of car pool or “green lanes” and other projects, was put on hold following accusations in court documents that former Gov. Rod Blagojevich used the program to shake down contractors for contributions. The authority had intended to issue junior-lien bonds to finance the program. New tollway leaders appointed by Gov. Pat Quinn are reviewing the system’s future capital needs and financing options.