DALLAS — The Kansas Department of Transportation reduced its commercial liquidity exposure with Tuesday’s negotiated sale of $151.4 million of highway revenue refunding bonds.
The sale had been slated for Wednesday, but was moved up to Tuesday afternoon.
The bonds will be issued as variable-rate SIFMA index notes with maturities of Sept. 1 in 2013, 2014 and 2015.
The refunding bonds maturing in 2013 priced at SIFMA plus three basis points. The 2014 bonds priced at SIFMA plus 23 basis points, with the 2015 bonds set at SIFMA plus 30 basis points.
The tranches of $90.1 million, $38.2 million and $23.1 million will refund $150.9 million of unhedged variable-rate debt issued in 2008. Kansas DOT will have less than $1.1 million of unhedged variable-rate debt with the sale.
“We’re lowering our exposure to commercial liquidity,” said Kyle Malcom, management systems analyst at Kansas DOT. “The big advantages to this refunding are that we will no longer need commercial liquidity on the bonds, and we’ll eliminate the put risk to Kansas Department of Transportation.”
Kansas DOT will transfer the existing floating-to-fixed-rate interest rate swap agreements associated with the 2008 bonds to the new variable-rate bonds. Under the current agreement, Merrill Lynch Capital Services Inc. pays 71% of LIBOR and Kansas DOT pays a fixed rate of 3.359%.
The department has posted $34 million of collateral under its swap agreements.
The refunding bonds are not subject to redemption before maturity. Kansas DOT plans to support the debt with ongoing revenues, and currently has no plans to refund them at maturity.
The refunding bonds as well as Kansas DOT’s $1.67 billion of outstanding debt are rated AAA by Standard & Poor’s, Aa1 by Moody’s Investors Service, and AA-plus by Fitch.
Barclays is lead manager on the sale.
Public Financial Management Inc. is financial advisor to Kansas DOT. Gilmore & Bell PC is bond counsel.
The bonds are supported by the state highway fund, which includes motor fuel tax, a portion of state sales revenues and federal highway funding.
After the sale, Kansas DOT will have approximately $450 million of outstanding variable-rate bonds that are candidates for refunding, said Kent Olson, director of fiscal and asset management.
Kansas DOT is facing potential termination fees from liquidity agreements on variable-rate bonds issued in 2002 and 2004 of $140 million in 2013, $147 million in 2013, and $159 million in 2014.
Olson said Kansas DOT is considering a $170 million refunding sale in mid-September.
“We are looking at the various series and evaluating their refunding opportunities,” Olson said.
The current 10-year highway program, which will extend through 2020, includes $7.87 billion of projects financed in part with $1.5 billion of bonds.
The current financial schedule for the T-WORKS effort calls for a new money issue of $250 million of highway revenue bonds in late 2012, with annual sales thereafter of approximately $100 million.
The sales schedule may be modified as the work progresses, Olson said.
“We’ll evaluate our cash flow and other resources, and match that to our expenditures,” he said.
If federal funding for the 10-year program is reduced in the future, the state will reduce the scope of the capital effort rather than increase the bonding capacity or raise taxes.