WASHINGTON - The Maryland Transportation Authority plans to issue $425 million of grant anticipation revenue vehicles in a competitive deal Wednesday, marking the second and final tranche of Garvees being used to finance the ongoing construction of the state's Intercounty Connector, a $2.4 billion, 18.8-mile toll-road project.
Public Financial Management Inc. and Davenport & Co. are financial advisers on the deal. McKennon Shelton & Henn LLP is bond counsel.
Standard & Poor's rates the issue AAA with a stable outlook. Fitch Ratings rates it AA and Moody's Investors Service assigned a Aa2.
Garvees typically are issued by state governments to finance the construction of transportation projects and are repaid with future federal transportation grant funds.
The authority's first Garvee deal came in May 2007 when it issued $325 million in a negotiated transaction that financed the initial construction costs of the ICC.
MdTA finance director Alison Williams said that because the Garvee issue was a new credit and the first of its kind in Maryland at that time, officials thought it would be best to enter the market in a negotiated sale.
"Now that we have a proven track record, and it's such a strong credit, we thought it was appropriate to go competitive," she said.
The issue's credit strengths also include an additional security pledge, Williams said. The Garvees are secured first by a senior lien on pledged federal highway funds, but are ultimately secured and rated based on an irrevocable pledge of state tax revenues from Maryland's transportation trust fund. The revenues include a portion of the corporate income tax, the fuel tax, the motor vehicle titling tax, and the sales and use taxes on rental vehicles.
"In terms of the structure of the Garvee bond issue, we do have a second subordinate pledge of certain state tax revenues from the state transportation trust fund," Williams said. "In addition to the standard federal aid pledge that you have in all Garvees, the Maryland issue has additional security, so that's a strength."
Standard & Poor's also attributed its AAA rating based on the MdTA's "strong and diverse statewide taxes that ultimately support the bonds."
"A diverse and broad-based economy that has outperformed the national economy in the past five years and should continue to grow in the near term, albeit at a reduced rate," also affects the rating, Standard & Poor's analyst Richard Marino said in the report.
Standard & Poor's called the MdTA's Garvee program "well structured," including high debt service coverage levels from obligated federal funds, a short bond amortization, and a funded debt service reserve fund."
The ICC will provide an east-west traffic link between I-270 in Montgomery County and I-95 in Prince George's County. The MdTA will own, operate, and maintain the project, and will have responsibility for setting the tolls.
Williams said the project is on track and that it is still expected to be completed by 2012.
The project is also being financed by $264 million from Maryland, $180 million from the Maryland Department of Transportation, and $1.2 billion of expected MdTA-issued toll revenue bonds.
Williams said the authority will likely begin issuing those bonds next summer, around June 30, the end of the state's fiscal 2009.
The MdTA was established in 1971 to construct, manage, operate, and improve the state's seven toll facilities, as well as to finance new revenue-producing projects. The net revenues generated by the transportation facilities will repay the bonds.
The facilities include a system of toll roads serving established high-volume travel markets, including Interstate 95 between Baltimore and the Maryland-Delaware state line; three bridges which cross the Chesapeake Bay near Annapolis, the Potomac River connecting Southern Maryland with Virginia, and the Baltimore harbor; and tunnels on I-95 and Interstate 895, which both cross Baltimore harbor. The ICC project will be the authority's eighth to control.
The MdTA last sold $573 million of Series 2008 transportation facilities projects revenue bonds to Merrill Lynch & Co. at a true interest cost of 4.929% on March 12. A portion of those proceeds also went to the ICC project.