WASHINGTON — The Maryland Transportation Authority this week expects to price $299 million of revenue bonds for construction projects, the bulk of which will finance continuing construction of the InterCounty Connector.
The ICC is a 17.5-mile toll road that will create an east-west passage from Interstate 270 to Interstate 95, linking Montgomery and Prince George’s counties. Bad weather delayed some construction work on the ICC earlier this year, but rating analysts said the toll road is still scheduled to open late this year or early next year — within its scheduled timeframe.
The bonds are divided into two series. The $12 million of tax-exempt Series 2010A bonds are expected to price on Tuesday and $287 million of Series 2010B Build America Bonds are to price on Wednesday, said Peter Kessenich, an adviser with Public Financial Management in Atlanta, which is a financial adviser on the deal. He said the tax-exempt bonds will likely be sold to retail investors.
The tax-exempt bonds are scheduled to mature between 2015 and 2017. The taxable BABs are scheduled to mature in 2017 through 2020, 2030 and 2041. The bonds are rated Aa3 by Moody’s Investors Service, and AA-minus by Standard & Poor’s and Fitch Ratings.
Citi and Goldman, Sachs & Co. are the lead underwriters with Loop Capital Markets LLC, Merrill Lynch & Co., and M&T Securities Inc.
McKennon Shelton & Henn LLP is the bond counsel and Hawkins Delafield & Wood LLP is representing the underwriters. PFM and Davenport & Co. are providing financial advice.
The MdTA, Maryland’s second-largest issuer in 2009 after the state itself, is an independent agency with toll-setting authority. The MdTA collects tolls at seven facilities, six of which are pledged to bondholders, and its debt is separate from bonds issued by the state Department of Transportation. The Fort McHenry Tunnel on I-95 in Baltimore is the most traveled part of the MdTA system and accounted for the 30% of all toll revenues in fiscal 2009.
Toll revenues declined 1.0% from 2008 to 2009, but for the year through March, traffic was down 0.3% and revenues were up 13.3% compared to 2009, exceeding what MdTA had estimated in its fiscal 2010 budget, according to Moody’s.
The MdTA has plans to increase tolls systemwide by an average of 48% in 2012 and 23% in 2014 as part of their scheduled rate increases. Local governments have grumbled at some of the toll increases for the ICC. In November, the Montgomery County Council unanimously passed a non-binding vote against proposed toll increases on the ICC. At the time of the vote, officials said they would send a letter of protest to the state and ask that regular users of the ICC receive a discount on fares.
The protest was “a symbolic gesture,” said Maria Matesanz, the lead analyst on the credit for Moody’s. At this point the political objections to a toll increase do not affect the MdTA’s rating.
Bad weather this year set back the ICC’s first-stage opening from October to later in the year or early next year, said Adam Torres, the lead analyst on the credit for Standard & Poor’s. The MdTA’s rating could be pressured if the ICC’s opening is significantly delayed, but the MdTA’s fiscal forecast does not assume tolls will begin to be collected until late in fiscal 2011, which ends June 30, he said.
This creates “some cushion” for construction delays, Matesanz said. Additionally, lower material costs and construction bids have offset the marginal costs of construction delays, she said.
Estimating commuter demand for a startup toll road can be tricky, but Torres said the ICC’s route has “demonstrated to be a heavily traveled area.”
“We don’t believe it is a question of inducing demand, we believe the demand is there already,” he said.
The MdTA priced $549 million of bonds in December, including $450 million of BABs, mostly for the ICC project. The MdTA does not have additional bonds scheduled for this year, Kessenich said. The MdTA expects to issue $1.22 billion, including the current deal, through fiscal 2016, according to Standard & Poor’s.
