CHICAGO - With an upgrade in hand, the Missouri Highways and Transportation Commission heads into the market next week with $600 million of Garvees and will return next month with $300 million of road bonds that mark the final installment of borrowing under a $2 billion construction program.
The MHTC will hold a retail order period next Tuesday on the grant anticipation revenue vehicle bonds and then open the sale up to institutional buyers on Wednesday, said the agency's chief financial officer, Roberta Broeker.
Banc of America Securities-Merrill Lynch is running the books. Morgan Stanley and Stifel Nicolaus & Co. are serving as co-senior managers. Public Financial Management Inc. is financial adviser, Gilmore and Bell PC is bond counsel and Bryan Cave LLP is underwriters' counsel.
The bonds, which are secured by future federal highway aid reimbursements, carry a final 24-year maturity, covering four cycles of federal multi-year transportation spending reauthorization. The current law, known as SAFETEA-LU, expires at the end of the month but the Senate is expected to vote soon on a bill that would extend it for 18 months.
The extension would give Congress more time to develop a new multi-year bill and decide on a new revenue source to fund federal programs. Transportation leaders in the House oppose extending the current law but the Obama administration is backing the extension.
Although such a lengthy term is unusual for Garvee issues, the commission's bonds are further secured by a subordinate pledge of state transportation funds. About $258 million of the earlier maturities will sell in a tax-exempt series and $342 million of later maturities in a taxable series under the Build America Bond program. The MHTC will apply for the federal government's direct-pay subsidy.
"We expect savings of about $40 million by using the BAB program" over an all traditional tax-exempt structure, Broeker said.
The commission opted for a traditional municipal 10-year call on the bonds over the make-whole redemption feature many of the larger BAB transactions have carried.
"The commission members really wanted to preserve flexibility and their future options," Broeker added.
Proceeds of the sale will fund the state's Safe and Sound Bridge program now underway that includes the upgrading or reconstruction of 802 bridges over the next five years. Another $185 million of Garvee debt is expected to be sold next year including $100 million for the bridge program and $85 million to fund the state's share of a new bridge span across the Mississippi River.
The commission had originally intended to fund the Safe and Sound Bridge program with a first-of-its-kind plan for debt under a $15 billion federal pilot program. The four-year-old program allows private companies to benefit from the issuance of private-activity bonds to finance construction of transportation projects and rail-to-truck freight facilities.
The worsening credit crunch last year sapped any potential financial benefits of using the program as the costs for the contractor to raise its private-equity contribution rose. That in turn would have driven up the state's costs, and officials last September decided to finance the plan through Garvees.
Standard & Poor's upgraded the credit to AA-plus from the AA that was previously assigned to the commission's $150 million of Garvees issued last fall.
"The raised rating reflects our opinion of the credit strengths of a state grant anticipation revenue vehicle program with high debt service coverage, a strong subordinate backup pledge of dedicated state transportation funds, and sound legal provisions," analyst Robert Hannay wrote.
Fitch Ratings affirmed its AA-minus and Moody's Investors Service affirmed its Aa2. The credit's strengths include the first-lien pledge of federal highway aid not subject to a state appropriation and strong coverage ratios of 16.6 times between state and federal funds, Moody's wrote, noting that the state transportation funds are first pledged to repayment of the state's senior-lien road bonds.
The credit's challenges include the unusually long Garvee term, federal reauthorization risk, and uncertainty over the future strength of the Federal Highway Trust Fund that has experienced shortfalls requiring congressional action over the last two years ,including the transfer of $7 billion last month, and a slowdown in state motor fuel and vehicle sales tax collections that flow into the fund.
Missouri next month will sell about $300 million of road bonds in a fixed-rate deal that was pared down and its structure shifted due to the recession and market turmoil. The deal team has not yet been named, Broeker said.
The MHTC began a new legislatively approved borrowing program in 2000. It expanded the program after voters in November 2004 approved a constitutional amendment to accelerate state road projects by ending the diversion of some road-related taxes to the general fund.
The commission issued more than $350 million under the new borrowing capacity in 2005, then $800 million in 2006 followed by $550 million in 2007. It intended to sell about $360 million of variable-rate bonds to complete financing for the $2 billion construction program this year.
"The commission preferred to go with a structure with fixed interest costs and we are issuing less because of a drop in revenues since we first sized the entire program," Broeker said.
Sales taxes on motor vehicles, motor vehicle use taxes, motor fuel tax revenues, and various license fees secure the bonds. Roughly 35% of those revenues go to pay debt service. Revenue collections had been steady but they fell last year by 6.6% with another drop of 2.8% expected in the current fiscal year.
Motor fuels taxes, which makeup more than half of state transportation funds, dropped 4% last year while vehicle and driver's license fees fell by 2.7%, and motor vehicle sales and use taxes declined 9.6%. A slight increase in fuel taxes and license fees is expected this year while vehicle sales are projected to slightly decrease, Moody's wrote.
Audrey Dutton contributed to this story.