CHICAGO — The Missouri Highways and Transportation Commission enters the market beginning today with its second large financing in recent months as it sells $300 million of mostly taxable Build America Bonds, the final tranche of borrowing planned under a $2.2 billion road building program.
Banc of America Merrill Lynch is the senior manager and Morgan Stanley and JPMorgan are co-senior managers. Public Financial Management is as financial adviser to the MHTC. Missouri will take retail orders on a $50 million series of tax-exempt, third-lien state road bonds today and then open up the overall transaction, which includes $250 million of BABs, to institutional buyers on Wednesday.
The tax-exempt piece matures serially between 2017 and 2020 and the taxable piece carries serial maturities between 2021 and 2024 and a term bond in 2029. The commission’s finance team planned to decide late Monday on call provisions after reviewing initial pricing scales as to the value of forgoing a traditional municipal 10-year call in favor of offering investors a make-whole call provision.
The MHTC will apply for the federal government’s direct-pay interest subsidy under the BAB program. The commission, in its September sale of $600 million of grant anticipation bonds that included a good portion of BABS, opted for a make-whole call due to the greater savings.
Ahead of the sale of the third-lien bonds, all three rating agencies affirmed the credit on all four liens of the commission’s highway revenue bonds. Fitch Ratings rates the third lien AA-minus, Standard & Poor’s rates them AA-plus, and Moody’s Investors Service rates them Aa3.
Standard & Poor’s rates the other liens AAA. Fitch rates the senior and first liens AA-plus and the second lien AA. Moody’s rates the senior lien Aaa, the first lien Aa1, and the second lien Aa2. The commission has $666 million under its senior-lien 2000 indenture, $971 of issuance under the first lien, $517 million in the second lien, and nearly $60 million currently outstanding under the third lien.
“This is our final Amendment 3 issue to fund the Smoother, Safer, Sooner program,” said the MHTC’s chief financial officer, Roberta Broeker.
The commission launched its new legislatively approved road bond 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.
Officials originally intended to sell the final tranche using a floating-rate structure but shifted to a fixed rate due to the market turmoil and looming interest rate uncertainty.
“The commission preferred to go with a structure with fixed interest costs,” Broeker said. It also trimmed the size of the sale down from $360 million.
Though the economically sensitive revenue that goes to repay bonds have fallen, coverage levels remain strong and drive the strong ratings. Statewide collections of fuel taxes, motor vehicle license fees, driver licensing fees, vehicle inspection fees, and motor vehicle sales and use taxes are pledged to debt repayment.
Based on flat fiscal 2009 revenues, minimum senior-lien coverage is 8.6 times, first-lien coverage is 5.6 times, second-lien coverage is 4.7 times, and third-lien coverage, before application of the BAB subsidy, is 3.8 times, according to Moody’s.
“We believe the strength of Amendment 3 to the state constitution, which provides a reliable and substantial amount of additional pledged revenues, also supports the ratings,” said Standard & Poor’s analyst Corey Friedman.
The commission’s September Garvee sale funded its Safe and Sound Bridge program, which includes the 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 and those financings will tap the commission’s borrowing capacity until a new revenue stream is identified, Broeker said.