DALLAS - The Grand Parkway Transportation Corp. is preparing to issue more than $946 million of debt for its planned 184-mile tollway.
In addition to $733 million of bond anticipation notes pricing the week of Feb. 3, the corporation is privately placing $107.5 million of taxable and $106.8 million of tax-exempt variable-rate debt with Bank of America Merrill Lynch & Co.
The corporation, created and operated by the Texas Department of Transportation, issued about $2.9 billion of bonds in 2013, making it the state's largest deal of the year and one of the largest in the state's history.
The new debt will take out about $973 million of those 2013 bonds, which launched financing for the Grand Parkway, which is planned as a beltway looping around metropolitan Houston.
So far one mile is open to traffic with 55 miles under construction contract.
The debt being taken out includes the $836.4 million Series 2013C, an interim construction financing with a Feb. 15 mandatory tender, according to the official statement for the 2013 bonds.
In anticipation of this year's deal, the corporation is preparing to close on a Transportation Infrastructure Finance and Innovation Act (TIFIA) loan from the federal government of approximately $841 million.
The corporation plans to refund all of the BANs and the taxable portion of the private placement in 2016, said James Bass, chief financial officer and interim executive director for TxDOT.
The expectation is that TIFIA loan proceeds will be used to take out the new BAN and private placement; if the TIFIA loan isn't available, Grand Parkway Transportation Corp. would issue bonds to take out the notes and taxable bonds.
Goldman Sachs & Co. is senior manager on the BANs deal with seven co-managers. Goldman managing director Greg Carey is lead banker with vice president Collin Teague.
Estrada Hinojosa & Co. managing director Paul Jack is financial advisor, while McCall, Parkhurst & Horton serves as bond counsel.
Benjamin Asher, TxDOT's officer for innovative financing and debt management, said the direct placements' rates would be tied to Libor, the London Interbank Offered Rate.
"We're always concerned about our borrowing costs, but I don't think we're susceptible to changes in market conditions over the next two weeks," Asher said.
Asher said he expects the TIFIA loan to close in early February, with rates tied to the 30-year Treasury bond rate.
Fitch Ratings assigned a BBB-plus rating to the TIFIA loan with a stable outlook. The federal government requires at least one rating to secure TIFIA financing.
Standard & Poor's conferred its top SP1-plus rating to the BANs and rated the direct-placement debt AA-plus based on a loan guarantee from TxDOT known as a "toll equity loan agreement" (TELA). The outlook is stable.
"The ratings reflect our view of the low market risk related to the take out of the notes and the support provided by future TELA-supported bonds," said Standard & Poor's credit analyst Kate Choban. S&P is the only agency rating the BANs and direct-placement debt.
Under the TELA, TxDOT backs project costs from the State Highway Fund, also known as "Fund 6." The maximum amount that can be loaned under the TELA is capped at $9.6 billion.
The State Highway Fund is forecast to receive about $8.4 billion in fiscal year 2014, which ends Aug. 31, 2014.
"We believe that the amount available for advances for all of TxDOT's obligations under its various TELAs is significant, at $3.4 billion in fiscal 2014," Choban said.
On a year-to-year basis, TxDOT projects that the current TELA maximum annual available commitments will remain at less than 10% of State Highway Fund's available revenue, Choban said.
"The amount of projected available revenues can be reduced, particularly if TxDOT expands its toll equity program or its commitment under other obligations that are senior to the TELA," she said. "A significant reduction in the amount available to support TxDOT's commitments under the TELA could lead us to lower our ratings on the various TELA-supported bonds, including the Grand Parkway Project bonds."
The Grand Parkway System has $200 million of first-tier toll revenue bonds and about $2.7 billion of subordinate series TELA-backed toll revenue bonds outstanding, according to Fitch.
"Debt is fixed-rate and fully amortizing, but heavily back-loaded," Fitch analyst Jeffrey Lack said in the ratings report for the TIFIA loan.
"First-tier debt will benefit from a cash-funded debt service reserve fund and a $100 million rate stabilization fund."
About a mile of the Grand Parkway's segments D and E opened to traffic on Dec. 21. No data on traffic volumes is available, according to Fitch. Tolls will not be charged on the open segment until Feb. 1.
"There is no operational history," Lack said. "However, the Houston metropolitan statistical area has historically experienced strong demographic and economic growth, which is expected to continue. Traffic is expected to be about 95% passenger vehicle and subject to competition."
The GPTC was created by the Texas Transportation Commission in 2012 to finance the outer beltway around Houston.
Texas Department of Transportation interim executive director James Bass serves as president of the GPTC, with other TxDOT executives as officers of the corporation. Asher serves as secretary-treasurer. The board members are unpaid, and the nonprofit corporation has no staff.
The initial financing of the parkway included five series of bonds, four of which were backed by the TELA.
The TELA guarantee was originally created to help the North Texas Tollway Authority finance $1.3 billion of projects in 2011 when insurance for toll revenue bonds was becoming increasingly scarce and NTTA expected a ratings downgrade if it took on more debt.
The Grand Parkway includes a large area where development has yet to occur. The Harris County Toll Road Authority, the major toll developer in the Houston area, opted out of the Grand Parkway project, leaving it to suburban authorities and TxDOT.
In October, TxDOT awarded 37 miles of Grand Parkway segments to Zachry-Odebrecht Parkway Builders. The project includes more than 50 bridges, frontage roads and drainage, as well as utility infrastructure.
Zachry-Odebrecht is one of three design-build joint ventures working on the $6 billion project.
Though some critics questioned the viability of the parkway, studies indicate potential for growing revenues, starting with a base toll rate of 40 cents per mile, according to last year's preliminary official statement.
Annual toll revenue is expected to be about $46.3 million in 2016, rising to $415.1 million by 2035 and $922.1 million in 2054.
The project to be financed includes about 55 miles of construction in Harris and Montgomery counties. Suburban governments have formed coalitions to help plan development around the corridor.
"We think that the Grand Parkway System is a strong credit," Asher said. "This interim financing gives investors another chance to participate, and we believe it will provide an optimal cost for the entire project."
