N.Y. State Thruway Authority will make a $2.65 billion mark on the primary

The New York State Thruway Authority will sell its first big bond deal since getting a Moody’s Investors Service upgrade.

The NYSTA is scheduled to hold a $2.65 billion transaction next week comprised of $950 million of federally taxable Series M general revenue bonds and $1.7 billion of general revenue Series 2019B junior indebtedness obligations.

The deal comes nine months after Moody’s Investors Service upgraded the authority’s senior revenue bonds to A1 from A2 and junior revenue bonds to A2 from A3 citing a low debt burden after finishing the replacement of the Tappan Zee Bridge. The forthcoming Series M carries Moody's A1 rating and 2019B the A2 rating. S&P Global Ratings rates the Series M and 2019 B bonds one notch lower than Moody’s at A and A-minus, respectively.

The authority, which is responsible for overseeing and maintaining the 570-mile New York State Thruway system, has sold around $12 billion of debt during the past decade. The authority last went to market with a competitive offering of $1.6 billion in Series 2019A general revenue junior indebtedness obligation anticipation notes in April that Moody’s assigned a MIG1 short-term rating. The notes were issued to provide takeout financing of the authority's Series 2013A JIO bonds that matured on May 1, 2019.

Proceeds from the taxable Series M bonds will refund a portion of its outstanding senior lien bonds.

Goldman Sachs is leading the $1.7 billion Series 2019B transaction with Citi and Loop Capital Markets as lead managers for the $950 million taxable sale. PRAG and Acacia Financial Group are municipal advisors on both deals. Hawkins Delafield & Wood is bond counsel for the two transactions.

Moody’s analyst Myra Shankin wrote Wednesday that the A1 senior lien ratings are based on the thruway authority’s role as an “essential” statewide toll system and the agency’s policy of maintaining debt service coverage ratios above bond resolution requirements through toll increases or other revenue adjustments as needed by 2022. Moody's assigns a stable outlook to the authority.

“The stable rating outlook is based on our expectation that the authority will implement the necessary measures to maintain bond ordinance DSCRs at a minimum of 1.55x for senior bonds and 1.35x for aggregate debt service by 2022 as annual debt service ramps up,” Shankin wrote. “The outlook also assumes that traffic growth will continue in line with the forecast of an average of 1% a year, and that the authority will maintain sound financial operations and maintain the rest of the system in good working condition.”

Shankin cautioned that the NYSTA’s credit strengths are offset by the lack of a clear public tolling policy to pay for “steeply escalating” debt service for the new bridge and other essential thruway capital projects along with challenges maintaining system assets in a good state of repair. The NYSTA has received New York State grants totaling $1.99 billion, which Shankin noted will help combat its expected looming leverage and delay implementing toll rate increases. After the majority of the grant money is drawn down this year, the authority will require debt issuance and excess cash flow to maintain assets as part of a revised $2.78 billion five-year capital improvement plan, according to Shankin.

Toll revenues totaled $736.5 million from 266 million transactions last year marking a slight 0.7% increase from 2017. The authority’s toll models project an additional $53 million of revenue needed by 2022 and before rising to $149 million in 2024. No proposals for toll rate increases or implementation dates have been set yet.

“The uncertain time frame for toll adjustments raises risks to bondholders that toll rates may not be adjusted in time,” Shankin wrote. “Without a toll adjustment, coverage could drop below 1.0x on a Moody's net revenue basis in 2023 in a scenario based on historical revenue and expense trends.”