DALLAS - After winning a positive response from the market with a $125 million deal last month, the North Texas Tollway Authority is ready to continue its record year in debt issuance by pricing $1 billion of second-tier revenue bonds this week.
Thursday's negotiated deal, led by Lehman Brothers, comes two months after it was postponed due to unfavorable market conditions.
However, the NTTA did issue $125 million of refunding bonds June 26 through a syndicate led by Citi. Those bonds were oversubscribed by $50 million, according to NTTA spokeswoman Sherita Coffelt.
That 2008G series was structured with a fixed rate of 4.375% to Jan. 1, 2010. The coupon was 5%.
Of critical importance to the authority is maintaining a senior-lien credit rating in the A-category as it finances the $5 billion State Highway 121 project with an eye toward several other toll roads in the Dallas-Fort Worth area. While the NTTA's first-tier revenue bonds retain ratings of A-minus from Standard & Poor's and A2 from Moody's Investors Service, the upcoming second-tier issue of fixed-rate bonds is rated BBB-plus by Standard & Poor's and A3 by Moody's. The bonds are not expected to be insured and will feature a final maturity in 2038.
Fitch Ratings was asked to withdraw its ratings after the agency downgraded the NTTA's first-tier revenue bonds to BBB-plus from A-minus on Feb. 27.
"The ratings on the authority reflect the significant additional debt that NTTA is incurring, the likelihood of additional debt-financed projects, and an increased reliance on higher growth levels to support good senior and subordinate lien projected debt service coverage under moderate downside stress scenarios," Standard & Poor's explained in a ratings report last month.
The debt for SH 121 will triple the agency's debt load. After this week's issue, the NTTA will have about $5 billion in outstanding debt, and the authority is contemplating bidding for the $1.1 billion State Highway 161 project that is already under construction west of Dallas. SH 121 north of Dallas would feed traffic to SH 161 en route to the new Dallas Cowboys stadium under construction in the suburb of Arlington. The NTTA and TxDOT earlier this year agreed to value the toll concession on SH 161 at $458 million.
In addition to SH 121, the NTTA is planning a $1 billion extension of the President George Bush Turnpike, developing plans for the $944 million Southwest Parkway in Fort Worth and considering plans to build a tollway inside the eastern levee of the Trinity River in downtown Dallas.
In bidding for the SH 121 last year, the NTTA premised its financing on its ability to maintain a rating in the A-category. Competing private bidder Cintra/JPMorgan did not need such conditions. "We're used to playing on a muddy field," Cintra U.S. director Jose Lopez de Fuentes said.
This week's Series F bonds are second-tier revenue bonds, ranking lower than the $2.4 billion, first-tier, Series A bonds issued in March. The NTTA is also expected to issue about $948 million in first-tier variable-rate demand bonds after this week's issue. All three issues take out bond anticipation notes issued last year for a payment to the North Texas Regional Transportation Council for the right to build SH 121.
The concession system is a new way of funding toll roads under SB 792 passed by the legislature in 2007.
All of the NTTA's bonds are secured by net toll system revenues, so that if one project's revenues come in lower than projected, the authority can raise tolls system wide to support bonds for that project. The rate covenant in the agency's April 1 amended trust agreement requires revenues 1.35 times coverage of first tier debt service, 1.2 times coverage of second tier debt service, and 1.0 times coverage on all outstanding obligations.
NTTA officials and financial adviser RBC Capital Markets have faced intense pressure and deadlines in coming up with the financing plan over the past year after being asked to bid on the project in March 2007. Since August, 2007, the turbulent financial markets have played havoc with scheduling deals. Adding to the uncertainty is the weakening economy in the Dallas-Fort Worth area, particularly in Dallas' rapidly growing far-north suburbs served by NTTA.
