DALLAS — With its first financing for a project in Fort Worth, the North Texas Tollway Authority is expanding its role as the major regional road builder as it faces new scrutiny over its business practices.
The authority’s $622 million of Series 2011D-F bonds are limited first-tier obligations of the NTTA, payable from revenues derived from the agency’s special projects system. The deal, expected to price next month, is the second special projects issue from the agency in 2011 and one of the largest in the state in a lean year for bonds.
JPMorgan leads the underwriting team with co-senior managers Barclays and Samuel A. Ramirez & Co. Co-managers are Bank of America Merrill Lynch, Jefferies & Co., and Rice Financial Products Co.
RBC Capital Markets serves as financial advisor and McCall, Parkhurst & Horton remains bond counsel, despite acrimonious debates about replacing them and other long-term “legacy contractors” to the NTTA.
The authority plans to issue its Series 2011D as tax-exempt current interest bonds, its Series 2011E as taxable current-interest bonds, and its Series 2011F as tax-exempt convertible capital-appreciation bonds.
The NTTA has indicated it may not issue its Series F bonds, which would cause the par amount on the Series D to increase, according to Standard & Poor’s. But officials expect the overall par amount for the combined series 2011 bonds to remain the same.
S&P rates the upcoming deal AA with a stable outlook based on support from what is termed a Toll Equity Loan Agreement between the authority and the Texas Department of Transportation.
Fitch Ratings, which normally does not rate NTTA bonds, provides a rating of AA-minus with stable outlook based on the TELA loan. Moody’s Investors Service’s rating is pending.
“While the authority expects that revenues from the special projects system will provide sufficient revenue to cover all of its obligations related to the project, our rating is based on the support provided by the TELA, which we view as an appropriation obligation of TxDOT,” wrote Standard & Poor’s credit analyst Horacio Aldrete-Sanchez.
The TELA was a key element in enabling the NTTA to take on the special projects. TxDOT had already started construction on one of the projects, State Highway 161, now known as the President George Bush Turnpike Western Extension, when the authority agreed to complete the project. The department will also work with the NTTA on interchanges for the Chisholm Trail Parkway project in Tarrant and Johnson counties.
Under the TELA with the authority, TxDOT agrees to make loan advances as needed to cover shortfalls for certain expenses. They include the first-tier special projects system bond debt service, the second-tier Transportation Infrastructure Finance and Innovation Act federal loan debt service, and certain operating, maintenance and capital expenses of the two projects through final maturity.
The special projects system was created for new tollways in western Dallas County and the Fort Worth area, including Tarrant and Johnson counties. That system provides a revenue stream backing debt that is separate from the NTTA’s existing toll system in Dallas, Collin and Denton counties. The separation of the two systems was designed to preserve the authority’s credit ratings on its outstanding debt while allowing it to build new tollways.
Unlike the agency’s other toll projects reaching northward to Dallas suburbs through undeveloped land, the special projects traverse well-established routes through heavily trafficked urban areas.
The NTTA issued $673 million of long-term revenue bonds last spring for the Bush Turnpike Western Extension. That tollway travels north-south through western Dallas County and will connect the President George Bush Turnpike with U.S. 183, and Interstates 30 and 20 to the south.
The Chisholm Trail Parkway is a 27.6-mile toll road that will extend from the Fort Worth central business district south to Cleburne, relieving congestion on major thoroughfares, including Interstate 35W.
Financial partners on the project include the North Central Texas Council of Governments, Tarrant and Johnson counties, the cities of Burleson, Cleburne, and Fort Worth, the Fort Worth Transportation Authority and the Union Pacific Railroad. The entire project is expected to open to traffic by mid-2014.
In addition to expanding into Fort Worth, the NTTA is now headed by a former mayor of that city, the second board chairman from Tarrant County. Chairman Kenneth Barr took over from Victor Vandergriff of Arlington last month.
The board’s transition coincided with the resignation of another executive director who lost the confidence of the board. Allen Clemson resigned last week after two years on the job, saying he expected to be fired. Clemson was the NTTA’s fifth executive director in five years.
Vandergriff had postponed a performance review for Clemson during the summer but told the Dallas Morning News that he realized that he himself lacked the board’s support for a second term as chairman. Barr had been sharply critical of Clemson, who, along with Vandergriff, was a strong advocate of overturning the “legacy” system of contracting and opening it up to new bidders.
Barr, whose brother works for one of the contractors, the law firm Locke Lord, has denied any conflict of interest because his brother practices an unrelated legal specialty and is not a partner in the firm.
“My brother has never done anything related to NTTA and not benefited in any way,” Barr told the Fort Worth Star-Telegram.
For financial advisor RBC and bond counsel McCall Parkhurst, a change in the contracting system could be costly. The two firms have worked for years with the NTTA as it issued $7 billion of long-term debt to build the system.
The legacy contractors are expected to face strong scrutiny in a report on the agency prepared by the counties in its service area that will be submitted to the board Tuesday.
Some elected leaders believe that the authority should face the kind of periodic sunset review that other agencies, including TxDOT, undergo. The NTTA is a state agency but manages its own finances. It expects to have $9 billion in outstanding debt in the next couple of years.
