DALLAS — In one of the largest refundings in its recent history, the North Texas Tollway Authority aims to reduce its maximum annual debt service by $80 million through the issuance of $871 million of second-tier toll revenue bonds.
The bonds are scheduled to price through negotiation with book-runner JPMorgan Chase on April 8, according to NTTA chief financial officer Horatio Porter.
"It's a big deal," Porter said. "We're looking to capitalize on some savings with this interest rate environment."
The toll authority is looking for net present value savings of 7%, but a November refunding of $463 million of first-tier bonds easily exceeded that, producing NPV savings of nearly 11%.
The bonds coming to market April 8 are second-tier revenue bonds, which carry ratings a notch lower than the first-tier. NTTA has more than $1 billion of second-tier and $6.3 billion of first-tier bonds outstanding.
The issue is rated A3 by Moody's Investors Service and BBB-plus by Standard & Poor's.
Douglas Hartman, executive director at JPMorgan, is lead banker on the deal.
Loop Capital Markets is co-senior manager with five co-managers.
First Southwest Co. senior vice president Ron Davis is NTTA's financial advisor.
McCall Parkhurst & Horton and Mahomes Bolden are co-bond counsel.
In an addendum to its preliminary official statement for the upcoming deal, NTTA disclosed that its variable-rate Series 2009 D bonds are under examination by the Internal Revenue Service. Porter said the examination was routine and part of a survey of various transportation debt issuers.
"We were told we were chosen randomly," he said.
To take advantage of the current low rates in the bond market, NTTA plans to accelerate some of its debt service, Porter said.
"The other thing we're going to do is reduce MADS [maximum annual debt service] by $80 million," he said. "We level some of that escalating debt service and it will be pretty flat after 2030."
Reducing MADS will ease coverage ratios for NTTA during the so-called "pinch years" when the ratio of pledged revenues to debt service falls closer to 1 times, Porter said.
"Though moderated with this refunding the NTTA's escalating debt service profile depends on sustained traffic and revenue growth," Moody's analysts Maria Matesanz and Chee Mee Hu wrote.
Since 2011, NTTA has adopted a policy of increasing toll rates annually by 2.75%, with toll adjustments made every two years in odd numbered years. Current rates average 16.2 cents a mile for electronic toll collection with toll tags and 23 cents for video tolls, which Moody's regards as "relatively low for comparable systems."
Enforcement efforts have resulted in improved collections of video tolls, according to Moody's. With its financial performance improving, NTTA's cash on hand has grown to 1,231 days from 1,083. Revenue lost through unpaid video tolling dropped from 16.5% to 8.5% in 2013 and to 7.5% in 2014, according to Moody's.
Under new state legislation, vehicle owners could have their registration suspended after 100 unpaid violations or the vehicle may be impounded.
Porter expects traffic to grow on the NTTA system amid strong economic indicators in the Dallas-Fort Worth area.
One segment of the Dallas North Tollway has been nicknamed the "$5 billion mile" because of all the development along its path.
Toyota is building a new U.S. headquarters in Plano, the NTTA's hometown. The $350 million project is expected to be completed by 2017 and employ more than 4,000 people, according to the auto maker.
Dallas Cowboys owner Jerry Jones is also developing a new team headquarters in neighboring Frisco that will feature retail development and practice fields to be shared with the Frisco Independent School District. The city of Frisco last year issued $115 million of debt to build the Cowboys headquarters and practice facility.
Farther north in the town of Prosper, Jones' Blue Star Land is beginning a $1 billion development that will include residential and retail construction on 1,000 acres.
Home prices are expected to range from $300,000 to $700,000, according to news reports. Some have called Prosper "the next Frisco" because of its development potential. The town sits at the end point of the Dallas North Tollway, where it joins Highway 380. The former two-lane blacktop is being widened.
Prosper's population more than quadrupled to 12,000 from 2000 to 2010, and grew another 12% from 2010 to 2011. Growth in North Texas is expected to eventually require extension of the Dallas North Tollway to the Oklahoma border.
Initial planning is under way for a proposed 17.6-mile extension of the DNT northward from U.S. 380 into Grayson County, which borders Oklahoma. The extension will be a limited access toll road with six main lanes and four frontage road lanes. A scope of work is currently under development, which includes corridor analysis, initial toll feasibility and environmental analysis, according to NTTA.
Under state law, the Grayson County Regional Mobility Authority has the ultimate authority on any toll project in the county, including portions of the DNT which may extend into Grayson County.
On the existing stretch of the DNT, the NTTA plans to add a fourth lane in each direction of Dallas North Tollway from Addison and North Dallas to Frisco by 2017. The authority also plans to add some lanes and partially redo the tollway's interchange with Bush Turnpike. The tollway serves about 145,000 people daily.
While NTTA's toll road development has led to an explosion of growth on the northern fringes of the Dallas metro area, some residents in its home base of Collin County are calling on Texas legislators to end tolling in the state.
In the current session, 75 bills have been introduced that would curtail or restrict tolling in some way, including some from the Collin County delegation operating under the rubric of "Texans for Toll-free Highways."
Rep. Scott Sanford, R-Plano, launched a citizens lobby day sponsored by Texans for Toll-free Highways, Texans Uniting for Reform and Freedom, Texas Eagle Forum, Grassroots America, Lt. Governor's Grassroots Advisory Committee Subcommittee on Transportation, and Texas Patriots PAC.
Sen. Don Huffines, R-Dallas, told the rally that opposition to tolling helped him defeat 24-year Senate veteran and former Senate Transportation Committee chairman John Carona in the 2014 primary. With the backing of tea party activists, Huffines edged Carona with $6.3 million spent on both sides.
Huffines has introduced one of 75 bills designed to curtail or ban tolling. His Senate Bill 1182 would increase public funding for non-tolled projects. He also opposes issuing bonds to finance new construction.
"The Department of Transportation estimates a $4 billion shortfall for new construction," Huffines told toll foes. "What they forget to tell everybody is that's only if they leverage that money. And if they're not going to leverage that money and issue more debt, the real number's closer to $10 billion."
Gov. Greg Abbott, who backed out of the rally at the last moment, has made transportation an emergency measure in the current legislature and promised to increase funding for Texas roads and bridges by $4 billion without tolls.
Republicans who dominate Texas politics are caught between the need to appease their anti-tolling constituents while also opposing any increase in fuel taxes, the traditional funding mechanism for highways.
Legislative leaders have turned to the vehicle sales tax as an alternative source of funds. Instead of raising vehicle sales taxes, however, the lawmakers have voted to divert existing revenues from the general fund to transportation.
While Republicans fight tolling on the north side of Dallas, Democrat Rep. Rafael Anchia, D-Dallas, is opposing the use of any state funds for a $1 billion toll road along the banks of the Trinity River. The controversial toll road, stymied for years by environmental concerns and public opposition, would be banned under House Bill 3674.
"I conducted a survey to gauge the climate in and around Dallas, and the respondents were startlingly opposed to the project," said Anchia, who is also a bond lawyer.
The NTTA has not taken on any responsibility for the Trinity toll road, but Dallas officials are planning the project under the assumption that NTTA would be the operator.
NTTA officials explained to legislators how their financing system works. Maintenance and expansion of existing tollways depend on systemwide revenues.
Porter told lawmakers that without that ability, the agency wouldn't be able to add planned fourth lanes to three major North Texas arteries: the Dallas North Tollway, the Bush Turnpike and the Sam Rayburn Tollway.
"These same projects have fueled much of the economic development we see going on in North Texas," he said.
Ratings analysts have not addressed the anti-toll fervor directly, but they note that revenues pledged to the outstanding debt are system-wide and not designed to pay off individual projects.
"The stable outlook reflects our assessment of the demonstrated demand for NTTA and the favorable demographics that support the system," said S&P analyst Todd Spence. "The outlook also reflects our assumption that traffic and revenue will be at or near projected levels."
