DALLAS — When financial markets were collapsing in 2008, the North Texas Tollway Authority faced the challenge of raising $3.2 billion to pay for its most ambitious project, the State Highway 121 toll road connecting the far northern Dallas suburbs to the NTTA’s existing system.
Despite the disarray of the markets, including the demise of the NTTA’s swaps partner Lehman Brothers, the toll agency managed to issue the bonds that allowed construction of the tollway, which is now producing revenue.
With the dust settling, the NTTA is taking advantage of a dramatically more favorable debt market for issuers, with a $351.4 million refunding of one series of the 2008 bonds this week.
The deal, expected to price Wednesday, will take out $209 million of variable-rate put bonds that come due Jan. 1. The fixed-rate issue will also refund $26.9 million of Series 1998 bonds that are currently callable, and $127.3 million of Series 2003A bonds may be advance or forward refunded, officials said.
The 2008 put bonds were issued in the amount of $1.3 billion to refund bond anticipation notes issued the year before.
The put bonds were to be tendered on Jan. 1 of each year from 2010 through 2013. Previous refundings took place in November of 2009, 2010 and 2011.
The new issue is expected to come in three series: $24 million as Series A, $1 million as Series B five-year put bonds, and $326.4 million as Series C. All three series are first-tier revenue bonds.
“The finance plan is designed to achieve the lowest borrowing cost possible while restructuring to ensure that NTTA maintains the maximum debt-service coverages possible,” said NTTA chief financial officer Janice Davis.
Barclays serves as senior manager for the long-term fixed-rate bonds maturing in 2042. Bank of America Merrill Lynch is co-senior manager, with Wells Fargo, Siebert Brandford Shank & Co., and Morgan Stanley as co-managers.
Senior managing underwriter for the put bonds refunding is JPMorgan. The co-managers are Rice Financial Products Co. and Ramirez & Co.
This deal may be the last with RBC Capital Markets as the sole financial advisor. RBC will share FA duties with First Southwest Co. under a new provision expected to be approved at the NTTA board meeting on Wednesday.
First Southwest will act as general financial advisor for the board, while RBC will specialize in public-private partnership arrangements.
“I am confident in our selections,” said Davis. “We have two good teams, each focused on a specialization.”
Under criticism from some Dallas-area officials for its so-called legacy contractors who have faced no competition for providing services to the board, the NTTA last year opened up competition for the legal and financial services.
The board currently has a request for qualifications for firms that might compete with NTTA bond counsel McCall Parkhurst & Horton and Locke Lord, which provides other legal services.
Authority chairman Kenneth Barr, former mayor of Fort Worth, has acknowledged the fact that his brother works for Locke Lord, though not in an area related to tollway finance.
“NTTA will expeditiously begin a thorough review and evaluation of the recommendations and then develop a work plan with sustainable and cost-effective solutions,” Barr said in a prepared response to a 2011 consultant’s report questioning some of the tollway authority’s business practices.
An investigation of current or former agency board members by the Federal Bureau of Investigation appears focused on conflicts of interest and possibly other issues, according to the authority’s bond statements.
The board and contractor issues have not impeded the NTTA’s refunding and debt issuance. The agency ranked as the top issuer for the Southwest region in 2011.
This week’s refunding bonds carry a Moody’s Investors Service rating of A2 with a stable outlook. Standard & Poor’s on Monday affirmed its A-minus rating with a stable outlook.
“The A2 rating incorporates NTTA’s high leverage position which results from the expansion of its system in recent years, and which is tempered by what should be very manageable maintenance investment for the in-system assets in the foreseeable future and limited to no investment for new system projects,” Moody’s analyst Laura Barrientos wrote in her rating report.
With the State Highway 121 project now open as the Sam Rayburn Tollway, the NTTA is not contemplating adding any major new tollways to its system.
Current projects, including the Southwest Parkway in Fort Worth, and the State Highway 161 tollway in western Dallas County, are financed under a special projects lien that is backed by the Texas Department of Transportation in the event that toll revenues fall short of debt service.
One of the NTTA’s most significant revenue challenges comes from the conversion to all-electronic tolling at the end of 2010 and the associated difficulties of collecting toll from vehicles that aren’t enrolled in its ZipCash electronic toll program, according to Moody’s.
“We view current leakage levels to be high for the industry,” according to Barrientos.
The NTTA has also experienced remarkably high turnover in its top ranks, with five executive directors and four general counsels since 2006.
On Oct. 19, Allen Clemson resigned as executive director after two years and was replaced by Gerald E. Carrigan, formerly assistant executive director of project delivery. Thomas Bamonte was hired as general counsel in September.
Fort Worth’s Southwest Parkway represents a continuation of toll-road development on SH 121. The section of the highway northeast of Dallas is the Sam Rayburn Tollway. The Southwest Parkway will extend southward to the Fort Worth suburb of Cleburne in Johnson County.
The project is coming together as the Dallas-Fort Worth area prepares for major transportation changes in 2014. That year will see the opening of remodeled terminals at Dallas-Fort Worth Airport, the arrival of a Dallas Area Rapid Transit light-rail line at the north end of DFW Airport, and the opening of a major redevelopment of freeways leading to the airport known as “The Funnel.”
A portion of that project includes a stretch of State Highway 121 that was completed in March 2009.
The new tollways will also link to the NTTA’s President George Bush Turnpike, which includes the SH 161 redevelopment across western Dallas County and the suburb of Grand Prairie.
