The New York State Thruway Authority plans to issue up to $700 million of two-year bond anticipation notes to fund the remainder of its five-year capital program, the agency said yesterday at its monthly board meeting.
The board also voted to amend its bond resolution, upon consent of a majority of bondholders, to allow it to enter into public-private partnerships such as a long-term lease of its facilities.
Citing short-term interest rates that it said were near historic lows, the authority plans to market general revenue Bans on July 8, rather than sell long-term debt this year and next. The authority will still market personal income tax bonds and highway and bridge trust fund bonds, but it won’t market general revenue bonds until it takes out the Bans in June 2011.
“We’re just taking advantage of the current market,” said Thruway Authority chief financial officer John Bryan. “Short-term rates right now are extremely attractive. We think we’ll end up with 2.5% to 2.75%, which is a great cost of money at this time.”
The debt issue, along with about 20% pay-as-you-go funding, will fully fund the rest of the current $2.1 billion five-year capital plan, Bryan said.
“This kind of bridges the gap from now to then,” he said.
The authority operates and maintains 641 miles of roadway, which includes a 496-mile toll road connecting New York City and Buffalo as well as other major regional roads. The weak economy has cut traffic volume, leading Moody’s Investors Service and Standard & Poor’s to downgrade the authority one notch to A1 and A-plus, respectively. Bryan said that while commercial traffic is still down about 10% to 15% compared to a year ago, passenger traffic has started to pick up again.
Michael Sikule, director of investments and asset management for the authority, offered more reasons for using short-term debt.
“The two-year Bans will put us in a better position to evaluate our long-term needs as the economy recovers and as we develop our next capital program,” Sikule said in an e-mail. “The Bans will help reduce the negative arbitrage we will experience when we reinvest the proceeds.”
Citi will lead manage the sale and M.R. Beal & Co. is serving as co-coordinating manager.
First Southwest Co. is financial adviser and Hawkins Delafield & Wood LLP is bond counsel.
“This is the same theory behind an issuer using [variable-rate demand bonds] or [auction-rate securities] — using cheaper short-term financing to pay for long-term projects,” Matt Fabian, managing director of Municipal Market Advisors, said in an e-mail. “The Thruway and the Ban purchasers are taking the risk that the Thruway can’t access the market in two years, or that the market itself will be unstable in two years. But it’s a positive step for our market, which needs to develop more VRDO alternatives that don’t rely on bank liquidity or long-term derivatives.”
A preliminary offering memorandum for the sale is expected to be available today or tomorrow.
Standard & Poor’s rates the Bans SP-1-plus. At press time, Moody’s said it would rate the notes soon. Fitch Ratings does not rate the Thruway Authority.
The agency has $2.3 billion of general revenue bonds outstanding.
Anticipating that it might one day enter into a public-private partnership, such as a long-term lease of its facilities to a third party or a design-build-operate agreement, the authority approved seeking bondholder consent to amend its bond resolution to allow such transactions. The amendment requires the consent of 50% of its general revenue bondholders.
Bryan said there are no plans at this time to do a P3 deal, although that option is one being contemplated for the $16 billion Tappan Zee Bridge replacement project.
“There’s nothing in particular driving it,” Bryan said. “We’re just aware there is a trend in this country to contemplate P3 types of transactions as a way of delivering transportation services. We feel that if we start building bondholder consent now that ultimately if we decide to go the path of a P3 that at least we have that consent piece of the puzzle taken care of by that time.”