Ohio readies $370 million of Garvee bonds

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Ohio intends to sell $370 million of new money bonds under its Garvee credit to finance 24 highway and bridge projects.

The grant anticipation revenue vehicle bonds will price Tuesday. RBC Capital Markets is the lead manager.

Franklin County is set to receive the biggest chunk of funding with roughly $135 million going towards county projects.

The bonds are secured by pledged federal grant dollars received by the state.

Ohio’s Garvees are additionally secured by an ODOT covenant that pledges to use appropriated state transportation money that is unspent and unencumbered at the end of each fiscal year to pay debt service in the event the pledged federal highway receipts are insufficient. The bonds are also structured with a 12-year maturity that limits exposure to the uncertainty of federal grant reauthorization.

S&P Global Ratings and Moody's Investors Service rate the 2018-1 bonds AA and Aa2, respectively. Both assign a stable outlook.

“Given the essentiality and political appeal of transportation infrastructure, we expect the federal highway program to continue to be a high national priority and for Congress to continue providing sufficient federal aid to Ohio,” Moody's wrote.

Ohio’s program is a direct Garvee structure which means the state can request reimbursement for debt service, and the flow of federal funds does not rely on the pace of state capital projects. Federal highway receipts must be used first to pay bonds before they can be used for other purpose. ODOT prefunds debt using motor fuel tax dollars in the federal fiscal year preceding that in which debt service is due.

“Using motor fuel tax dollars ODOT typically deposits and amount sufficient to pay a full year of debt service between July and the end of September,” Jonathan Azoff, director of debt management in the Ohio Treasurer’s office, said in investor presentation. Azoff said that debt payments occur on June 15 and Dec. 15 of each year. “This mechanism means that the Dec. 15 payment being fully funded more than two months in advance and the June payment being fully funded more than 8 months in advance,” he said.

Ohio’s federal highway aid obligation authority has averaged about $1.38 billion per year during the past decade, which includes the temporary impact of federal stimulus from the American Recovery and Reinvestment Act of 2009. With the passage of the FAST Act, which increased funding compared with recent authorization levels, the state expects its obligation authority to grow to almost $1.44 billion by fiscal 2020.

The state plans for two subsequent Garvee issues, of $125 million each, in 2019 and 2020.

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Transportation industry Primary bond market State of Ohio Ohio