Ohio refunding $115 million of turnpike bonds

Register now

DALLAS -- The Ohio Turnpike and Infrastructure Commission plans to sell $115.4 million in refunding bonds Tuesday.

The deal comes after a positive outlook revision that cites better-than-expected revenue growth and the resolution of two lawsuits that challenged the use of toll rate increases for non-turnpike projects.

The deal is expected to yield a $14 million savings in present-value terms.

Moody’s Investors Service, which rates the bonds Aa3, revised its outlook to positive from stable. S&P Global Ratings affirmed its AA-minus rating and Fitch Ratings affirmed its AA rating. They both assign stable outlooks.

“The positive outlook reflects OTIC’s improving credit profile,” Moody’s wrote in a report. “This indicates increased resiliency to absorb expected new junior debt, depending on how it is structured, while still maintaining strong financial metrics.”

Moody’s outlook also reflects the resolution of the outstanding legal challenge to the Commission’s ability to raise tolls for non-turnpike related projects. Legislation passed in 2013 expanded the Commission’s ability to raise tolls to fund non-turnpike infrastructure projects.

On Aug. 30 a federal judge dismissed the last two claims outstanding in a class action lawsuit that challenged the state’s use of turnpike toll revenue to finance those projects.

The deal will refund up to $126.7 million of its series 2009A and 2010A turnpike revenue bonds. The bonds are tentatively scheduled to price on Tuesday through the Commission’s underwriting syndicate, led by book-running senior manager Citi with Fifth Third Securities, Fidelity Capital Markets and Loop Capital Markets as co-managers.

“The current interest rate environment is favorable to refinance these bonds,” said executive director Randy Cole in a statement. “The Commission hopes to realize a significant reduction in debt service as a result of this transaction.”

Legislation adopted in 2013 allows the Commission to use toll revenue to pay for non-turnpike projects but they must be connected to the turnpike in some way. As part of the deal the commission approved a series of toll rate increases that raise rates by 2.7% every year for the next 10 years.

Proceeds on senior-lien bonds are restricted to projects on the 241-mile turnpike itself.

The commission issued $1 billion of bonds in 2013. Of that, $930 million went toward 10 northern Ohio road projects. The bonds are secured by a pledge with a junior-lien trust agreement. The bond are rated A1 by Moody’s. S&P rates the bonds A-plus and Fitch rates the bonds

The commission’s debt outstanding totaled approximately $1.6 billion, consisting of $525 million of senior-lien debt and about $1.1 billion of junior-lien debt as of Dec. 31, 2016. The commission is expected to issue $450 million of additional junior lien bonds and $80 million of senior lien bonds in 2018.

The turnpike serves a large service area population, consisting of about 38 counties in northern part of Ohio, including the cities of Toledo, Cleveland, and Youngstown. Traffic trends remain favorable with total traffic for the six months ended June 30, 2017, up 1.6% year-over year and toll revenues up 3.0%. For fiscal 2016, total toll revenues increased 2.9% to $288.4 million and total toll transactions increased 2.8% to $54.9 million.

For reprint and licensing requests for this article, click here.
Toll revenue bonds Primary bond market Sell side Transportation industry State of Ohio Ohio