Ohio Turnpike expects savings from taxable refunding

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The Ohio Turnpike and Infrastructure Commission expects its upcoming $456 million bond refunding to notch double-digit savings as new-money borrowing is expected to taper off for the issuer as a result.

The commission will price $81 million of taxable senior lien and $375 million of taxable junior lien revenue bonds to advance refund bonds the commission issued in 2013. Together the refundings are expected to generate more than $60 million in net present value savings, if market conditions remain constant, the commission said in an investor presentation. The refunding comes as the state's transportation funding plans will shift to rely more on cash going forward than on commission borrowing.

The deal provides about $2.4 million to $3.6 million in annual debt service savings from fiscal 2020-2046, and significant additional tail-end savings in fiscal 2047-2048, according to S&P Global Ratings.

Ahead of the sale, Moody’s Investors Ratings affirmed its Aa2 rating on the senior bond and Aa3 rating on the junior bonds. S&P affirmed its AA-minus rating on the senior bonds and A-plus rating on the junior bonds. Fitch Ratings affirmed its AA ratings on the senior bonds and A-plus rating on the junior bonds. The rating outlook from all three rating agencies is stable.

After the transaction OTIC will have roughly $2.4 billion of outstanding bonds. The ratio is forecast to remain above historical levels through 2021 post the issuance of an additional $140 million senior lien debt for capital projects before annually declining as no new debt is forecast to be issued beyond 2021.

The bonds are secured by the net revenues collected on the turnpike operated by the OTIC.

Citigroup and BofA Securities are co-senior managers. Fifth Third Securities Inc., KeyBanc Capital Markets Inc. and Loop Capital Markets LLC are co-manages. Squire Patton Boggs LLP is bond counsel and PFM Financial Advisors LLC is the municipal advisor.

Moody’s said its ratings reflect its view that the state will no longer use the Ohio Turnpike to fund additional transportation projects.

“As a result, OTIC will hover at a peak leverage position for a few years before annual deleveraging begins as nearly all future capital needs are forecast to be cash funded,” Moody’s stated. “If there is a change in this forecast, there could be negative rating implications as the ratings incorporate an expectation of deleveraging rather than maintaining the near-term higher leverage after 2020.”

“There are no additional nexus projects planned that OTIC would fund, since Ohio has additional funding available due to an approved gas tax increase that became effective July 2019, resulting in an increase of 10.5 cents per gallon on motor fuel and 19 cents per gallon on diesel fuel,” S&P stated.

Proceeds of the commission’s junior-lien bonds pay costs of infrastructure projects in accordance with 2013 legislation that allows the commission to use toll revenue to pay for non-turnpike projects as long as they are 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 capital improvement projects on the 241-mile turnpike itself.

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