LOS ANGELES — Foothill/Eastern Transportation Corridor Agency, Calif. is drawing a lot of interest from investors on $2.2 billion in toll revenue bonds it plans to price Dec. 12 to restructure its outstanding debt.

"We have had active investor participation and a lot of questions" on the bonds, which are primarily being marketed to institutional investors, said Amy Potter, Foothill/Eastern's chief financial officer.

The toll road operator and its advisors have "been emphasizing this credit is much stronger than the outstanding bonds," Potter said.

Since the 36 miles of toll roads in Orange County have been in operation for 13 years, Potter characterized the road as "seasoned, with no technology or acceptance risk."

The new structure, which extends the maturity dates by 13 years to 2053 and lowers the debt growth rate from 4.2% to 3.75%, is equal to the actual revenue growth seen by the toll road even during the recession, Potter said.

"We have significantly reduced [maximum annual debt service] by close to 25%," Potter said.

The restructuring will lower maximum annual debt service to $227 million from $298 million. After the restructuring, Foothill/Eastern will have $2.4 billion in oustanding debt including the $180 million series 1995A bonds that aren't callable.

The lien on the outsanding 1995 bonds has been closed off and the interest is fully capitalized through 2022, and the principal sinking funds were reduced, lowering that debt as well, Potter said.

"The refinancing really improves the agency's debt portfolio," said Lisa Bartlett, chair of the agency's board of directors. "It reduces the growth rate on the debt. There are a lot of positives from the board's perspective."

California Treasurer Bill Lockyer had released a report in July that said Foothill/Eastern could eventually default on its bonds without the restructuring.

The bonds will be issued in three series totaling $2.2 billion with both series A and B on the 2013 senior lien master indenture.

The series A bonds are expected to consist of $1.35 billion in current interest bonds maturing from 2043 through 2053 and $329 million in capital appreciation bonds and/or current interest bonds maturing from 2020 through 2043. The $375 million in Series B bonds are expected to be structured as term rate CIBs with three or more sub series with a mandatory tender of 5, 7 or 10 years.

The refunding also includes a $201 million junior lien with an expected final 30-year maturity.

The proposed restructuring was dependent on an agreement between Foothills/Eastern, the toll road operator, and the California Department of Transportation, extending the toll road operator's authority to toll the roads by 13 years to 2053, matching the bond maturities. An agreement was reached on Oct. 10.

Through the agreement, Foothill-Eastern will also make payments to Caltrans that grow from $14 million to $19 million from 2041 to 2053. Caltrans will continue to conduct road repairs and maintenance on the road.

Many of the investor questions have been related to the structure and the types of bonds being offered, Potter said.

Craig Brothers, a managing director with Los Angeles-based Bel Air Investment Advisors, said his firm was still reviewing the offering, but it looked like it might be a "yes," for them on the credit, but a "no" on the structure.

"There are a lot of zero coupons and convertible bonds with no vanilla serial bonds," Brothers said. "The deal seems… I don't want to say, gimmicky."

For instance, Brothers said, the offering has $662 million maturing in 2049 and $660 million in 2053, then a zero coupon starting at 2020 and going out to 2044, and then a convertible that starts at zero coupon and becomes coupon at 2024.

In the current market conditions, Brothers' firm is most interested in traditional coupon bonds with shorter maturities in the 7-to-10-year range not those with maturities extending to 2049 and beyond.

"They are struggling with a split Ba1 over BBB-minus ratings," Brothers said. "Things are clearly not going their way."

The first bonds don't come due until 2020 and the debt service is heavily-weighted to the back end, Brothers said.

"That is usually a tip off that they are not doing well enough to have serial bonds," he said.

He added that he lives in Southern California, has driven the road, read the local newspaper articles about traffic levels "and knows they are not knocking the cover off the ball."

Standard & Poor's, Fitch Ratings, and Moody's Investors Service rated the Series A and B bonds BBB-minus, BBB-minus, and Ba1, respectively. The ratings agencies assign the junior lien Series C bonds BB-plus, BB-plus and Ba1 ratings. Fitch's ratings are contingent on the pricing going through and the rating agency receiving final documents.

The bonds have drawn a lot of interest and had a diversity of investors dating back to when the tolling agency started in 1995, said Robert Rich, a managing director with Public Financial Management, which is acting as financial advisor for the offering.

"People around the country know the project," Rich said. "We were among the first municipal issuers with a website and the agency is very transparent."

The maturities are longer than what retail usually buys, but there are a lot of managed retail and trust funds that could be interested, he said.

"We have had a very successful road show with a very engaged group of investors," Rich said.

Barclays Capital Inc. and Goldman, Sachs & Co. will act as joint book runners. Stradling Yocca Carlson & Rauth is bond counsel.

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