Build America Bonds arrived at a critical stage for the North Texas Tollway Authority as it was embarking on projects that would more than triple its debt load.
Faced with the need to raise more than $3.2 billion for one project alone, the NTTA’s issuance plans were caught up in the credit market’s downdraft in 2008. As the auction-rate market collapsed and Lehman Brothers went belly-up, the authority was forced to extract itself from interest-rate swap agreements with the investment bank.
With its senior-lien rating at A-minus from Standard & Poor’s and A2 from Moody’s Investors Service, the NTTA’s financial strategy for building the $3.2 billion State Highway 121 was premised on maintaining its senior rating in the A-category.
Taxable BABs were attractive to investors who bought corporate bonds, and the federal government’s 35% subsidy of interest payments for BABs provided a security cushion not just for the issuer, but for the investor as well.
“We had an $829 million BAB issue in 2009 that was led by Goldman Sachs,” recalls Paul Wageman, chairman of the toll agency’s board. “It was significant for us in that it opened up to the NTTA a whole new investor base because they’re taxable bonds and the market was severely constrained.”
If BABs had not been available, Wageman believes the authority would have managed to raise the funds it needed but would have paid a dear price.
“If we didn’t have BABs, the result would have been the ability to still go to market to issue the debt, but at a higher cost, burdening the system with a higher level of debt service,” he said. “As a result, we would have had less proceeds to invest in the project.”
Originally responsible for one toll project, the Dallas North Tollway, the NTTA is now developing three major highways at the same time while considering two more.
“We have gone from historically building one segment of an existing roadway at a time to working in multiple corridors all at the same time,” Wageman observed. “BABs have allowed us to access capital at a reasonable rate so we can continue that growth.”