Pennsylvania Turnpike Commission plans revenue bond sale
The Pennsylvania Turnpike Commission expects to come to market this week with a $242 million sale of Series 2020B senior lien turnpike revenue bonds.
Citi is lead manager.
Feeling the revenue hit from COVID-19, the commission has received state legislative approval for a second delay in $112.5 million quarterly transit payments to the commonwealth until next June at the latest.
PTC has $14 billion of debt, “which is more than the commonwealth,” director of legislative affairs Charles Duncan told state lawmakers. Much of that debt traces to required payments to the state Department of Transportation.
The Act 44 state law, which the legislature adopted under Gov. Ed Rendell in 2007, sought among other measures federal approval to convert Interstate 80 to a toll road. East-west I-80, parallel to the Turnpike, spans northern Pennsylvania.
But the Federal Highway Administration rejected the tolling proposal, “primarily because so much revenue from I-80 would have been off-system,” turnpike chief financial officer Richard Dreher said on an infrastructure webcast Thursday hosted by law firm Squire Patton Boggs.
The existing turnpike system runs from New Jersey to Ohio and includes interstates 95, 76, 276 and 70.
The Turnpike Commission still had to make annual payments of roughly $450 million to PennDOT. A 2013 law revised the funding obligation and required PTC to pay PennDOT $450 million annually through fiscal 2022.
PTC expects to raise tolls annually through 2027, Duncan said at an Aug. 18 House Transportation Committee hearing in Harrisburg.
Because of the coronavirus, the turnpike has cut 25% from its capital budget over the next two years and deferred many critical long-term projects. “These reductions can impact our statewide economy,” Duncan said. “Less capital spending results in less construction and fewer construction jobs.”
PTC obtained a short-term $200 million line of credit from TD Bank through June 1, 2021. It also lowered its projected FY21 by $160 million through three cash defeasances of principal, the final two it expects to complete by December.
Fitch Ratings and Moody’s Investors Service rate the bonds A-plus and A1, respectively while Kroll Bond Rating Agency assigns AA-minus. All three provide stable outlooks.
“While the coronavirus outbreak resulted in a material drop in traffic and revenue for the last six months compared [with] last year, PTC's high proportion of commercial traffic has limited its revenue losses compared to toll roads that primarily serve passenger vehicles,” Moody’s said.
Commercial traffic “is really what saved us from an operations perspective during the worst, Dreher said. “Things have started to open up since.”
Passenger traffic is still down 25%, according to Dreher.
The system went cashless in March and laid off about 500 toll collectors three months later — two weeks after signing a contract with their union.
Fitch based its rating on “PTC's strong traffic profile, ability and willingness to raise tolls and history of prudent cost management, all of which somewhat mitigate its sizable debt burden.”
Traffic declines from the pandemic have been “acute but of similar magnitude” to declines on other Fitch-rated facilities and have been improving in recent weeks, the rating agency added.
PFM and Phoenix Capital Partners are co-financial advisors for the sale. Cozen O'Connor and Zarwin Baum DeVito Kaplan Schaer Toddy are co-bond counsel. Dilworth Paxson is disclosure counsel while Saul Ewing Arnstein & Lehr is underwriters counsel.
The pandemic has triggered worldwide uncertainty for the toll-road sector.
“Toll road performance remains vulnerable to significant worsening of the pandemic, particularly if there are strict new lockdowns,” Fitch said. “However, future lockdowns may be less stringent, with governments reluctant to impose generalized lockdowns again given the high economic impact.”
Nationally, nearly $10 billion in state and local transportation projects were delayed or cancelled as of Aug., 11, according to the American Road & Transportation Builders Association, while $141 billion worth of funding initiatives or ballot measures were vetoed, canceled or postponed.