The Delaware River Port Authority last week approved the termination of a forward-starting swap with UBS Securities LLC at an estimated cost to the agency of $35 million.
Under the terms of the floating-to-fixed-rate derivative, the DRPA as of Jan. 1 would be required to terminate the swap or refinance a series of fixed-rate subordinate bonds as variable-rate debt secured by a letter of credit that would boost the rating for the debt.
The derivative has a notional amount of $108 million and is insured by Ambac Assurance Corp., which no longer carries investment-grade ratings.
Considering the DRPA’s subordinate port district bonds ratings of BBB-minus from Standard & Poor’s and Baa3 from Moody’s Investors Service, and Ambac’s low credit ratings, John Hanson, the DRPA’s chief financial officer, doesn’t believe the bonds could get an LOC.
Under the swap agreement, the authority must maintain an A rating either on the underlying bonds or on the insurer.
Hanson said the DRPA is looking to terminate the swap. “Unless something dramatically changes in the market or something dramatically changes in our negotiations with UBS, the reality is that the option that we’re planning to select is the cash settlement,” Hanson said.
The agency also is working on a new-money deal of $300 million to $500 million in December, the first time it will sell new-money debt since 2001.
The authority is reviewing responses to its request for qualifications for professional services for the new-money sale. Proceeds will help finance a $1.1 billion, five-year capital plan that includes extending the PATCO line in southeastern New Jersey and Philadelphia.
The DRPA originally planned to sell new-money bonds in late 2008 or early 2009, but market conditions prompted officials to postpone the deal. They are still working out the size of December’s sale.
“It’s going to be between $300 million and $500 million, depending upon what we think the market will bear and what our engineering estimates and our spending estimates are,” Hanson said.
The DRPA has nearly $1.2 billion of outstanding port district bonds and revenue debt. The revenue bonds carry A3 and A-minus ratings from Moody’s and Standard & Poor’s, respectively.