Present value savings prioritized in taxable Dallas transit refunding
Dallas Area Rapid Transit will pursue savings through an $870.6 million taxable refunding as it continues expanding its extensive rail and bus system.
The deal is scheduled to price Thursday through negotiation with senior manager Loop Capital Markets, led by managing director Tilghman Naylor.
Proceeds from the Series 2020D bonds will be used to refund outstanding 2014A, 2014B and 2016A bonds for expected net present value savings.
"Our objective for the Series 2020D refunding is purely for savings," DART Treasurer Dwight Burns said. "We have no need for cash-flow relief or restructuring.
"The markets are favorable," he added. "However, we’re being flexible about choosing refunding candidates. As we approach our pricing, we’ll be patient and flexible about the candidates we choose for refinancing."
At its Oct. 20 meeting where the Series D bonds were approved, the DART board also authorized $908 million of Series E bonds to refund a 2018 Rehabilitation Improvement Financing loan from the federal government.
"We are negotiating a rate reduction on the existing loan with the USDOT’s Build America Bureau," Burns said. "We plan to finalize it around calendar year-end. The updated loan will be reset at the current 30-year Treasury rate, plus 1 basis point. The original loan was set at 2.98%, so compared to current rate trends, we should realize substantial debt service savings."
The Series D bonds, maturing through 2049, are rated Aa2 by Moody’s Investors Service and AAA by Kroll Bond Ratings Agency.
The bonds are backed by a 1% sales and use tax collected in DART's 13 member municipalities, approved by voters in 2000, along with some farebox revenues.
Despite the pandemic that has reduced ridership and slowed the previously booming regional economy, rating analysts maintain a stable outlook for the transit agency that covers a 700 square-mile service area.
“Ridership is slowly rebounding from the trough in the spring, but sales tax recovery is more uneven,” Moody’s analyst Genevieve Nolan wrote in an Oct. 14 report. “Favorably creditors retain strong protections against DART's operations and possible financial stress, most notably collections of pledged revenues by the state, which are intercepted by the trustee before the remainder flows to the authority.”
DART received $229.6 million from the Coronavirus Aid Relief and Economic Security (CARES) act by Sept. 30, according to the agency.
The American Public Transportation Association is calling for a second round of relief, saying that six in 10 public transit systems will need to reduce service and furlough employees in the coming months without an additional $32 billion in emergency federal funding from Congress.
“Our request for $32 billion is necessary to avoid catastrophic decisions that will only hurt our riders, our communities, and the nation” said APTA President and CEO Paul P. Skoutelas. “The industry continues to serve essential employees every day, but without additional emergency funding, many transit agencies will soon need to cut transit services and routes and furlough transit workers, leaving our communities without service and jobs when they need them most.”
DART was created by voter referendum in 1983 and is governed by a 15-member board appointed by the cities through a population-based formula. No city is able to appoint more than 65% of the board. The agency’s 2021 fiscal year began Oct. 1.
“Despite sharp monthly sales tax revenue declines at the outset of the COVID-19 pandemic, improvement is reflected in recent data,” KBRA analyst Harvey Zachem wrote in his Oct. 20 rating report. “Projected FY 2020 results are expected to show an approximately 1.5% year-over-year decline, which is favorable compared to most other regions in the nation. The resilient performance stems from a deep and diverse economy and restrictions that were not extremely onerous.”
On Sept. 17, DART announced that it was restoring 90% of pre-pandemic service levels beginning Oct. 19. The board action came after DART limited bus and light rail service on April 6 due to the pandemic.
DART is continuing to build its 26-mile Silver Line commuter rail system that will connect Dallas’ northern suburbs with Dallas-Fort Worth International Airport and intersect with DART and Denton County Transportation Authority light rail lines. The 2018 federal loan financed the project along the former Cotton Belt freight route.
The Silver Line will ultimately link with Fort Worth’s commuter rail line known as “The T” at DFW Airport. DART also runs a light rail line to the airport from downtown Dallas.
When completed in early 2023, the $1.2 billion Silver Line will connect with the Trinity Metro TEXRail commuter rail line at DFW North station providing access to Downtown Fort Worth, Grapevine, and various other Tarrant County areas.
DART is also working on a downtown Dallas underground system known as D2. DART launched a study in 2007 to identify the second phase of major transit improvements in downtown Dallas. The goal was to improve mobility and circulation to, through and within downtown.
As of Sept. 30, DART had $3.1 billion of debt outstanding, including the federal loan, per KBRA.
“While an additional $2.9 billion in new long-term debt is anticipated through FY 2040, annual debt service coverage from sales tax revenues alone is forecast to remain above 2.51x based on DART’s 20-year Financial Plan assumption of a 4.5% sales tax combined annual growth rate,” Zachem said. “FY 2019 pledged sales tax revenues provide coverage of 2.63x estimated MADS (FY 2041) following issuance of the currently offered bonds, without credit to federal interest rate subsidies for outstanding Build America Bonds.”
DART's 93-mile light rail system, with 64 stations, is the longest light rail system in North America and was built at a cost of $5.5 billion.
In July, a study of construction near DART light rail stations described the economic impact of development along the routes.
Researchers from the Economics Research Group at the University of North Texas reviewed 81 development projects completed within a quarter mile of DART stations with a total property value of $5.138 billion between 2016 and 2018.
"The projects themselves added billions in economic activity for the DFW economy," said Michael Carroll, who led the research team. "Further, these projects will serve as a catalyst for future economic growth. As the economic landscape fills in around the initial projects, we will see growth in a wide variety of sectors."
Financial advisors on the deal are David Gordon, senior managing director of Estrada Hinojosa & Co., and Jill Jaworski, managing director of PFM Financial Advisors.