DALLAS — Standard & Poor’s last week downgraded the Regional Transportation District of Colorado’s lease-revenue debt to A-minus from A-plus as it prepares to issue $310 million of certificates of participation.
A portion of the COPs, scheduled to price this week through negotiation with senior manager Morgan Stanley, are being issued as taxable Build America Bonds. First Southwest Co. is financial adviser.
The deal comes a week after the RTD issued more than $400 million of sales tax revenue bonds for the FasTracks project that combines commuter and light rail with dedicated bus service linked by a series of new transit hubs.
A major component of FasTracks is the so-called Eagle P3 that combines private equity, municipal debt, and federal funds to build a commuter rail link between downtown Denver and Denver International Airport. To finance the project, the RTD has taken on a heavy load of new debt that could stress its ratings.
Standard & Poor’s analyst David Hitchcock provided a stable outlook after the downgrade, noting the diversity and economic strength of the district that sprawls from Boulder County in the north to Douglas County south of Denver.
“We base the downgrade on what we view as a significant increase in sales tax-secured debt that has a prior lien on RTD’s primary source of revenue and an increase in lease appropriation debt outstanding, as well as new RTD appropriation obligations for operations incurred as part of a concession agreement for RTD’s Eagle P3 FasTracks public-private partnership,” Hitchcock said.
The Series 2010A and B COPs being issued this week will refund the agency’s Series 1998A and Series 2001A COPs in the amount of $27.83 million outstanding, under a new 2010 master lease.
They will also pay for $170 million worth of light-rail vehicles, $34.8 million of parking garage improvements, $59 million of computer dispatch and location equipment, plus fare collection equipment and “paratransit” vehicles for the disabled, all of which will serve as the leased assets for the Series 2010 COPs.
Moody’s Investors Service rated the COPs Aa3 with a stable outlook. Fitch Ratings provides a rating of AA-minus on the COPs with a stable outlook.
In affirming all ratings, Fitch notes the substantial rise in cost estimates for the FasTracks project.
“Now $6.75 billion, up from an initial $4.7 billion for the full system as approved by voters in November 2004, along with the 0.4% additional sales tax needed to fund it,” Fitch analyst Jose Acosta wrote in his report.
The RTD has responded by revamping its financing plan to include significantly more in federal funds, as well as private equity through a P3 that was established earlier this year, according to Acosta.
“In addition, RTD’s board of directors has prioritized projects within the full FasTracks program, and is proceeding with only system expansion that can be built and operated within the existing revenue base,” he said.
Bonds issued last week and backed by the sales tax carried ratings of AA-plus from Standard & Poor’s, AA from Fitch and Aa2 from Moody’s.
The district has about $3.8 billion of sales tax-backed debt, including first and second lien, and about $465 million of third-lien debt.
Formed in 1969, the RTD provides mass transportation services for the Denver metropolitan area with an estimated population of 2.6 million, more than half of the state’s population.
Its service area covers all or portions of eight counties: Denver, Broomfield, Boulder, Jefferson, Adams, Arapahoe, Weld and Douglas. In 2009, the agency provided 98.7 million annual boardings.
To complete the FasTracks system by 2017 as originally promised, the RTD will need voter approval to raise the sales-tax rate for debt service. A proposal may go to a vote in 2011.
