DALLAS — Standard & Poor's shifted its outlook to stable from negative on Arizona Transportation Board revenue bonds.
The change comes as the board expects to issue $712 million of bonds after the first of the year.
The ratings agency on Tuesday affirmed its triple-A rating on the board's senior-lien bonds and AA-plus on subordinate-lien debt.
"The outlook revision reflects our view of state changes in the allocation of highway user taxes to the pledged state highway fund," said Standard & Poor's credit analyst David Hitchcock. "Although these changes increase pledged revenues in fiscal 2013 from fiscal 2012, it still leaves pledged revenues lower compared to earlier years, although in our opinion at levels sufficient to continue producing strong debt service coverage."
The forthcoming deal will include $599.2 million of 2013 Series A tax-exempt and $112.3 million of taxable Series B bonds.
Both series will be subordinate-lien debt.
Moody's Investors Service has assigned a Aa2 rating to the bonds with a stable outlook, in an affirmation of outstanding ratings.
The senior-lien rating is Aa1.
"The outlook on the highway revenue bonds is stable, reflecting the modest growth in highway user revenues in 2011 and 2012 following three years of economically driven declines," wrote Moody's analyst Kenneth Kurtz.
The deal includes $189 million in new money which will be used to fund portions of board's 5-year highway capital program.
The balance will be used to refund outstanding senior and subordinated bonds for debt service savings.
Following this deal, the board will have about $1.8 billion in senior and subordinated bonds outstanding.
The negotiated deal is expected to go to market the week of Jan. 14, with JP Morgan Securities as senior manager, with Wells Fargo Securities as co-manager.
The syndicate includes Merrill Lynch Bank of America, Citigroup, Morgan Stanley, and Stifel, Nicolaus.
The highway user revenues that back the bonds include fuel taxes, vehicle registration fees, vehicle license taxes, and other transportation-related fees.
The state constitution limits use of most of the revenues to transportation-related purposes.
The Arizona Legislature has changed the allocation of highway user revenues in the past to ease shortfalls in the general fund. A diversion in fiscal year 2009 contributed, along with economic conditions, to a 22.3% reduction in highway revenues in that year. Another diversion, in fiscal 2012, brought a 26.6% decline in revenues, from $504 million to $370 million.
Legislation enacted this year is expected to boost revenues to $530 million, a 43.3% increase over fiscal year 2012. Highway revenues for the most recent 12-month period came $445 million, according to Moody's.
"Actual fiscal 2012 SHF (State Highway Fund) revenues, reflecting the statutory diversions in that year, provided only 2.54 times coverage of estimated maximum annual debt service on the senior and subordinated bonds combined, following the issuance of the 2013 bonds," Kurtz noted.
"SHF revenues for the most recent 12 months provide 3.04 times coverage of estimated maximum annual debt service, sufficient to meet the additional bonds test," he wrote in Moody's report. "Estimated fiscal 2013 SHF revenues would provide 3.64 times coverage of maximum annual debt service."
