SAN FRANCISCO - When Washington's Sound Transit comes to market this week with $300 million of bonds backed by sales and motor vehicle excise taxes, it will culminate an arduous effort to design a structure that pleases retail and institutional buyers, as well as rating agencies and insurers.
Sound Transit, also known as the Central Puget Sound Regional Transit Authority, debuts with the first bond deal since voters approved an ambitious mass transportation program for the three-county region surrounding Seattle. The deal is scheduled to be priced Wednesday, although officials said it could come as soon as tomorrow.
Sound Transit officials early on held focus groups with insurers, rating agencies, and investors to determine how to best structure the bond, said budget and finance manager Brian McCartan.
"We asked them that, given our tax base, given our tax revenues, what are important features we should include?" McCartan said. "We looked at other transit agencies to see what they had included in their structures, and had the advantage of essentially building a credit from scratch with prior feedback from the key players."
Moody's Investors Service last week rated the deal A1 with a positive outlook, while Standard & Poor's assigned its AA rating to the loan. The transit agency also is considering insurance.
"Preparing for the first ever bond rating was a fairly thorough process," said Sound Transit Chairman Paul Miller. "We wanted to make sure that we hadn't left anything off the table, and to make sure that we didn't fail in putting out the message of how much a need this is to this region and how much strong support there was from the voters."
The debt will carry a double-barreled pledge from a 0.4% sales tax and a 0.3% motor vehicle excise tax. The deal is structured with serials maturing from 2007 though 2015, and three term bonds totalling $214 million that mature in 2018, 2023, and 2028.
The deal comes with strong legal protections that include a gross pledge of taxes collected before rail systems open; healthy, anticipated debt service coverage levels that aren't expected to drop below two times; and a fully funded debt service reserve account.
Sound Transit meanwhile has launched an investor relations program, aggressively reaching out to retail buyers in the Puget Sound area by making the rounds of broker-dealers. Traders were expected to open a retail-priority order period this morning.
"It's an excellent credit and a fairly visible new issuer," said John Penny, a director and manager with Salomon Smith Barney Inc., one of the deal's underwriters, in Seattle. "It's an issuer that people can focus on and an issuer that has done a good job of including a retail portion in the deal."
Part of the authority's voter-approved spending package includes the issuance of $1.4 billion of municipal debt over the next 10 years, with the capacity for more borrowing if citizens agree.
Proceeds will be spent to build high-capacity electric light rail, a commuter rail corridor, more than 100 miles of high-occupancy vehicle lanes, new regional express bus routes, and a light-rail line in Tacoma.
When completed, it is expected to move as many as 125,000 passengers each day out of Seattle's notorious traffic snarls one way or another.
Piper Jaffray Inc. and Boyea Capital Markets are joint financial advisers. Bond counsel is Preston Gates & Ellis, while Foster, Pepper & Shefelman is disclosure counsel. Goldman, Sachs & Co. is leading a underwriting syndicate that includes E.J. De La Rosa & Co., Lehman Brothers, and Salomon Smith Barney.
The agency will probably re-enter the market with another deal in the $200 million to $300 million range in January 2000. "Given the size of our program, it doesn't make sense for us to nibble at the market," McCarten said. "We want to go out with reasonable sizes."
