Silicon Valley transit agency refunds variable debt to fixed

The San Jose, California-centered Santa Clara Valley Transportation Authority refunded sales tax revenue bonds to take advantage of lower interest rates and convert variable-rate debt to fixed.

The transit agency issued $103.2 million in a negotiated deal that priced Wednesday. It was rated AAA by S&P Global Ratings and AA by Fitch Ratings.

Passengers board a Santa Clara Valley Transportation Authority light rail train at Levi's Stadium in Santa Clara, California, on May 11. 2018.

“The AA IDR reflects the authority’s very strong gap closing capacity, solid revenue growth prospects, moderate-to-low debt burden and solid expenditure facility, balanced against the authority’s limited independent legal ability to raise revenues,” Fitch’s analysts said.

Norton Rose Fulbright is the bond counsel for the authority and Ross Financial is the municipal advisor. Goldman Sachs was lead underwriter. JPMorgan Securities and Morgan Stanley were co-managers, according to Thomson Reuters.

The authority is an independent special district responsible for bus and light rail operations, regional commuter services, highway projects and transportation planning for 1.9 million residents. The service area includes San Jose and the Silicon Valley.

Mike Smith, finance manager for debt management and investment, said pricing went well and will realize the authority $1.6 million in savings.

The 2008 series were issued as variable-rate bonds but were refunded at a traditional fixed-rate structure, Raj Srinath, chief financial officer for the authority, told the agency board in a Sept. 5 report. The agency is now paying 3.47% interest which will be lowered to 3.22% with the refunding, he said.

“This refunding is primarily being undertaken to simplify VTA’s debt portfolio and eliminate future uncertainty related to the variable rate 2008 Bonds and related interest rate swaps,” Srinath said. “Conversion of the variable rate bonds to fixed rate bonds will eliminate the requirement to maintain a liquidity facility, thus eliminating uncertainty regarding future pricing and availability of the facility.”

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Refunding bonds Transportation industry Sell side California
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