With two upgrades in hand thanks to new state support, the Missouri Highways and Transportation Commission returns to the market Wednesday to take competitive bids on $180 million of third lien bonds to fund bridge work.
In a first for the commission, the state has pledged under a financing agreement subject to annual appropriation to cover debt service on up to $300 million of borrowing over a seven-year term.
That funding helped land upgrades from Moody’s Investors Service and Fitch Ratings.
The fiscal 2021 state budget approved by lawmakers and signed by Gov. Mike Parson included the authorization and $50 million of cash for bridge projects. The commission will break the bond authorization into two deals.
“To ensure compliance with IRS spending requirements, two issuances will be required,” the commission and Department of Transportation’s chief financial officer, Brenda Morris said. That will allow the commission to comply with tax law time guidelines on the spending of bond proceeds.
“We anticipate receiving $201 million of bond proceeds for the estimated $180 million issuance," she said. "The second issuance is expected in November 2021 for $100 million.”
The commission has authority over MoDOT, the state highway system, and all state transportation programs and facilities.
The non-callable bonds being issued a third lien mature from 2020 to 2025. PFM Financial Advisors LLC is advising on the deal and Gilmore & Bell PC and Bushyhead LLC are co-bond counsel and co-disclosure counsel.
The commission’s bridge program identified more than 200 top priority projects to receive funding for repairs or to be rebuilt. The state highway system has 10,384 bridges of which 909 are ranked as being in poor condition with another 1,131 having weight restrictions. The state’s $350 million allocation will free up MODOT funding from available transportation related tax sources and federal dollars for other work.
Morris said it’s a first for the agency to receive direct general fund support for bonding. The triple-A rated state is a rare issuer and holds a tight leash on new bonding authorization so the allocation was all the more welcome given the commission’s struggles to garner public or legislative support for tax hikes. Voters last year rejected a gasoline tax hike.
The commission’s last new money sale was in 2010 when it exhausted state approved bond capacity based on its existing funding streams. It has since focused primarily on maintenance work. The commission has $8 billion to $10 billion of unfunded long-term needs. The new deal will bring total debt up to nearly $1.8 billion.
Ahead of the sale, Moody’s assigned its Aa1 rating to the new third lien bonds and raised the commission’s $241 million of outstanding third lien bond rating to Aa1 from Aa2. The outlook is stable.
The commission’s $59 million of senior lien and 4529 million of first lien bonds carry Moody's Aaa rating while $185 million of second lien and $593 million of federal reimbursement state road bonds carry Aa1 ratings.
The upgrade “is based on the maintenance of healthy debt service coverage and appropriations from state general revenue to support the payment of debt service beginning in fiscal 2020,” Moody’s said.
Fitch Ratings assigned Its AA-plus rating and stable outlook to the new bonds, up one notch from the AA assigned to the outstanding third lien bonds, and affirmed the state’s AAA rating.
The one-notch distinction between new and outstanding third lien debt “reflects the state's commitment to include annual budgetary appropriations to pay debt service on the bonds in a manner distinct from its annual appropriations of state road bond fund moneys that support other series of third lien bonds,” Fitch said.
S&P Global Ratings affirmed its AA-plus rating on the third lien bonds. It rates the other liens AAA.
