DALLAS - The Texas Transportation Commission expects to reduce maximum annual debt service on its toll road bonds by more than 28% through a $1.8 billion refunding.
The deal, refinancing nearly all of the Central Texas Turnpike System's outstanding debt, is expected to price Wednesday or Thursday through negotiation with senior managers Barclays and JPMorgan, according to Paul Jack, executive vice president of financial advisor Estrada Hinojosa & Co.
Robert Hillman, director at Barclays, is lead banker on the deal, which will come to market in the name of the Texas Transportation Commission, governing board of the Texas Department of Transportation.
The bonds will come in three series, with the largest, Series C at $1.3 billion. Series A and B will each be $225 million, according to the offering statement.
"We'll be issuing second-tier bonds for the first time," said Benjamin Asher, manager of innovative finance at TxDOT.
"We anticipate if market conditions continue to remain favorable that we will generate substantial savings, reducing our maximum annual debt service from $425 million to $305 million," he said. "As a result, we expect our debt-service coverage ratios to improve materially."
The second-tier bonds carry new ratings of Baa1 from Moody's Investors Service, BBB-plus from Standard & Poor's, and BBB from Fitch Ratings.
The first-tier bonds earned upgrades from Moody's and Fitch.
Moody's raised its rating to A3 from Baa1 while Fitch said it expects to upgrade its BBB-plus rating to A-minus when the deal closes in February. S&P affirmed its A-minus rating.
Total savings are expected to come to about $214 million or 11%, analysts said.
"The refinancing will also result in a smoothing of the aggregate debt service profile and a reduction of maximum annual debt service by approximately $118 million, or 28%," Fitch analyst Casey Cathcart wrote in a Jan. 9 report.
The first and second-tier series 2015 bonds are expected to refund all callable series 2002-A capital appreciation bonds, portions of the non-callable series 2002-A CABs, and the series 2012-B put bonds.
The new issue will also refund 2002 Transportation Infrastructure Finance and Innovation Act (TIFIA) debt.
Additional second-tier proceeds will fund a six-month debt service reserve supporting second-tier bonds, while the first-tier reserve remains fully cash-funded.
Moody's analyst Maria Matesanz attributed the upgrade on the first-tier bonds to stronger than forecasted growth in traffic and revenues in the economically strong Austin area.
"The Baa1 for the second tier bonds reflects their subordinate claim on pledged revenues and weaker legal covenants and reserves," Matesanz said. "After the refunding, the aggregate debt will be split approximately 50/50 between the senior and second-tier liens."
The initial $2.2 billion of bonds for the CTTS came Aug. 30, 2002 and were announced with fanfare by Gov. Rick Perry, who promoted the system as a model for his ill-fated Trans Texas Corridor, a proposed 10-lane super-tollway from the border of Mexico to Oklahoma that was to have included rail and utility lines.
"With the continued growth in our state, we must look at new ways to finance our transportation projects," Perry said at the time. "Compared to the traditional funding methods used for our state's highway construction, the Central Texas Turnpike System affirms that innovative financing can make the Trans Texas Corridor a reality."
After vocal protests from toll-road opponents and lawmakers, TxDOT withdrew plans for the Trans Texas Corridor but completed the Central Texas Turnpike System under budget and ahead of schedule.
The system includes a 49-mile segment of State Highway 130 from north of Georgetown to U.S. 183 south of Austin, a 3.5-mile extension of Loop 1 (MoPac) from FM 734 to State Highway 45, and a 12.2-mile segment of State Highway 45 from west of U.S 183 to State Highway 130.
An adjoining segment of SH 130 was built by Cintra Zachry, a consortium that used private financing and a TIFIA loan to build its segment from near San Antonio to Austin. Due to lower than expected traffic, that section has faced downgrades from Moody's to junk-bond status.
On the CTTS traffic and revenue is significantly above forecast, analysts said.
"Traffic and revenue performance continues to exceed expectations, even as those forecasts are revised up every few years," Cathcart noted. "Despite significant toll increases of 25% to 50% on each segment implemented in January 2013, total fiscal 2013 traffic grew 14%, with growth remaining robust in fiscal 2014 at 6%, bringing total transactions to 109 million."
Toll revenue grew 24% in fiscal year 2014, reaching $131 million, following 40% growth in fiscal 2013, Cathcart added.
Refunding of the CTTS debt comes after the Texas Transportation Commission issued a record $5.52 billion of bonds in six issues during 2014, including refunding that provided $319 million of net present value savings.
TTC's last issue of $1.595 billion of Series 2014A bonds, rated triple-A, were priced to yield between 0.65% with a 5% coupon in 2017 to 3.22% with a 5% coupon in 2044.
A $250 million of Series 2014B SIFMA Index floating rate bonds were priced to yield 38 basis points above the SIFMA Index in a bullet maturity of 2041 with a mandatory tender date on October 1, 2018 and an optional call on April 1, 2018.
Standard & Poor's affirmed its A-minus rating on the CTTS first-tier debt in January 2014 while keeping the outlook stable.
"The A-minus rating reflects our view of the system's expected revenues from tolls, historically strong demographic trends that have contributed to highly congested traffic conditions, solid equity contributions to overall project costs, and significant programmatic oversight and operational support from the commission and the Texas Department of Transportation," analyst Todd Spence wrote.
"In addition, we believe the facility exhibits a favorable project structure with subordinate debt and maintains strong senior-lien debt service coverage," Spence added. "In our opinion, key offsetting risks pertain to the inherent complexity and difficulty of generating reliable traffic forecasts and revenues and an ascending debt service schedule that requires steady revenue increases."
