LOS ANGELES — It has been a slow road to market, but the Foothill/Eastern Transportation Corridor Agency in Orange County, Calif., will finally get the $2.2 billion refunding it needs to put its finances on stable ground when the bonds price on Dec. 11 and 12.
Barclays Capital Inc. and Goldman, Sachs & Co. will act as joint book runners. Stradling Yocca Carlson & Rauth is bond counsel. Public Financial Management, Inc. is the financial advisor.
The agency originally planned to refinance the debt on July 8, but the California Department of Transportation dragged its feet, agency officials say, on signing an agreement needed to extend the toll agency's authority to toll its 36 miles of highway by 13 years to 2053.
Caltrans and F/ETCA finally reached an agreement on Oct. 10.
The proposed restructuring was dependent on the agreement between Foothill/Eastern, the toll road operator, and Caltrans, which owns the road. Foothill/Eastern needed the extension of the agreement because the refinancing will extend the maturity dates on the bonds from 2040 to 2053.
The Caltrans agreement and revised parameters surrounding the transaction enabled Foothill/Eastern to bring the deal to market, said Amy Potter, chief financial officer.
"The market had improved enough from this summer and the transaction made sense," Potter said.
Officials have a net road show planned for the week of Nov. 25 and will meet with investors the week after Thanksgiving, she said.
The biggest change in the bond structure over what Foothill/Eastern had planned to bring to market in July is that all of the new bonds are now callable, Potter said.
"The transaction became simpler, because we no longer needed taxable," Potter said. "We also added term rate fixed-rate bonds that have maturities of five, seven and 10 years."
Other than that, it is very much the same, Potter said, "focused on reducing the growth rate of the debt, building in margins with extra cash flow and the ability to meet our coverages."
The Series 2013A bonds will be comprised of $1.3 billion in current interest bonds, $173 million in convertible capital appreciation bonds, and $155 million in capital appreciation bonds. The Series 2013B bonds will be three equal $125 million series of current interest, term rate bonds. The refunding also includes a $201 million junior lien Series 2013C.
After the restructuring, Foothill/Eastern will have $2.4 billion in outstanding debt including the $180 million series 1995A bonds that aren't callable.
Foothill/Eastern and its sister agency, the San Joaquin Hills Transportation Corridor Agency, have both struggled in their own ways since opening to traffic in 1998.
San Joaquin Hills TCA fell to speculative grade as predicted traffic never materialized. Foothill/Eastern has fought for years to build a southward extension.
The two agencies are run by a single management team. The twin tollways have been working on debt restructurings to create long-range financial plans that are more realistic.
Standard & Poor's, Fitch Ratings, and Moody's Investors Service rated the Series A and B bonds BBB-minus, BBB-minus, and Ba1, respectively. The ratings agencies assign the junior lien Series C bonds BB-plus, BB-plus and Ba1 ratings. Fitch's ratings are contingent on the pricing going through and the rating agency receiving final documents.
Prior to the restructuring, debt service increased by a 4.4% average annual rate through 2040 to a maximum annual debt service of approximately $298 million, said Savaan Gatfield, a Fitch senior analyst.
Under the proposed restructuring scenario, the final maturity is extended to 2053 and the aggregate senior and junior lien debt service grows at a slower, though still rising rate of approximately 3.75% annually through 2040, according to the Fitch report. After that, debt service is level at roughly $268 million through 2053.
The maximum annual aggregate debt service post-restructuring is roughly $60 million lower compared with existing debt service, Gatfield said. By lengthening the maturity of the debt, they reduced some periodic payments to a more sustainable level, he said.
"We believe the restructured debt service provides the agency additional flexibility and better matches the debt service schedule with forecasted revenues," said Standard and Poor's analyst Todd Spence in a ratings report. "We did not view the recent practice of escrowing of debt service as sustainable, and the restructured debt service and financial forecast provided by management does not require the use of escrowed funds going forward to maintain coverage requirements."