The largest municipal bond deal of 2026 is built on the proposition that drivers in Mobile, Alabama, will pay tolls to save time by avoiding congestion.
The Alabama Toll Road, Bridge and Tunnel Authority plans to bring $3.7 billion of debt to market next week to finance a new tolled Interstate 10 bridge over the Mobile River.
The project's cornerstone is a six-lane cable-stay bridge with 215 feet of air draft clearance over the Mobile River. Presently, I-10 runs under the river in the four-lane, over-capacity George Wallace Tunnel.
One potential challenge, noted in the bond documents, is that drivers will have a free alternative to the bridge and Bayway viaduct that carries the highway over Mobile Bay directly to the east.
"Traffic in Mobile can have some pretty good bottlenecks, especially on Fridays," said John Mousseau, executive vice president and chief investment officer at Cumberland Advisors.
"Spending billions of dollars on an infrastructure project when there are lower-cost or free options is not a good formula for forward looking progress," he said.
"You only must look at
The free bypass won't be a particularly attractive option. Tolls will apply to the 11-mile stretch of I-10 crossing both the Mobile River and Mobile Bay, requiring a long slog over surface streets and the old tunnels to get around the tolls.
"It is always a question when the proposed facility faces existing competition," said Muni Credit News Publisher Joseph Krist.
"It is not as though the area is pleased with the existing traffic grid. Improved mobility has long been desired in the area," Krist said.
"The I-10 corridor is a well-established route that already faces significant congestion, particularly at the Wallace Tunnel," Fitch Ratings analysts told The Bond Buyer in an email.
"The project is designed to ease this bottleneck and provide faster, more reliable travel. While non-tolled alternatives exist, they are expected to become increasingly congested
"Owners of the lower-rated [bond] series will need to be committed to maintaining surveillance on the progress of the project, so I would expect most of the buyers for those would be asset managers with the ability to do that," said Pat Luby, senior municipal strategist at CreditSights.
Construction is expected to start in October and be largely complete by October 2031.
Political opposition to tolls
Many of the users aren't local; I-10 is a key freight corridor across the southern portion of the U.S.
A condition for issuing the bonds is federal sign-off on tolling the entire 11-mile I-10 segment through the Interstate System Reconstruction and Rehabilitation Pilot Program, even though there is no financing plan in place to upgrade the aging Bayway segment.
The authority will bring the bonds and notes in the form of $625 million in Series 2026A first lien toll revenue bonds, $2.52 billion in Series 2026-1 second lien toll revenue bond anticipation notes, $472 million in Series 2026C enhanced third lien toll and project revenue bonds and $91 million in Series 2026D taxable enhanced third lien revenue bonds.
The first lien bonds are rated Baa2 by Moody's Ratings and BBB by Fitch Ratings. The BANs are rated Baa3 by Moody's and BBB by Fitch. The third-lien bonds, enhanced by an Alabama Department of Transportation agreement to make up any toll shortfalls, are rated Aa3 by Moody's and AA-minus by Fitch. All have stable outlooks.
Wells Fargo Securities and BofA Securities will be lead managers, with Wells Fargo serving as book runner.
As part of the financing, the authority expects to receive a $2.52 billion federal Transportation Infrastructure Finance and Innovation Act loan, which will close concurrently with the issuance of Series 2026 bonds and be second lien under the indenture. In a bankruptcy-like event, the loan would be deemed a first lien obligation. The authority's entrance into the loan agreement is an express condition to issuance of the 2026 bonds, according to an online investor presentation about the deal.
The authority plans not to draw the loan to repay the notes until the project is substantially completed. The draw could be up to 12 months after the completion of the project.
The 2026-1 BANs have a single 2032 maturity that is to be taken out with the TIFIA loan.
"The anticipated 2026-1 Notes rate is lower than the TIFIA rate, thereby generating overall debt service savings," the investor presentation said.
The Series 2026A bonds are expected to have serial maturities from 2045 to 2066. The Series 2026C bonds are expected to have serial maturities from 2052 to 2066. The Series 2026D bonds are expected to have serial maturities 2042 to 2052.
Debt outstanding on Jan. 1, 2037, will be subject to optional redemption at par.
Most of the Alabama DOT revenue that supports the Series 2026C and Series 2026D comes from motor fuel taxes and vehicle license and registration revenue.
"I do think that electric vehicles pose a long-term threat to all fuel tax-based projects – not just here," Mousseau said.
"When the time comes when a mileage fee replaces fuel revenues as the major source of road funding, appropriate legislation can be crafted to assign the new revenue in place of the fuel taxes," Krist said.
"Transitioning road maintenance standards to accommodate heavier electrical vehicles, along with finding ways to maintain funding and good repair is a problem facing every state," Luby said.
The third lien Series 2026C and 2026D bonds are rated Aa3/AA-minus, five or six notches higher than the first-lien Series 2026A bonds and second-lien Series 2026-1 BANs, due to the Alabama DOT enhancement.
"The third lien obligation with the support of Alabama DOT will give some sense of support if revenues fail to keep up with forecast. That was something missing in the Connector 2000 deal," Mousseau said.
"Given that toll revenue depends on operations and volumes, the state revenues act as both a tangible backstop as well as a sign of the state's commitment to the project," Krist said. "The TIFIA payments to support the note portion of the deal require successful substantial completion. So yes, [the stronger ratings for the third-lien bonds] make sense."
To explain its Baa2 rating on the first lien bonds and Baa3 rating on the second-lien BANs, Moody's pointed to the Alabama Department of Transportation's support for the project coupled with the project's "fundamentally weak financial metrics."
The Alabama DOT is expected to provide partial funding of the project and support through clear steps of collaboration to gain project completion, if needed. The state DOT will also pay for operational, maintenance, repair and rehabilitation expenses, and make up toll shortfalls in the third-lien debt service.
"We analyzed a sensitivity case that reduced revenue by 30% that produced an average debt service coverage ratio of 0.97 times during the initial 10 years (2033-2042), with several years relying on ALDOT's lease payments," Moody's said.
The bonds are supported by a gross pledge of project revenues.
"The authority's progressive design-build approach helps to maintain risks and cost overruns of this complex project," Moody's said. "No liquid security is posted, which poses major risks for the project."
For the Series 2026C and 2026D bonds, Moody's Aa3 rating is set two notches below the state's Aa1 issuer rating, reflecting the general credit profile of the state government, the relationship of the Alabama DOT and toll bridge authority to the state, and Alabama DOT's commitment to make payments from available revenue if needed.
Moody's expects that the revenue available will provide at least two times coverage of maximum annual debt service of the priority claims.
For its BBB ratings of the Series 2026A and 2026B bonds, Fitch also notes Alabama DOT's support as positive. It says the project is an important transportation link for commuters. However, it notes there are competing free alternatives.
Co-managing the deal will be Raymond James, Siebert Bradford Shank, Piper Sandler & Co., PNC Capital Markets and Stifel, Nicolaus & Co. PFM is the municipal advisor. MaynardNexsen is bond counsel.
Average weekly traffic through the Wallace Tunnel is approximately twice its original design volume, the bonds' investor presentation says. Most days there is congestion in both directions.
