Friday, July 11, 2008

North Texas Tollway Authority Floats $1 Billion in Bonds

Texas toll road agency leads muni market with $1 billion sale


Adam L. Cataldo
Copyright 2008

NEW YORK - The North Texas Tollway Authority led borrowers in the municipal bond market with a US$1 billion sale Thursday to help finance a new toll road outside of Dallas.

Florida's Miami-Dade County will offer $468 million of water and sewer system revenue bonds. Proceeds will refinance insured variable-rate demand obligations whose cost rose, and to pay as much as $70 million to terminate a related interest-rate swap, finance director Rachel Baum said.

The Dallas-area toll-road operator revived a deal that was delayed in May amid rising borrowing costs. The bonds are rated A3 by Moody's Investors Service and BBB by Standard & Poor's. Top-rated municipal bonds gained 1.1 per cent for the year to date, while BBB rated bonds lost the same amount, based on total-return indexes compiled by Merrill Lynch & Co.

"The market's somewhat familiar with the story,'' said Paul Brennan, who manages about $14 billion of municipal bonds at Nuveen Investments in Chicago, said about the Texas deal. "There's going to be a pretty good opportunity if investors are comfortable with the credit.''

The Texas authority sold bonds maturing from 2031 to 2038 backed by a subordinate lien on their revenue. Underwriters, led by New York-based Lehman Brothers Holdings Inc., received sufficient demand to raise the price and lower the yield on 30- year bonds by 1 basis point, or 0.01 percentage point, to 5.99 per cent after initial pricing.

State and local government borrowers are selling about $6.2 billion of fixed-rate bonds this week, close to the weekly average this year and up from $1.5 billion last week, according to data compiled by Bloomberg.

Yields on top-rated, 10-year general obligation debt declined 1 basis point, or 0.01 percentage point, to 3.81 per cent, according to data compiled by Municipal Market Advisors, a Concord, Massachusetts-based research firm. It was the 10th consecutive decline after reaching an almost 10-month high of 4.05 per cent on June 25.

The Texas debt will refinance a portion of one-year notes sold in November 2007 to help finance construction of a 26-mile (42-kilometer) extension of State Highway 121 outside Dallas. The authority won a 50-year concession to operate the highway last year, beating out Madrid-based Cintra Concessiones de Infraestructuras de Transporte.

To help finance that project, the authority expects to sell $5 billion of debt, according to its preliminary official statement.

The authority sold $1.7 billion of bonds on March 6, its most recent transaction, with a yield of 4.79 per cent on debt maturing in 2018. The debt was rated A2 by Moody's and A- by S&P. That was 94 basis points higher than yields on AAA rated municipal bonds that day.

The authority operates two highways, two bridges and a tunnel, according to their preliminary official statement.

Miami-Dade County will sell $400 million of revenue refinancing bonds, and $68 million of new debt, backed by revenue from its water and sewer system.

Proceeds from the sale will refinance the county's 1994 water and sewer system revenue bonds. Rates on that variable debt rose to ten per cent in April after the debt's guarantor, FGIC Corp., was cut to speculative grade by S&P.

The swap agreement the county is terminating requires it to make a fixed-rate payment on that debt in return for a floating- rate payment from New York-based American International Group Inc., said Baum, the county's finance director. The county has made an additional $6.5 million in swap payments since mid- February, Baum said.

The water and sewer system provides service to most of the county's almost 2.5 million residents, according to its official statement. The bonds are rated A by Fitch Ratings. The sale will be managed RBC Capital Markets, a subsidiary of Toronto-based Royal Bank of Canada.

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