Tuesday, July 14, 2009

NTTA pushes 32% toll increase amid soaring debts from SH 121 toll road conversion payoffs and falling traffic

NTTA Sets $1.7B of Debt, With Big Chunk of Build America Bonds

NTTA bubble


By Richard Williamson
The Bond Buyer
Copyright 2009

The North Texas Tollway Authority is assembling a roughly $1.7 billion bond package that will kick off next month with $790 million of taxable Build America Bonds and $530 million of tax-exempt debt in a deal that will test the market's appetite for paper in the low A-rated category.

The NTTA's board is scheduled to approve the plan on Thursday with a pricing likely the week of Aug. 3.

Goldman, Sachs & Co. will be senior manager on the senior-lien BABs, which will carry 40-year maturities, no call provisions, and are expected to earn yields equivalent to 30-year Treasuries plus 275 basis points, according to Doug Hartman, managing director at financial adviser RBC [Royal Bank of Canada] Capital Markets.

Along with the BABs, the NTTA will issue $530 million of fixed-rate senior-lien debt with Morgan Stanley as senior manager. With maturities between 2022 and 2039, the tax-exempt revenue bonds are expected to bear yields of 6.1% to 6.5%, Hartman said. The bonds will have a 10-year call provision.

In addition, the authority plans to issue a $360 million tranche of tax-exempt bonds in September with Siebert Brandford Shank as senior manager.

Credit ratings are critically important to the agency, which is preparing to raise tolls to maintain debt coverage levels while cutting costs to accommodate declining revenue. The NTTA is not planning to insure the debt and has not arranged for a letter of credit, a spokeswoman said.

In its last rating action, Standard & Poor's assigned an A-minus to the NTTA's senior-lien toll revenue bonds and a BBB-plus to the subordinate-lien debt, with a stable outlook on both. Moody's Investors Service rates the senior bonds A2 and the subordinate bonds A3 with a stable outlook.

NTTA board chairman Paul Wageman led a team to visit Standard & Poor's and Moody's in New York last week to make the case that the toll road agency is committed to maintaining coverage levels for its rising debt in a down economy.

"We think we've got a good case that the board has taken the steps needed to keep NTTA on solid ground," Hartman told board members last week.

The authority's finance and audit committee, made up of board members, last week took the big step of imposing a 32% toll hike on the Dallas North Tollway and President George Bush Turnpike. Tolls will rise from the current 11 cents per mile to 14.5 cents, growing further to 15.3 cents in 2011 and rising annually at a compounded rate of 2.75% through 2017, when they would hit 18.01 cents per mile.

The full board is expected to approve the increase on Thursday. Only board member Bob Day voted against the toll hike on the finance committee last week, saying he wanted to bring his own proposal before the board.

The higher tolls come as revenues are falling due to less traffic and the failure of scofflaws to pay tolls that are now monitored electronically. Drivers who lack toll tags are sent bills in the mail based on photos of their cars' license plates, but the authority admits that collections have proven difficult.

"We realize these are difficult economic times to raise rates," said NTTA chief financial officer Janice Davis, speaking to board members, "but this is the prudent decision that will help maintain the quality of existing roads, fulfill NTTA's debt service obligations, and meet regional commitments to finance and build much-needed road construction projects."

The vote to raise tolls comes a month after the authority trimmed its budget by $108 million after reporting a 10.9% decrease in projected revenue for 2009. The reductions were based on revenue in the first four months of the year.

"We will continue to monitor the situation and make adjustments where necessary," said NTTA executive director Allen Clemson.

The cutbacks are also affecting bankers, advisers and other professionals working on bond issues.

The finance committee last week approved a 25% cut in fees for RBC's project team in New York that is working on an upcoming State Highway 161 toll financing. If the bond deal closes by next February, the RBC team will earn $75,000 rather than $100,000. But if the deal closes by October, the team will earn back the $25,000, officials said.

Despite questions about how much RBC was earning per hour and spending on travel, board member Victor Vandergriff praised its work for the authority.

"They've put in long, hard hours analyzing the financial information in an ever-changing world," he said. "They're putting in the hours."

Hartman at Royal Bank of Canada is also working on an NTTA bond issue for the first time, replacing managing director Rebecca Heflin, who is on leave. Hartman moved to RBC from Citi last month. Before working in Citi's Dallas office, he worked eight years with First Southwest Co. as senior vice president. He also previously worked as a senior managing consultant with Public Financial Management in Austin.

In addition to next month's financing for new-money and refunding commercial paper, the NTTA will be looking for opportunities to refund 1997 and 1998 bonds for current savings, according to Hartman. The authority also wants to refund its Series 2005C bonds to eliminate swaps and faces a mandatory refunding of $335 million of put bonds in January.

Despite a soaring debt load fueled by $3.5 billion of bonds sold in 2008 for State Highway 121, the toll increase will allow the NTTA to maintain debt service ratios of about 1.5 times.

"Is the bottom line that we meet our targeted coverage ratios?" board member Kenneth Barr asked CFO Davis in a discussion of the toll hike.

"It is," she said.

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