At its regularly-scheduled monthly meeting this Thursday, the San Joaquin Hills Transportation Corridor Agency Board of Directors will consider the issuance of toll road refunding revenue bonds to refinance half or more of its $2.2 billion in outstanding debt issued to fund construction of the 73 Toll Road.
The refinancing takes advantage of current low interest rates in the municipal bond market and recent strong performance of the 73 Toll Road to allow for a refinancing that will improve the agency's long-term financial health.
Contingent upon the execution of the restructuring plan, Standard & Poor's and Fitch Ratings have rated the agency's Senior Lien Bonds at an investment grade level, an improvement over the 73 Toll Road's current bond ratings. The Senior Lien Bonds are rated BBB- by both Standard & Poor's and Fitch Ratings. The Junior Lien Bonds are rated BB+ by both Standard and Poor's and Fitch Ratings.
"The BBB- (EXP) expected rating reflects the effect of the smoother debt service profile following this debt restructuring that, along with robust cash reserving, will leave the San Joaquin Hills Transportation Corridor Agency (SJHTCA) dependent on only modest revenue growth to service debt," reports Fitch Ratings.
The plan restructures the bonds to lower annual debt service growth from 8.8 to 2.3 percent over the next ten years. This is accomplished by taking advantage of low interest rates and by selling bonds with a nominal maturity of 2050 compared to the current 2042. The structure includes call features to allow bonds to be paid off early so the actual final maturity may be well before 2050 depending on future road performance and decisions on toll rates.
Lowering the annual debt service growth rate and bond interest rate, along with the removal of the current requirement to aggressively raise toll rates to maximize revenue, will give the Board of Directors more flexibility to implement toll rate policies that are more in line with inflation.
More than 85,000 vehicles a day use the 73 Toll Road and traffic grew by 5.9 percent in Fiscal Year 2014 (FY14). The refinancing sets new revenue projections that are based on 18 years of actual usage trends and the new debt service growth rate is reduced from 8.8 to 2.3 percent over the next ten years. This is a sustainable plan that will lead to improved mobility in the region.
The Board of Directors will consider finance structure parameters at Thursday's meeting because exact amount and types of bonds to be offered to the market will not be known until the bonds are sold.
As of October 1, 2014, the offering would consist of:
- $761 million of tax-exempt Senior Lien Toll Road Revenue Bonds (approximately $626 million of which will be Current Interest Bonds and $135 million of which will be Capital Appreciation Bonds).
- $240 million of tax-exempt Junior Lien Toll Road Refunding Revenue Bonds.
- The agency will also implement a tender offer and an offer to amend the terms of certain existing bonds that are not callable to further improve the refinancing results. The amount of tax-exempt Senior Lien and/or Junior Lien bonds could be increased by the purchase price the agency would pay if there is a successful tender purchase of Series 1997 bonds that are currently not callable.
Junior Lien bonds will be issued in order to lower costs and improve savings, flexibility and the efficiency of the refinancing. The amount could increase above the $240 million specified above. The Junior Lien bonds have a 1.1-times coverage ratio requirement.
A new bond structure with lower growth rates and advantageous call features will enable the agency to more easily manage its finances in the future. If revenues grow at a rate faster than the debt service growth rate, future Boards can elect to use excess revenue to pay down the debt sooner or raise tolls at a slower rate.
An average growth rate in gross toll revenues of 3.2 percent is projected between 2015 and 2050. The new annual debt service starts comfortably below estimated revenues for the next year providing more cushion as debt growth is anticipated to be 3.0 percent or less. With the call features planned to be imbedded in the restructuring bonds, the agency will have the option of using excess revenues to retire debt early.
The agency originally issued $1.1 billion in bonds in 1993 to finance construction of the 73 Toll Road. In 1997, the agency issued $1.4 billion of refunding bonds to refinance all but $220 million of the original 1993 bonds. In 2011, because of the severe financial stresses caused in part by the Great Recession, the agency restructured its debt by means of an agreement with existing bondholders, which amended a number of key covenants in the Master Indenture of Trust and extended the maturities on $430 million of the 1997 bonds to 2042.
The current toll rate covenant requires that toll rates be set annually to achieve maximum revenue as determined by an independent traffic and revenue consultant. This toll setting requirement has resulting in toll rate increases averaging 5.6% FY12, 10% in FY13, 10% in FY14 and 5.9% in FY15. Over the past three years - FY11 to FY14 - revenue grew 33 percent. The new rate covenant will allow for more modest inflationary toll rate increases to achieve the 1.3 times coverage for the annual debt service for the Senior Lien bonds. Upon approval, and dependent on municipal bond market interest rates, the refinancing bonds will be marketed and sold in October.
The San Joaquin Hills Transportation Corridor Agency (SJHTCA) is a joint powers authority formed by the California legislature in 1986 to plan, finance, construct and operate the 15-mile San Joaquin Hills Transportation Corridor (SR 73). Elected officials from surrounding cities and county supervisorial districts are appointed to serve on each agency's board of directors. Public oversight ensures that the interests of local communities and drivers are served and that TCA continues to meet the region's growing need for congestion-free transportation alternatives.
The Toll Roads Media Relations
Sarah Swensson King
Media Relations Manager
SKing@thetollroads.com
949.754.3417
