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The Foothill/Eastern Transportation Corridor Agency (F/ETCA) has successfully refinanced $2.3 billion in outstanding debt that was originally issued in 1999.

“This is great news for Southern California drivers,” said Lisa Bartlett, F/ETCA Chairwoman and Mayor for the City of Dana Point.  “The refinancing enhances the agency’s financial position so that we can concentrate on providing and improving mobility.  We’ve lowered annual debt payments, which will provide pricing flexibility and cash flow for important projects.”

TCA Spring 2011The refinancing extends F/ETCA debt from 2040 to 2053, lowers annual payments through 2040 and reduces maximum annual debt payment by 24 percent.  The bonds are being structured with various call dates and will be eligible for early redemption with excess revenue if the agency’s Board of Directors chooses to do so, thereby shortening the final maturity date and eliminating the need to make additional interest payments.

“The bond refinancing reduces debt payments by $975 million between now and 2040 and will create a flexible financing structure.  The restructuring of the debt keeps the agency in a very strong financial position and allows The Tolls Roads to continue to provide a valuable choice for Orange County residents and commuters,” said Patricia Bates, F/ETCA Vice Chairwoman and Orange County Fifth District Supervisor.

Traffic and revenue on the 36-mile toll road network has been growing with Orange County’s regional economic recovery.  For the first five months of the fiscal year (July thru December), traffic has increased two percent compared to the similar period in 2012 and revenue is up seven percent.

“The restructuring brings the agency’s debt in line with current revenue projections and strengthens our financial outlook,” said Amy Potter, CFO of the Transportation Corridor Agencies (TCA).  “The Board of Directors had authorized up to a 6.5 percent interest rate for the bonds, and the final result was 6.06 percent.  The annual growth rate for the bonds has been reduced from 4.2 percent to 3.75 percent and the peak debt service has been reduced by $74 million.”

TCA Spring 2011In October, the F/ETCA Board of Directors approved the refinancing of its outstanding bonds and amendments to a cooperative agreement between the F/ETCA and Caltrans that allows tolls to be collected through 2053.  The following month, the F/ETCA received investment grade ratings from Standard & Poor’s and Fitch Ratings on its update to the proposed refinancing of the 1999 bonds.  With two ratings, the agency was able to move forward with the refinancing.

Standard and Poor’s noted that revenues have responded well to recent toll increases, that the willingness to increase tolls by management is a positive credit factor and that the restructuring plan reduces maximum annual debt service by $30 million (actual reduction is $72 million).  Fitch Ratings acknowledged that extending the debt by 13 years provides a more stable financial profile and that a history of pro-active decisions by management to raise rates is a credit strength.

“The 133, 241 and 261 Toll Roads provide a valuable link to the population centers in the Southern California region – which is the second largest metropolitan area in the country.  It’s a link to a burgeoning economic and employment center that is located in Orange County,” said Neil Peterson, TCA’s CEO.  “We are providing a valuable and affordable service to the people who are coming in and out of Orange County to get to those jobs.  Our board has a 13-year history of stepping up to the plate and meeting their financial obligations. Our toll revenues and our transactions have recovered strongly from The Great Recession and in the last three years have seen a steady increase. The refinancing provides cash flow savings to us between now and 2040, reduces the increase of our debt service requirements, lowers our maximum annual debt service, allows us a greater margin to exceed our coverage requirements of net toll revenues going forward.”

“The experience that we offer our customers is a choice of a predictable trip that saves time and stress,” said Peterson.  “The F/ETCA Board of Directors, finance team and staff are commended for the work they have put into making this refinancing a reality.”

F/ETCA Board Votes To Refinance Debt, Strengthen Financial Position

133 Toll Road

133 Toll Road

At its meeting last week, the Foothill/Eastern Transportation Corridor Agency (F/ETCA) Board of Directors approved a plan to issue toll road refunding revenue bonds totaling $2.3 billion, which will allow for the refinancing of current bond obligations. The Board also approved amendments to a Cooperative Agreement between the F/ETCA and Caltrans. These actions w

ill allow the F/ETCA to restructure its debt and lower annual debt payments.

“Easing traffic congestion is our top priority. Our actions today will help us take the steps necessary to ensure that our finances will be sound and we can continue offering Southern California commuters a safe and reliable toll road choice that saves them valuable time,” said Lisa Bartlett, chairwoman of the F/ETCA and Dana Point’s mayor pro tem.

Neil Peterson, CEO of the Transportation Corridor Agencies, outlined three reasons for approving the Cooperative Agreement and refinancing during the meeting:

1) The refinancing will put the agency’s finances in order;

2) lowering annual debt payments will provide cash flow for important projects such as the State Route 241 to 91 Express Lanes direct connector; and

3) lower payments will provide for pricing flexibility to allow the agency to partner with regional transportation organizations to improve mobility through increasing use of the toll road system.

241 Toll Road

241 Toll Road

“The more people who choose to drive on The Toll Roads, means less congestion on free alternatives. Less congestion improves mobility and traffic circulation for everybody in the region,” said Peterson. “The refinancing plan is similar to refinancing your home mortgage. The current market situation will allow us to lower our annual debt service growth rate, lower annual payments and reduce the maximum annual payment.”

A refinancing plan was approved in June, but it was not executed because negotiations on the ultimate language in the Cooperative Agreement was not finalized until last week. The Cooperative Agreement amendment that will allow the F/ETCA to collect tolls until 2053 is required to issue the refinance bonds. Since June, interest rates have risen to a level that would not allow the agency to improve its finances. In the past few weeks, interest rates have fallen. That — coupled with some modifications to the original plan — makes refinancing economically prudent.

“Today’s decision is good news for business. It is important to an efficient and effective movement of people and goods that California’s transportation systems are fiscally sound. With a region’s mobility comes a more predictable economic recovery,” said Lucy Dunn, president and CEO of the Orange County Business Council.

One important aspect of TCA’s refinancing program is the use of short-term, fixed-rate Rate Reset Bonds (RRBs), which gives the agency maximum flexibility as interest rates change. RRBs have been used by many other issuers, including the State of California, the University of California and, recently, Grand Parkway toll road in Texas. The refinancing will lower the annual debt growth rate to 3.6 to 3.75 percent instead of the current 4.4 percent rate on existing debt.

261 Toll Road

261 Toll Road

The Board’s actions come as ridership is increasing on the routes operated by the F/ETCA – State Routes 133, 241 and 261. For the first three months in the fiscal year that began in June, traffic has increased two percent compared to the similar period in 2012 and revenue is up by more than seven percent.

Ridership is beginning to grow after U.S. toll roads saw a significant decline in traffic because of the Great Recession.

“Subject to market conditions and interest rates, the plan is to sell the bonds before Thanksgiving and close the transaction in early December,” said Chief Financial Officer Amy Potter.

TCA/The Toll Roads Respond To Fitch Ratings Announcement

fitchYesterday, Fitch Ratings issued a press release regarding the Foothill/Eastern Transportation Corridor Agency’s (F/ETCA) outstanding debt.   While F/ETCA bonds had been on a “negative outlook,” Fitch now has now placed the bonds on “negative watch” while they monitor the agency’s efforts to refinance within the next three to six months.

The announcement is not a surprise.  It highlights the need to come to an agreement with Caltrans so that the refinancing can proceed.  The one thing slowing down the F/ETCA’s plan to refinance $2.4 billion in outstanding toll road revenue bonds, to take advantage of lower interest rates and lower its annual debt payments, is California’s transportation agency, Caltrans.  Click here to read more. 

Fitch notes that the F/ETCA’s various reserves for debt service are projected to remain healthy.  Fitch also recognizes that refinancing the agency’s debt to improve financial flexibility is a positive move.

1238295_10151896889601011_1213277395_nAll three rating agencies have given the refinance plan investment grade ratings and the California Treasure’s office, through its California Debt Investment Advisory Commission — issued a report that stating that “…the Agency’s restructuring is in the best interest of its bondholders, toll road users, and the general public.”

The next step is to finalize an agreement with Caltrans that will allow the F/ETCA to extend the ability to collect tolls the number of years necessary to pay back debt.

The F/ETCA has $2.4 billion in outstanding debt with an average interest rate of 6.09 percent and debt payments grow by an average of 4.4 percent each year.  The refinance plan could reduce the debt payment growth to 3.5 percent per year or less.  It is prudent to pursue a refinancing, just as thousands of people have refinanced their homes, to take advantage of historically low interest rates.