“This is great news for drivers and the communities that surround the 73 Toll Road,” said Scott Schoeffel, Chairman of the San Joaquin Hills Transportation Corridor Agency, the joint powers authority responsible for financing the 73 Toll Road. “Refinancing improves the agency’s long-term financial health by lowering the annual debt service payments and improving financial flexibility.”
The bond issue was well received by the market with $2.5 billion in orders for a bond issue sized at $1.4 billion reflecting the 73 toll road’s performance, rating upgrade and confidence in the credit profile.
By taking advantage of the current low interest rates, and selling bonds with a nominal maturity of 2050 compared to the current 2042, the annual debt service growth is reduced from 8.8 to 1.7 percent over the next ten years. The interest rate on the restructured bonds averages 4.74 percent. The previous average was 5.72 percent – a reduction of nearly 100 basis points.
“The combination of low interest rates, improved credit rating, and strong investor response resulted in a net present value savings of $44 million,” said Amy Potter, Chief Financial Officer for the Transportation Corridor Agencies.
“With this new long-term sustainable debt structure and conservative growth outlook for the 73 Toll Road, the agency will have greater financial flexibility moving forward which may allow the agency to moderate future toll rate increases, withstand economic downturns and potentially pay off the debt ahead of the 2050 final maturity date,” said Michael Kraman, Chief Executive Officer for the Transportation Corridor Agencies.
The sale is scheduled to close in early November and consisted of:
$1.1 billion in tax-exempt Senior Lien Current Interest Toll Road Revenue Bonds, with a 1.3-times coverage ratio requirement.
$300 million in tax-exempt Current Interest Junior Lien Toll Road Refunding Revenue Bonds, with a 1.1-times coverage ratio requirement.
Standard & Poor’s and Fitch Ratings have rated the agency’s Senior Lien Bonds BBB- and the Junior Lien Bonds BB+. Both ratings are higher than the agency’s previous ratings.
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.”
The 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.”
In 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.”
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With the receipt of investment grade ratings from Standard & Poor’s and Fitch Ratings, The Foothill/Eastern Transportation Corridor Agency (F/ETCA) is moving forward with the proposed refinancing of outstanding debt issued in 1999 – a plan that was approved by the F/ETCA Board of Directors on October 10.
The Preliminary Official Statement was released on November 21 and the bonds are scheduled to be sold the week of December 9.
The refinancing is a good financial step that takes advantage of low interest rates to lower debt payments and it will allow for fewer and lower toll rate increases in the future. Lower toll rates mean less congestion on free alternatives and improved traffic circulation, which is important for regional mobility and recovery of the local economy.
“This is good news for commuters and recognizes the economic recovery that is occurring in Orange County and the surrounding area,” said Neil Peterson, CEO of the Transportation Corridor Agencies. “The refinance plan provides the agency with greater flexibility to withstand future economic downturns which is the prudent thing to do.”
The F/ETCA manages and operates State Routes 133, 241 and 261. Traffic and revenue on the 24 miles of roadway have been growing as the Orange County economy has strengthened. For the first four months of the fiscal year (July through October), traffic has increased 2.8 percent compared to the similar period in 2012 and revenue is up 7.6 percent.
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Yesterday, 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.
All 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.