Miami-Dade County Expressway Authority plans to sell about $400 million of tax-exempts as yields on transportation-revenue bonds fall to their lowest in almost two years.
The authority, which initially planned a $350 million sale, took advantage of the lowest yields since September 2008 to retire debt. The agency forecasts that plans for so-called open-road tolling for five expressways will help increase toll revenue by 56 percent in the next 10 years, according to preliminary offering documents.
“Electronic collection systems tend to bode well for efficiency in running the project and in implementing increases,” said Philip Villaluz, a New York-based municipal analyst at Advisors Asset Management Inc. of Monument, Colorado. He helps oversee $225 million in municipal holdings. “This particular credit I like because it represents a well-established, multiasset infrastructure system.”
A handful of cities have begun introducing cashless tolls, including Denver’s E-470 highway in July 2009, and parts of the Illinois turnpike, the Harris County Toll Road Authority in Houston and the Selmon Expressway near Tampa, Florida, according to the Washington-based International Bridge, Tunnel and Turnpike Association.
The agency plans to sell $345 million in revenue bonds with maturities from 2034 to 2040 as part of their $494 million capital improvement plan, Marie Schafer, chief financial officer, said in a telephone interview. It also plans to issue $17 million to retire securities issued in 2000 and $49 million to repay notes sold in 2004.
“I think we’ll be somewhere in the low fives,” said Schafer, referring to an average yield for the longer-dated maturities, adding this enabled the refinancing of the debt at lower cost.
Comparably rated 30-year transportation bonds were yielding 5.3 percent, their lowest since Sept. 19, 2008, according to Bloomberg’s Fair Value Transportation index. The debt is rated A3 by Moody’s Investors Service and A- by Fitch Ratings, the fourth-lowest investment grades, and A by Standard & Poor’s, one level higher.
The authority has received a commitment from Assured Guaranty Ltd. to insure the notes, but no decision to add insurance has been made, said Schafer. Yields on the new issue will likely be higher than the prior offering, a $304 million sale in 2006. That was insured by Ambac Financial Group, the second-largest bond insurer before the onset of the credit crisis. The company was stripped of its AAA financial guarantee rating in 2008.
The bulk of the 2006 sale, which was rated AAA after insurance was applied, was 31-year bonds priced to yield 4.44 percent, equal to a Municipal Market Advisors index of 30-year top-rated debt at the time.
The extra yield that investors demand for expressway authority bonds due in 2037 relative to comparable top-rated debt has narrowed to 70 basis points as of yesterday from 105 on March 1, according to Bloomberg Valuation data. A basis point is 0.01 percentage point.
The same securities traded July 13 at an average yield of 4.9 percent, about 60 basis points above an index of comparable maturities, produced by Concord, Massachusetts-based MMA.
Moody’s warned that there are risks attached to the new revenue streams. “Until ORT is implemented and fully operational we believe that there is a risk of some traffic diversion to free, albeit not free-flowing, adjacent alternatives and the amount of additional revenue capture from the nonpaying users remains to be seen,” analysts at Moody’s wrote in a July 2 report led by Maria Matesanz.
Traffic is expected to grow on average around 3 percent a year during the next decade, said Schafer. That, combined with the new income stream projected from the open-road tolling on the three current cashless routes, will increase revenue to $167 million in 2020 from a forecast $107 million fiscal 2010.
Yields on top-rated, tax-exempt general obligations that mature in 30 years averaged 4.4 percent yesterday for the ninth consecutive day, the lowest since at least January 2001, according to MMA data. The yields haven’t increased since June 15.
The Miami-Dade Expressway Authority approved the plan to implement a completely cashless toll system in May 2006. It completed the switch on three of its roads, the Gratigny Parkway, the Don Shula Expressway and the Snapper Creek Expressway earlier this summer, according to offering documents. The agency plans to finish the other two roads, the Dolphin Expressway and the Airport Expressway which links Miami International Airport to the city, by 2014.
Commuters who do not use “Sunpass,” Florida’s prepaid system, will be charged an extra 15 cents fee per trip, Schafer said, and can pay online, by phone, or in person at the customer-service center. Those who have bills sent to them by mail will pay $3.00 a month more.
The Oakland, California-based Bay Area Toll Authority sold $1.5 billion of Build America Bonds in June with their 30-year maturities priced to yield 6.9 percent. They have since fallen to 6.7 percent. Miami-Dade Expressway decided not to offer Build Americas because tax-exempt yields were low enough. Also, the issuer shared Florida’s concern that the federal subsidy may not be fully guaranteed, said Schafer.
Following are descriptions of pending sales of municipal debt in the U.S.:
NEW YORK CITY TRANSITIONAL FINANCE AUTHORITY, which helps the most populous U.S. city raise funds for capital projects, plans to sell $750 million in both taxable and tax-exempt debt as soon as tomorrow. The securities, rated second-highest, at Aa1, by Moody’s, will be marketed by a group led by Citigroup Inc. (Added Aug. 3)
REGIONAL TRANSPORTATION DISTRICT, which manages mass-transit operations in and around Denver, plans to issue $404 million in tax-exempt debt Aug. 5. The bonds, rated Baa3 by Moody’s, the lowest investment grade, will be used for capital improvements including two rail lines. Barclays Capital and Bank of America Merrill Lynch will market the securities. (Updated Aug. 2)
MINNESOTA, which is delaying tax refunds for a second year to conserve cash and balance its budget, plans to sell through competitive bidding $865 million in general-obligation taxable and tax-exempts as soon as this week. The state is raising $635 million for various purposes and $225 million for trunk highways, both of which are tax-exempt, and $5 million of taxable debt. The bonds are top-rated by Fitch and carry Moody’s second-highest grade at Aa1. (Added July 29)
RALEIGH-DURHAM AIRPORT AUTHORITY, which maintains and operates North Carolina’s second-busiest airport, plans to offer about $314 million in tax-exempts as early as tomorrow. The securities, rated fourth-highest by both Moody’s, at Aa3, and by Fitch, at AA-, will be used to refinance debt. Barclays Capital will lead a group marketing the issue. (Added Aug. 3)