Bay Area Toll Agency Cuts Build-America Costs 17%: Muni Credit

San Francisco’s Bay Area Toll Authority, the bridge operator that sold $1.5 billion in Build America Bonds four months ago, is offering $400 million of the taxable debt amid a 17 percent drop in relative borrowing costs.

The extra yield that investors demand for Build America Bonds over 30-year Treasuries has fallen an average 4 percent in the same period, according to a Wells Fargo index. The so-called spread was 180 basis points Oct. 25, down from 188 basis points on June 24, the date of the agency’s previous sale. A basis point is 0.01 percentage point.

While the Oakland-based agency’s borrowing costs have declined faster than the overall market, increased supply may force the authority to concede more yield to attract investors, said Alan Schankel, managing director of fixed-income research at Philadelphia-based Janney Montgomery Scott LLC. About $4.2 billion of Build Americas are being sold this week, the most since April 24, 2009, according to data compiled by Bloomberg.

“The market is getting weaker,” Schankel said. “The name is a good name but the timing is going to challenge it.”

The authority, which finances bridge construction and renovation using tolls from seven state-owned spans around San Francisco, sold 30-year Build Americas priced to yield 6.92 percent on June 24, or about 288 basis points above 30-year Treasuries. The spread narrowed to 240 basis points yesterday, Bloomberg data show.

Credit Rating

Tomorrow’s offering, backed by a subordinate lien on toll revenue, is rated A1 by Moody’s Investors Service and A+ by Standard & Poor’s, both fifth-highest. Senior bonds are ranked AA by S&P, third-highest, and one level lower by Moody’s and Fitch Ratings, at Aa3 and AA-. Fitch doesn’t grade the junior debt.

In addition to the federally subsidized bonds, the authority is selling $400 million in tax-exempts, its first such sale since August 2009, Bloomberg data show. Proceeds from the two offerings will shore up the debt-service reserve fund and finance the east span replacement of the 74-year-old San Francisco-Oakland Bay Bridge, according to preliminary offering documents.

When completed, it will be the world’s longest single-tower self-anchored suspension bridge, according to the documents. As of June 30, about $4.3 billion has been spent on the project, whose estimated cost is $6.3 billion.

On Time, On Budget

The span is scheduled to open to traffic in 2013, and the project remains on time and on budget, said Brian Mayhew, chief financial officer of the authority.

“We’ve had the same projected cost and timeline since 2005,” he said. “We’ve worked very hard to keep things under control.”

In contrast, Boston’s Big Dig, the most expensive public-works project in U.S. history, was estimated to cost $5 billion when ground was broken. It tripled to $14.8 billion after overruns and structural problems.

Build America Bonds are the fastest-growing part of the $2.8 trillion U.S. municipal debt market. They were first sold in April 2009 as part of the economic-stimulus package and include a 35 percent federal subsidy on interest-rate costs. Legislation introduced by Senate Finance Committee Chairman Max Baucus, a Democrat, would extend the program -- set to expire Dec. 31 -- by one year with the subsidy reduced to 32 percent. Previous extension attempts stalled in Congress.

This week’s sale takes the total Build Americas issued by the authority to $3.2 billion in the past 12 months, Bloomberg data show. The name recognition in the market has helped attract investors, said Mayhew, adding that this will be the agency’s final Build America sale in 2010.

While the Bay Area Toll Authority has marketed the offer in Europe and Asia, Mayhew is unsure about the reception.

“It’s a hard to know,” he said. “People are gracious and polite in meetings, but until there’s money on the line no one knows what’s going to happen.”

Following are descriptions of pending sales of municipal debt in the U.S.:

CONNECTICUT, the most indebted U.S. state per capita, plans to sell $300 million in tax-exempts and $400 million in Build Americas backed by revenue from transportation-related taxes today. The special obligations are rated Aa3 by Moody’s, fourth-highest, and AA by Fitch, one level higher. Citigroup Inc. will lead underwriters marketing the issue to investors. (Updated Oct. 27)

DALLAS-FORT WORTH INTERNATIONAL AIRPORT, the world’s eighth-busiest by passenger traffic, plans to sell $301 million in a tax-exempt deal as soon as this week to finance its improvement program. The revenue-backed bonds are rated A1 by Moody’s, fifth-highest. Underwriters led by Jefferies Group Inc. will market the securities. (Added Oct. 25)

ATLANTA, home to the world’s busiest airport with 88 million passengers a year, is selling about $590 million in tax-exempts to help finance a new terminal at Hartsfield-Jackson Atlanta International Airport. About $176 million of the bonds will be backed by a senior lien on general airport revenue, rated A+ by Fitch, fifth-highest, with about $414 million secured by a “passenger facility” charge and a subordinate lien on airport revenue, rated A, sixth-highest. Underwriters led by JPMorgan Chase & Co. will market the issue to investors. (Added Oct. 27)

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