Sturgeon Loan Prods N.Y. to Reveal Tappan Zee Tolls: Muni Credit

Sturgeon Loan Prods N.Y. to Reveal Tappan Zee Tolls
The three-mile-long Tappan Zee, which opened in 1955, connects Rockland and Westchester counties. The structure, designed to last 50 years, carries 138,000 vehicles daily, 40 percent more than intended. Photographer: Bruce Bennett/Getty Images

July 10 (Bloomberg) -- The interests of bond investors and endangered sturgeon are growing intertwined as New York officials debate a $511 million loan to help pay for the new Tappan Zee Bridge over the Hudson River.

State Senator John DeFrancisco says he may block the funding, part of financing for the $4 billion span, if the Thruway Authority doesn’t disclose its plan to pay for the crossing. The loan, scheduled for a July 16 vote by a state board, needs unanimous support from three voting members, including DeFrancisco. The Syracuse Republican is demanding financial details to approve the funds, which would help pay for steps such as dredging as well as protecting the sturgeon.

The Thruway Authority is a year into building the span and has said it will finance it with bonds backed by tolls. Investors are betting those tolls will be high enough to cover the doubling of the agency’s debt load. While the extra yield on some authority bonds has fallen close to a record low, investor interest may wane without more information, said Daniel Solender, a fund manager at Lord Abbett & Co.

“The thing we keep coming back to is we don’t know where the tolls are going to get to,” said Solender, who helps manage $15.5 billion of munis, including some Thruway debt, from Jersey City, New Jersey. “Some things have to be made more clear to make a bigger investment going forward.”

Toll Plan

New York Governor Andrew Cuomo, a 56-year-old Democrat, has made building a new Tappan Zee a priority, comparing it to the 19th-century construction of the Erie Canal. Situated about 20 miles (32 kilometers) north of Manhattan, the bridge is among the nation’s largest public-works projects.

The structure is owned by the Thruway Authority, operator of a 570-mile tollway, the longest in the U.S. The agency last year won a record $1.6 billion low-interest federal loan that Cuomo has said will help keep down tolls.

The loan to be voted on next week, from the Environmental Facilities Corp., would do the same, Cuomo has said. Half would be interest free, with the rest tied to market rates for a probable level of about 0.35 percent, according to Jon Sorensen, an EFC spokesman.

Hudson Habitat

Atlantic and shortnose sturgeon in the Hudson can be harmed by vibrations from construction. The authority would use $48 million from the loan for equipment that would create curtains of bubbles to suppress the vibrations. Peregrine falcons nest on the existing span, and the authority would use $100,000 from the loan to relocate them.

The protections for the local fauna, mandated by construction permits, will be financed with other methods if the loan isn’t approved.

The Environmental Facilities loan will help cut about $17 million in finance costs over three years, Tom Madison, the Thruway Authority’s executive director, said via e-mail. The agency also plans a toll and financing task force to explore other ways to save, he said.

“The Thruway Authority is committed to an unprecedented level of environmental stewardship on the New NY Bridge project, and also to keeping tolls on the new bridge as low as possible,” he said.

Relative Value

In December, the agency sold $1.6 billion in junior-lien bonds that will be repaid by the federal loan. This month, the extra yield investors demand to own debt rated A- by Standard & Poor’s and maturing in May 2019 reached as little as 0.13 percentage point more than benchmark munis, close to the lowest since its sale in December, data compiled by Bloomberg show.

The scarcity of New York bonds is helping reduce yields, said Howard Cure, head of muni research in New York at Evercore Wealth Management LLC, which oversees about $5.2 billion. Part of a nationwide trend of slower sales in 2013, issuance from New York and its localities is down about 6 percent from last year’s pace. That means investors looking for tax-free debt have less to choose from.

The three-mile-long Tappan Zee, which opened in 1955, connects Rockland and Westchester counties. The structure, designed to last 50 years, carries 138,000 vehicles daily, 40 percent more than intended. It costs $5 cash for a regular passenger vehicle to cross, collected in only one direction.

Growing Indebtedness

As part of building the new bridge, the authority’s debt load may swell to more than $7 billion, from about $3.7 billion last year, by the time the job is finished in 2018.

The agency will have to start raising tolls starting in 2015 to close a projected $67.2 million revenue gap, which will grow to $415 million by 2019 without the increases, according to a December traffic and revenue report by New York-based Jacobs Civil Consultants Inc.

S&P cited “the lack of a specific tolling plan” and the rising debt burden when it lowered the rating on the authority’s general-revenue bonds to A, its sixth-highest grade, on Oct. 29.

In its applications for the federal and state loans, the authority had to submit financing plans, though it hasn’t made them public.

DeFrancisco said in a television interview last week that he has “no compunction” about voting against the $511 million loan. The Public Authorities Control Board, which votes July 16, ensures that agencies receiving loans from the Environmental Facilities Corp. are able to repay them.

“The people should know how they’re paying for this thing, not get a bill sent to them after it’s half built and say, ‘we have no choice,’” DeFrancisco said.

The senator didn’t return telephone calls seeking comment on his stance. Sheldon Silver, the Manhattan Democrat who leads the assembly and is one of the voting board members, is reviewing the loan, said Michael Whyland, a spokesman. The third voting member is Robert Megna, the state budget director, who supports it, said Morris Peters, a spokesman.

To contact the reporter on this story: Freeman Klopott in Albany at

To contact the editors responsible for this story: Stephen Merelman at Mark Tannenbaum, Mark Schoifet