North Texas Tollway gets rating, outlook boost ahead of bond refunding

The North Texas Tollway Authority (NTTA) will head to the municipal market next week with a $667 million tax-exempt revenue refunding bond issue after receiving a rating upgrade from S&P Global Ratings and a positive outlook from Moody’s Investors Service.

Horatio Porter, NTTA’s chief financial officer, said the tollway has rebounded from the COVID-19 pandemic, which depressed traffic and revenue. 

“We have long believed NTTA serves not only to improve mobility in North Texas but equally important also as a catalyst for economic development,” he said. “The positive outlook and the rating upgrade certainly validate our efforts.”

Horatio Porter, North Texas Tollway Authority’s chief financial officer, said the tollway has rebounded from the COVID-19 pandemic, which depressed traffic and revenue.

North Texas Tollway Authority

Last week, S&P raised the rating on NTTA’s first-tier revenue bonds to AA-minus from A-plus and lifted the rating for second-tier bonds to A-plus from A. The ratings carry stable outlooks.

“The rating actions reflect a very strong enterprise risk profile, a strong financial risk profile, and a positive holistic analysis adjustment to accurately reflect the overall creditworthiness of the very large regional urban system that has experienced generally favorable traffic trends historically, a strong rebound in traffic levels recently, and a long history of biennial toll rate increases that has produced generally favorable revenue trends through different economic cycles to maintain financial margins,” S&P credit analyst Joe Pezzimenti said in a statement.

Ahead of the deal, Moody’s revised the outlook to positive from stable on NTTA’s A1 first-tier and A2 second-tier bond ratings.

Moody’s said the outlook revision reflects the expectation “the north Texas economy will remain strong despite expectations of slowing U.S. economic growth and support toll revenue growth that pushes debt service coverage ratios higher and leverage lower over the next few years.”

NTTA’s revenue, which is mostly generated by the President George Bush Turnpike, Dallas North Tollway, and Sam Rayburn Tollway, has bounced back from a steep drop in 2020 due to the pandemic. In fiscal 2021, net revenue totaled $746 million, which was below fiscal 2019’s $785 million, but above fiscal 2020’s $581 million.

In the first half of this year, revenue totaled $534 million with collections surpassing 2019 levels in five of the months.

NTTA plans to pay for its fiscal 2022-26, $1.45 billion capital improvement plan with surplus cash and not bonds, although it will consider using commercial paper as a financing bridge, Porter said.

As of the end of June, NTTA had nearly $774 million of unrestricted funds, including $548 million in its capital improvement fund.

“We refinanced over $6 billion (of bonds) over the past six or seven years for savings to modify and improve our debt profile and that financial flexibility has allowed us to weather the pandemic as well as fund future projects with cash,” Porter said, adding that NTTA was last in the muni market about a year ago with a refunding. 

On Wednesday, NTTA is scheduled to sell about $480.3 million of Series A first-tier bonds to refund debt issued in 2015 and 2017 and $186.85 million of Series B second-tier bonds to refund 2017 debt, as well as refinance the remainder of a $135 million loan with the Texas Department of Transportation under provisions of the Intermodal Surface Transportation Efficiency Act of 1991. Nearly $91.3 million of the loan was outstanding as of the end of June and NTTA expects the prepayment will achieve debt service savings, according to the preliminary official statement.

Porter said the entire refunding is projected to result in a present value savings of about $42 million.

The Series A bonds carry maturities from 2024 to 2026 and 2036 to 2040, while the Series B bonds are due in 2024 to 2029.

Siebert Williams Shank & Co. is the deal’s senior manager and co-managers are Academy Securities, Loop Capital Markets, Ramirez & Co., and Raymond James. Hilltop Securities is the financial advisor and McCall, Parkhurst & Horton and Bracewell are co-bond counsel.

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