The North Texas Tollway Authority (NTTA) is embarking on a $1.126 billion deal aimed at achieving savings through bond refundings and tenders. The tax-exempt debt is being offered in two series, with $446.14 million allocated for first tier revenue bonds to finance a tender offer for taxable bonds sold between 2020 and 2021 and to refund 2015 Series B bonds for debt service savings. Additionally, nearly $680 million will be used to refinance 2015 Series A bonds.
NTTA’s Chief Financial Officer, Horatio Porter, highlighted the strategic nature of the tender offer, emphasizing the opportunity for bondholders to capitalize on investments in higher-yielding securities by shedding previously sold debt obtained at low-interest rates. The agency’s goal is to capture savings through purchasing bonds at a discount, offering a win-win scenario for both NTTA and bondholders.
In terms of the refunding portion of the issue, NTTA is projecting a present value savings of approximately $90 million or a 7% to 8% reduction. Despite the trend of muni issuers redeeming taxable Build America Bonds due to declining federal subsidies, NTTA has held off on this strategy, deeming it economically unattractive at present.
Acknowledging the impact of the COVID-19 pandemic on tollway traffic and revenue, NTTA saw a significant decline across its infrastructure. However, the agency has managed to bounce back, exceeding 2019 levels and projecting future revenue growth. The Dallas-Fort Worth region, where NTTA operates, continues to attract residents, driving the need for expanded infrastructure to accommodate growth.
The robust performance of NTTA’s toll revenues has garnered positive attention from rating agencies. Moody’s and S&P have upgraded the agency’s bond ratings, recognizing its strong financial profile and growth potential. NTTA’s planned capital improvement program, slated from 2024 to 2028, underscores its commitment to enhancing infrastructure and maintaining healthy financial margins.
The bond issuance landscape for toll roads and highways has seen substantial growth, reflecting increasing investor interest in infrastructure projects. Moody’s stable outlook for the toll road sector in 2024 anticipates a shift towards traditional macroeconomic indicators driving traffic growth, with GDP, population, and employment growth taking center stage.
BofA Securities leads the underwriting team for NTTA’s current deal, alongside co-managers JP Morgan and RBC Capital Markets. However, scrutiny from Texas Attorney General Ken Paxton’s Office looms over their involvement in the Net Zero Alliance. Legal challenges related to state laws prohibiting contracts with certain industries add complexity to the underwriting process.
NTTA’s pursuit of savings through bond refundings and tenders underscores its proactive financial management approach. By leveraging market opportunities and strategic decision-making, the agency aims to optimize its debt structure and drive future growth. As NTTA navigates evolving market conditions and operational challenges, its resilience and commitment to enhancing infrastructure position it for continued success in the toll road sector.