Dallas Area Rapid Transit authority will supply a hungry muni market with $1 billion of highly-rated revenue refunding bonds, taking advantage of continuing low interest rates.
Coming in two tranches — $572.7 million of taxable senior lien Series A and $428.2 million of tax-exempt Series B — the bonds are expected to price Tuesday.
“We’re anticipating strong demand for our bonds,” said DART Treasurer Dwight Burns. “The economic recovery in our north Texas service area has been so robust that we’ve experienced several months of record-breaking sales tax receipts, providing bondholders with a rock-solid revenue stream for the return on their investment.”
RBC Capital Markets, led by managing director Matt Boles, is book runner on Series A, with Jefferies, led by managing director Doug Hartman, heading the Series B syndicate.
Estrada Hinojosa & Co. is co-financial advisor with PFM Financial Advisors.
Series A matures through 2048 and refunds portions of 2014 and 2016 bonds. Series B matures from 2040 to 2051, refunding 2012 debt.
The bonds carry ratings of Aa2 from Moody’s Investors Service, AA-plus from S&P Global Ratings and AAA from Kroll Bond Rating Agency. Outlooks are stable.
“DART's stable outlook reflects our expectation that pledged revenue will grow, underpinned by the metro areas continued population growth,” said Moody’s analyst Denise Rappmund. “Given DART's large capital program, the expectation of pledged revenue growth will lead to stable debt service coverage and maintenance of healthy reserves.”
Sales tax growth over the 11 months up to Aug. 31 was 9.9% over the same period a year earlier, according to DART. The Dallas area is one of the fastest growing metro regions in the country.
“Although ridership remains below historical norms, positive population and economic growth, coupled with the authority's ability to make corrective changes to ensure financial stability, should support future general stable key credit factors,” S&P analyst Andy Hobbs wrote in an Oct. 26 rating report. “Despite DART's plans for future debt issuance, we believe the authority will maintain solid debt service coverage exceeding the additional bonds test of 2x MADS, which we consider very strong.”
Historical debt service coverage from pledged revenues has exceeded 300% in every year since 2016, according to a DART online investor presentation for the upcoming issue. Projected debt service coverage is expected to be 260% over a 20-year period.
“Despite a modest year-over-year decline in sales tax collections in 2020 from 2019, current forecasts for 2021 indicate collections have exceeded fiscal 2019’s,” Hobbs wrote.
“Although the COVID-19 pandemic is still an influencing factor, economic activity in the region is stable. Steady population and job growth is also fueling stable economic indicators, which contribute to the rating outlook,” he wrote.
“In our opinion, the authority's role as an important and dominant provider of mass transit services in the expanding Dallas MSA with its historically strong political support bolsters its market position,” Hobbs said.
Due to COVID-19, ridership fell 29% to about 50 million in fiscal 2020 from approximately 70 million in fiscal 2019. DART’s fiscal year ends Sept. 30.
DART received $221 million in CARES Act funds and $428.5 million from the Coronavirus Response and Relief Supplemental Appropriations Act and the American Rescue Plan Act to offset losses.
In June, DART marked 25 years of light rail service to the cities of North Texas.
DART’s light rail system debuted on June 14, 1996, with 11.2 miles of track. Since then, the DART light rail system has grown into a 93-mile, 65 station network, ranking as the longest light rail system in the country.
DART is converting the old Cotton Belt freight line into the Silver Line, a 26-mile regional rail service that crosses three counties and seven cities across the northern part of the DART service area. After three decades of development, the $1.2 billion project is expected to begin service in the summer or 2023.
DART officials are planning an underground subway for a second line through Downtown Dallas to supplement the current at-grade alignment. Current project cost estimates are approximately $1.9 billion; however, discussions on preferred alignments will require a re-assessment of project timing, costs, and environmental considerations.
On March 24, the Dallas City Council unanimously approved a resolution supporting the project.
"The DART D2 Subway project is an important regional project," said Paul Wageman, chair of the DART board. "The second light rail alignment through downtown Dallas is a long-term investment in mass transit to support both the city's and the region's goals of a more walkable, transit-oriented and sustainable region.”
