Oklahoma Turnpike bonds finally price after legal delays

The Oklahoma Turnpike Authority took on a tough market Tuesday when it sold $500 million of bonds in its inaugural issuance of debt for a controversial expansion program, but the issuer said the deal was met with good demand.

Underwriters led by RBC Capital Markets, priced 5% coupon second senior revenue bonds, serials 2035-2043, with a top yield in 2043 of 4.63% — a 50 basis-point spread over Refinitiv MMD's triple-A scale for the Aa3/AA-minus-rated issuer. Yields on term bonds were trimmed in a repricing with the yield on $415 million of 5.5% coupon bonds due in 2053 dipping a basis point to 4.79%.

Oklahoma Department of Transportation

"With over $10 billion in tax-exempts selling this week as Treasury yields (are) backing up in a big way — yes, this is a tough market for issuers," Peter Franks, MMD's municipal analysis director, said. 

Yields on Refinitiv MMD's scale rose 6 to 10 basis points on Tuesday after climbing 3 to 8 basis points on Monday. Triple-A yields were rising again Wednesday, with a preliminary increase of 2 to 5 basis points midday.

OTA's bond pricing culminated an extended journey of the initial financing for a $5 billion, 15-year ACCESS (Advancing and Connecting Communities and Economies Safely Statewide) Oklahoma program, which was announced in February 2022 and ran into legal delays and political opposition driven by property owners surprised to find themselves in the path of proposed expansion routes. 

"Obviously, we would have loved to be in the market a year ago," Wendy Smith, OTA's finance and revenue director, said. "That couldn't happen based on everything that was happening with the lawsuits and everything."

Investor interest and a scarcity of new Oklahoma debt led OTA to tackle the tough market, Smith said.

"You can't time the market especially with everything that's going on in the Middle East, so we just felt like it was the time to go," she said, pointing out some parts of the deal were oversubscribed as more than 50 investors put in bond orders with Oklahoma retail investors given priority. 

On Monday, Oklahoma's Council of Bond Oversight notified OTA that all conditions had been met for the bond sale.

The bonds were rated Aa3 by Moody's Investors Service and AA-minus by S&P Global Ratings and Fitch Ratings — all with stable outlooks. Those are the same ratings OTA had for its last issuance of about $366 million of revenue refunding bonds in 2020.

OTA ultimately emerged the winner in litigation brought by property owners challenging its ability to build and finance ACCESS projects and alleging Open Meeting Act violations on the authority's part when the program was unveiled last year. After the Oklahoma Supreme Court ruled in the turnpike's favor in the lawsuits in May, justices validated the debt in a 6-3 decision in August. 

Ahead of the pricing, ACCESS opponents pointed out OTA remains the target of a yet-to-be-released investigative audit ordered by Oklahoma's attorney general and must still deal with the U.S. Bureau of Reclamation's denial of a turnpike route.

The preliminary official statement for the bonds noted OTA would not face any penalties if the audit were to find "failings" on its part. 

In August, Stan Ward, an attorney for property owners who unsuccessfully sued over the ACCESS program, contacted rating agencies, investment banks, bond counsel, bond trustees, and others, alleging violation of the trust agreement, which OTA in the POS said were meritless.

Smith said investors expressed "no worry at all about anything about litigation or about the upcoming audit." She added OTA will probably sell another $500 million of bonds in 2024's second quarter. 

OTA fended off a barrage of legislation this year aimed at reforming its practices.  The only bill to make it through the Republican-controlled legislature strips the governor of his sole ability to appoint the six-member OTA board of directors by giving two appointments each to the governor, House speaker, and Senate president pro tempore.

Even last year's selection of an underwriting team proved to be troublesome. RBC replaced Wells Fargo, which resigned as lead underwriter in May in the wake of its placement on the Oklahoma Treasurer's list of companies banned from government contracts for "boycotting" the oil and gas industry.