SAN FRANCISCO —The Bay Area Toll Authority is putting the finishing touches on a $1 billion November issuance that will inaugurate a new conduit issuer and incorporate an unusual arrangement for repayment.
Debt service on the state payment acceleration notes — or SPANs — will come from a $1.3 billion appropriation enacted by the state Legislature calling for the California Transportation Commission to make installment payments from 2007 through 2014. Although called notes, suggesting a short-term obligation, the debt will be long term, with a final maturity in 2016.
Proceeds will finance BATA’s continuing program to improve the earthquake safety of the seven Bay Area bridges it oversees, with the primary focus on constructing a replacement for the eastern span of the San Francisco-Oakland Bay Bridge.
The structure’s upper deck collapsed and fell onto the lower level during the 1989 Loma Prieta earthquake.
Bay Bridge construction will receive the proceeds of the $1 billion SPAN issuance that JPMorgan is lead managing. The investment bank declined an opportunity to comment on this story.
To handle these payments and issue the SPANs, BATA and its parent, the Metropolitan Transportation Commission, created a new conduit issuer, the Bay Area Infrastructure Financing Authority.
“We used a relatively common Marks–Roos type of structure” to form BAIFA, said Brian Mayhew, chief financial officer of BATA, referring to a state law authorizing joint-powers agencies like BAIFA.
“I just invented the SPAN,” he said. “It’s not a revenue anticipation note because the financing and revenue are over several years rather than a single-year funding source. This is not toll revenue nor grant money.”Sources close to the deal say that the SPAN will most likely be a one-time deal rather than a template for future issuances that would carry the same acronym.
However, BAIFA has a 50-year lifespan so another governmental project could possibly use the conduit in the future, and even use the acronym SPAN if it proves relevant to a particular deal involving state payment acceleration.
Standard & Poor’s rated the upcoming SPAN deal A with a stable outlook, in contrast to BATA’s ratings of AA for toll revenue bonds and A-1-plus rating for variable-rate demand bonds.
“We see the state payment acceleration notes as akin to lease-appropriation debt, although there’s specific transit money involved,” said Standard & Poor’s analyst David Hitchcock, who authored the BAIFA rating report.
“The rating would be higher if it was a pure gas-tax bond. In this case, you have the risk of state budget appropriations,” he said. “The money is already appropriated, but the state can’t cut the check until the budget is passed. And the timing of the appropriations could also be changed.”
While this year’s budget was enacted on a timely basis, during fiscal 2003 through 2005, delays ranged from 10 to 82 days.
“To mitigate this risk, repayment cash flows have been structured to survive a delay in passage of the state budget up to 90 days,” Hitchcock wrote in his report.
The state, acting through the California Transportation Commission, also has the legal right to change the timing of installment payments from one year to another so long as the overall schedule stays within the timeframe of the bridge construction.
Bay Bridge construction is currently expected to finish in 2015 with the demolition of the old east span. The maturities on the state payment acceleration notes mirror that timing and add on some cushioning, maturing serially through 2016.
So far, the state has estimated an 80% chance of a 21-month delay from the original construction schedule. Timing of debt service on the notes includes an additional two years’ worth of interest reserves should these delays occur.
BATA and JPMorgan are currently reviewing bids for triple–A rated insurance and hope to choose a provider within the next couple of weeks. Moody’s Investors Service and Fitch Ratings are also expected to publish their own ratings reports on the SPANs.
Moody’s last rated BATA’s toll revenue bonds Aa3 in March, while Fitch rated the toll revenue bonds AA-minus around the same time.
Orrick, Herrington & Sutcliffe LLP is bond counsel and Deutsche Bank AG is trustee on the SPAN deal. Public Financial Management acts as financial adviser to BATA but not to BAIFA.
The underwriting syndicate’s co-managers include Citigroup Global Markets Inc., Lehman Brothers, Merrill Lynch & Co., Morgan Stanley, and Stone & Youngberg LLC.Debt service payments will occur on the first of January and July during 2007 and 2008 and thereafter on the first of February and August.
The state will obtain the money for debt service from a combination of transportation-related funds that together have a balance of $1.183 billion as of Sept. 1.
Mayhew also expects the Bay Bridge to start bringing in more toll revenue because of legislation passed in 2005 enabling BATA to raise tolls on Jan. 1, 2007. The toll for cars will rise to $4 from $3 on all seven state bridges overseen by BATA. On each bridge, tolls are collected in one direction.
The legislation also gives BATA the authority to further increase tolls as needed in order to finish paying for all the bridge retrofitting.
Before the latest round of legislation, toll increases required approval by either local voters or the Legislature.
That legislation was prompted by cost overruns on the new east span of the Bay Bridge. It gave BATA full control over all toll revenue on the bridges, which has been split between BATA and the California Department of Transportation. The bridge seismic retrofit program, which has been Caltrans’ responsibility, was revised to give BATA and Caltrans joint oversight.
Toll revenue will secure the next bridge-related revenue bond issue, roughly $500 million of BATA revenue bonds expected to sell in April 2007.
In April 2006, BATA sold $1.15 billion of toll revenue bonds to defease a 2003 revenue bond that had been issued for Caltrans through the California Infrastructure and Economic Development Bank.
In February, BATA sold $1 billion of variable-rate debt as new-money financing.
All told, BATA has about $3.2 billion in outstanding toll revenue bonds.
The Bay Bridge retrofit remains the last unfinished project within a larger program retrofitting seven spans in the greater San Francisco area: the Carquinez Bridge, the Benicia-Martinez Bridge, the San Mateo-Hayward Bridge, the Richmond-San Rafael Bridge, the Dumbarton Bridge, the Antioch Bridge, and the Bay Bridge.
The Golden Gate Bridge is not part of BATA; it falls under the jurisdiction of the Golden Gate Bridge, Highway and Transportation District.
