DALLAS -- After a year of planning, the Oklahoma Turnpike Authority today is expected to price a $606 million refunding and new-money issue that officials say is a stronger credit than previous turnpike offerings.
The largest deal ever offered by the authority, the refunding differs from past issues by allowing a $3 million transfer each year to the state for other highway projects
Previously, that money was deposited into a growing trust fund that served as a second-tier security for bondholders. The loan, which carries an underlying rating of A, will be mostly insured, according to the chief underwriter of the deal.
Even though the trust is being eliminated, the authority has actually increased the security. Now, it requires that all gas taxes collected along the turnpike system, an estimated $23 million a year in new money, flow through system revenues.
While the authority has agreed to use the revenues as a security of last resort, it must repay any of the gas tax funds used to meet debt service.
"I think the security is probably better than it was before," said Jim Joseph, the state's bond adviser.
The turnpike authority did not always plan to structure the transaction that way. In fact, the agency had planned to abolish the trust to divert the $3 million a year to the Oklahoma Department of Transportation until rating analysts and investors questioned how that would affect the bonds' security.
To allay concerns, the state's Executive and Legislative Bond Oversight commissions approved a new structure that allows all turnpike gas taxes to flow through the issue. At the same time, the structure accomplishes their original goal: providing funding for non-turnpike projects.
The state law was rewritten to accommodate the new structure.
Turnpike officials expect a good reception today when they price the issue, which refunds most of the authority's debt and includes a $20 million new money issue. The deal will be priced by a 13-member negotiated underwriting team led by co-senior managers Stifel, Nicolaus & Co. of St. Louis, and Merrill Lynch & Co.
The issue will be the largest transportation deal brought to market since Jan. 9. On that date, the New Jersey Turnpike Authority priced $741.1 million in revenue bonds.
In addition, the issue will be the largest ever for the authority. Its last major deal was a $558.4 million issue sold on Feb. 16, 1989, according to Securities Data Co./Bond Buyer.
The authority had discussed refunding all $608.4 million of its outstanding debt, but now the issue will refinance nearly all the bonds. Turnpike officials also plan a $20 million new-money issue.
Ron Mason, chief financial officer of the authority, said there should be strong in-state retail demand for the bonds as well as institutional interest. "We don't expect any problems," he said.
Mr. Joseph said that serials sold by the authority should price comparably to the yield on a $54 million new money issue sold last week by the Oklahoma Power Authority. The bonds, triple-A rated because they were guaranteed by Financial Guaranty Insurance Corp., were priced to yield in the 6.4% range. Like the turnpike authority's bonds, the power bonds have an underlying rating of single A.
A regional municipal participant said the current condition of the municipal market has dramatically improved the prospects for the offering's success.
"Last week there was a strong sentiment that the deal would be priced with long-end yields around 6.55% non-insured and 6.45% insured," said the participant, who spoke on the condition of anonymity. "However, we may see a 6.40% now."
The participant added that the timing of the pricing could not come at a better time for the authority.
"The authority would have done well with yields at the 6.55% level," the participant said. "Everything lower is gravy."
According to the source, a great deal of demand exists in Oklahoma for regional bonds.
On Monday night, Stifel held "a unique 19-member satellite conference call, tying the different regions together on the deal. There seems to be a great deal of institutional and retail demand for this issue," the source said.
Demand for the bonds in Oklahoma should be strong because of their double tax exemption.
As of late yesterday, the three major ratings agencies, Standard & Poor's Corp., Fitch Investors Service, and Moody's Investors Service, had not affixed a rating on the debt. The outstanding rating on turnpike debt is single A.
However, a spokesman for Fitch said a rating has not been handed down because of the possible insuring of the deal.
At a teleconference call with investors and dealers yesterday afternoon, Robert J. Cochran, vice president and head underwriter for Stifel Nicolaus, announced that most of the loan will receive insurance.
"Most of the subordinated debt will be insured by the Municipal Bond Investors Assurance Corp.," Mr. Cochran said. "One portion, $372 million of first senior revenue bonds, Series 1992A, will be insured by AMBAC."
Mr. Cochran added, "It works out that all of the subordinated debt and most of the rest of the loan will be receiving some form of insurance."
The offering will be divided into five parts, with $371 million of the loan structured as first senior Series A revenue bonds, $190 million as subordinated Series C revenue bonds, $20 million as second senior Series B revenue bonds, $16 million as first senior Series D revenue bonds, and $8.2 million as subordinated Series E revenue bonds.
Planning for the issue first began last year, and the authority had first tried to get state approval last December. The bond commissions stalled the plan, however, amid concerns that it would not generate enough savings.
The commissions later relented and approved the refunding on the condition that it generat a minimum 2% present value savings, which turnpike officials expect to accomplish.
Mr. Mason said the refunding will produce estimated savings of $17 million to $22 million. But when state officials approved the issue, they required that half the savings, up to $10 million, be shared with the Oklahoma Department of Transportation.
In addition, the transaction will give the turnpike authority more flexible investment power of funds. This flexibility could generate an estimated $8 million to $10 million over the 30-year life of the bonds.
"It's a very complex transaction," Mr. Mason said.
The transaction may be the last major deal for a while, since the authority has no other detailed capital plans. "We are looking at the feasibility of several projects," said Mr. Mason, adding, "We have no definite plans to go to market again outside of this particular transaction."
