CHICAGO - The Illinois State Toll Highway Authority next week plans to price about $442 million of priority revenue bonds in the authority's first debt issue since 1987.
Originally set for today the deal was postponed to give potential investors more time to review the preliminary official statement, according to Lois Scott, senior vice president of lead manager Donaldson, Lufkin & Jenrette Securities Corp.
The majority of the proceeds from the bond issue will be used to pay for the widening, of 23 miles of the Tri-state Tollway, a major roadway around the Chicago area that links Indiana, Illinois, and Wisconsin.
The $638 million project, which will also tap into some cash funds of the authority, began in December and has a two-year timetable for completion. The remaining proceeds will be used to fund a debt-service reserve account and pay for the cost of issuance, according to the preliminary official statement.
The bonds were rated AA-minus by Fitch Investors Services, which rated the authority for the first time.
Moody's Investors Service affirmed an A 1 rating for the bond issue and Standard & Poor's Corp. confirmed an A-plus rating. The authority has about $541 million of outstanding revenue debt.
The authority's last new debt issue was in 1986, when it sold $400 million of revenue bonds to construct the North-south Tollway in northeastern Illinois. In 1987, the authority did a $139 million refunding of debt it had issued in 1985.
The new bonds will carry maturities from 2010 to 2017, according to Ms. Scott. She said insurance for one or more of the maturities is being considered to broaden the market for the bonds.
Co-senior managers for the deal are Bear, Stearns & Co., First Boston Corp., and Lasalle National Capital Markets. The deal has 19 co-managers.
A breakdown of the maturities of the term bonds in the preliminary official statement shows $44 million of the debt maturing in 2010, $96.9 million in 2012, $233 million in 2016, and $67.5 million in 2017. Ms. Scott said the longer maturities will enable the authority to maintain level debt service once its existing debt matures in 2009.
The unenhanced bonds are payable solely from the revenues of the tollway system. Nicholas Jannite, the authority's finance manager, said the majority of the system's revenues comes from tolls. Of the $282 million of revenues reported by the authority in 1991, 88% came from tolls, he said, adding that the system's operating margins have been over 60% since the mid-1980s and should continue at that level during "the next several years."
Mr. Jannite said debt service coverage should be at or above the two-times level for the life of the bonds.
"Together with management ability, growth in revenues, and the authority's willingness to control costs, we're very confident of keeping our debt service coverage at a very respectable level in the future," he said.
As for the future health of toll revenues, Mr. Jannite said several factors point to increasing revenues from the authority's four tollroads - the East-West and Northwest are the others - "even in poor economic times."
Those factors include "highquality" roads, commercial development that has sprung up along the toll roads, a large volume of nondiscretionary travel, relatively low tolls, and the tollways' inclusion in the interstate system, he said.
Michael Belsky, a senior vice president at Mesirow Financial Inc., the authority's financial advisor, said one of the most important credit factors for the deal is the authority's capacity for increasing tolls.
He noted that the authority board can act on its own to increase tolls without approval from the Illinois General Assembly or the governor.
"But on top of that [the authority has] the political will to do that and has demonstrated it a couple of times in the history of the toll rates - once in the early 1960s to manage debt service coverage and also in 1983 to keep operating margins at that 60%-plus level," Mr. Belsky said.
He added that a 10 cent increase in tolls would raise $60 million to $70 million a year and would increase debt service coverage on the bonds to the 3.5-times level.
While the authority increased tolls to a temporary 35 cent level from 30 cents in 1963 and to 40 cents from 30 cents 20 years later, future increases may run into some opposition. State Rep. John Matijevich, D-Waukegan, said he is going "to fight like hell" against any future attempts to raise tolls. However, he conceded he is one of the few state legislators that fight the authority over tolls.
Last year the state legislature rejected a bill Mr. Matijevich introduced to reduce tolls on two of the authority's roads to 10 cents from 40 cents. He contends that it was the intent of the legislature when it created the tollway system in the 1950s to turn the tollroads into freeways once the outstanding debt is retired.
Mr. Jannite said revenues from the system are needed to maintain the roadways and "there is no reason to believe" the roads would become freeways.
Ms. Scott added that the current financial crunch facing Illinois would also preclude any attempt to remove the tolls from the roads.
"The situation in Springfield is such that the state is not flush with cash," she said. "So if somebody's going be operating the roads and maintaining the roads, [the state government] would be just as happy having the tollway do it, and do it well, rather than putting further strains on the state budget."
Meanwhile, some motorists have taken the authority to court over toll levels. A class action suit filed in Cook County Circuit Court in December 1989 claimed the authority had illegally used toll money from the existing system to build the North-South Tollway. Though the suit was dismissed last year, the plaintiffs have appealed to the Illinois Appellate Court, which heard arguments in July. No timetable has been set for a ruling.
Part of the reason for the dismissal was a 1990 state law that confirmed the authority's ability to use existing toll revenues for the expansion of the rest of the tollway system.
However, Ronald L. Futterman, the attorney for the motorists, said the appeal argues that the legislation cannot be retroactive and that tolls should be lowered to make up for the estimated $100 million to $150 million of existing toll revenues the authority applied to the North-South Tollway construction before passage of the bill.
The lawsuit was fueled by the findings of state audits conducted in 1989 and 1990. The audits found the authority had built up cash surpluses, possibly by charging higher-than-needed tolls. It also found, in the 1989 audit, that the authority had improperly used surplus revenues to help build the North-South Tollway. Authority officials have disputed the findings.
The reports by the state auditor's office, which serves as an advisory and investigative arm to the legislature and has no enforcement powers, were forwarded to the legislature.
