LOS ANGELES - Transit officials from Orange County, Calif., met this week with rating agencies to discuss a long-awaited tax-exempt bond issue of as much as $1 billion to finance construction of one of the state's first major toll roads.
Officials at the San Joaquin Hills Corridor Agency have promoted their 15-mile toll road since 1986, guiding the project over environmental hurdles and through a variety of controversies.
Now the corridor agency is in the midst of talks with rating agencies and five banks to determine the structure of the issue and the feasibility of credit enhancement.
Wally Kreutzen, deputy director of finance and administration at the corridor agency, met Monday and Tuesday with analysts in New York to explore rating possibilities for future bond issuance.
"They are working on a proposal; they have not committed to anything," Mr. Kreutzen said of the banks' possible credit enhancement. "The letter of credit structure is not determined. They may back the whole thing and they may back half."
According to Mr. Kreutzen, the five banks involved since April are BankAmerica Corp., Industrial Bank of Japan Ltd., Barclays Bank PLC, Banque Nationale de Paris, and Credit Suisse.
Mr. Kreutzen termed the lengthy feasibility negotiations with banks an "education process."
"None of us appreciated the amount of time it would take," Mr. Kreutzen said. "This is a new market for the domestic and Asian banks. They don't have a lot of toll road financing experience. The European banks have some experience."
One banker close to the financing said banks typically are concerned about assuming the obligations and risks associated with such a large bond issue.
"It is a very large financing and reasonably complex," said the banker. "The banks aren't that comfortable forecasting toll road revenues. We aren't even that comfortable with reports from special consultants forecasting such revenues."
Officials at several of the banks declined to discuss the possible letter of credit transaction.
Orange County and various cities in the county formed the San Joaquin Hills Corridor Agency, a joint powers authority, in 1986. They created the agency to plan, design, and finance a 15-mile tollway that extends the Corona Del Mar Freeway and connects it with Interstate 5. The proposed toll road will have three lanes in each direction and 13 interchanges.
An estimated $900 million to $1 billion of bond financing would pay for the project. It is expected to cost about $800 million, including legal and environmental costs and right-of-way purchases. The additional financing moneys would cover capitalized interest and issuance costs.
Two other toll roads also are being planned in Orange County by an umbrella group called the Transportation Corridor Agencies.
A mix of revenue streams, plus upfront bond issues, will finance all three toll roads. A 1987 federal highway bill named Orange County as one of seven demonstration projects nationwide that can use federal funds for toll road construction. But the federal government has not yet allocated any funds, Mr. Kreutzen said.
Developer fees, collected when building permits are issued, are expected to pay 48.4% of current estimated toll road costs. Over the life of the roads, however, Mr. Kreutzen said developer fees will only comprise an estimated 9% to 10% of revenues collected by the tolls roads.
Mr. Kreutzen said the proposed San Joaquin Hills tax-exempt financing could entail a variable-rate revenue bond, secured by a seven-year credit facility.
At the end of seven years, the agency could then remarket the bonds using security from toll road revenue. But the agency also is discussing with rating officials the possibility of selling a long-term fixed-rate issue, which would capitalize on currently attractive interest rates.
The agency plans to sell the bonds late this year or early 1993, Mr. Kreutzen said.
Several environmental groups have actively opposed the San Joaquin Hills toll road.
As a result, the agency elected on July 13 to take "proactive legal action" by filing suit against groups such as the Laguna Canyon Conservancy, Laguna Greenbelt, Save Our San Juan, and Stop Polluting Our Newport.
"We filed against these groups because it would only have been a matter of time before they filed against us," said a spokeswoman for the agency. She predicted the organizations would have attacked the toll road's recently obtained federal environmental approval, which does not have a statute of limitations.
"They could have filed against us they day before construction. The sooner we get it to court, the better," she said.
The Foothill/Eastern Transportation Corridor Agency overseas the other two toll road projects in Orange County.
The Foothill project is divided in two sections, northern and southern, with initial construction started on the 15-mile northern link. Eight of Orange County's 17 Mello-Roos community facilities districts have sold special tax bonds with portions of the proceeds, totaling $24.7 million and earmarked for the Foothill toll road, according to county officials.
Part of these proceeds would prepay development impact fees. The entire cost of the Foothill project is estimated at $746 million, and will be partly funded with future bond issues sourced by toll fees.
The 15-miles southern link of the Foothill project has not cleared environmental hurdles. A lawsuit is pending.
Construction is also stalled on the 23-mile Eastern toll road link because of a pending environmental certification. The cost of that tollway is estimated at $630 million.
