The North Texas Tollway Authority (NTTA) is embarking on a $1.126 billion deal to seek savings through bond refundings and tenders. This deal, which is the highlight of this week’s municipal bond sale calendar, includes two series of tax-exempt debt. The first series consists of $446.14 million of first-tier revenue bonds, aiming to fund a tender offer for taxable bonds issued in 2020 and 2021, as well as to refund 2015 Series B bonds for debt service savings. The second series, totaling nearly $680 million, will be used to refinance 2015 Series A bonds.
Horatio Porter, the chief financial officer of NTTA, emphasized the strategic nature of the tender offer. By providing an opportunity for bondholders to shed existing debt and invest in higher-yielding securities, NTTA aims to capture savings by repurchasing bonds at a discount. The refunding portion of the deal is anticipated to result in present value savings of approximately $90 million or 7% to 8%.
Despite the challenges posed by the COVID-19 pandemic, NTTA’s financial resilience remains noteworthy. With total outstanding bonds of $6.33 billion for the first tier and nearly $2.64 billion for the second tier as of June 30, NTTA has managed to navigate through the pandemic-induced traffic and revenue decline. Debt service coverage ratios, which initially fell in 2020, have shown signs of recovery, reaching 1.57 times in 2023.
Growth Projection and Operational Strategies
Looking ahead, NTTA anticipates a steady increase in toll revenue on its existing system, with expectations of revenue reaching $2.42 billion in 2040. To support this growth trajectory, NTTA plans to continue widening and extending its infrastructure to accommodate additional development and spur more traffic and economic activity in the Dallas-Fort Worth region.
Rating Upgrades and Market Position
In light of its resilient financial performance and growth prospects, NTTA’s bond ratings have experienced upward revisions from major rating agencies. Moody’s Ratings and S&P Global Ratings have both acknowledged NTTA’s strong market position, financial risk profile, and management and governance practices. These ratings upgrades reflect the confidence in NTTA’s ability to generate strong revenue growth through toll rate increases and sustained traffic trends.
Capital Improvement Program and Financial Strength
NTTA’s $2 billion, five-year capital improvement program from 2024 to 2028 underscores its commitment to enhancing infrastructure quality and capacity. With a significant amount of unrestricted cash in its capital improvement fund and reserve maintenance fund as of June 30, NTTA aims to finance its program through operational cash flow without the need for additional borrowing.
The toll road sector has experienced substantial growth in bond issuance, with toll roads, highways, and streets nationwide seeing a surge in debt sales. Moody’s stable outlook for the sector in 2024 highlights the expectation of slower traffic and revenue growth, influenced by changing work patterns and economic conditions. With a focus on macroeconomic indicators such as GDP, population, and employment growth, the toll road sector is positioned to leverage traditional drivers of traffic growth in the post-pandemic era.
NTTA’s proactive approach to financial management, strategic decision-making, and infrastructure investment bodes well for its long-term sustainability and growth. By capitalizing on savings opportunities through bond refundings and tenders, NTTA demonstrates its commitment to maximizing value for bondholders and stakeholders while maintaining financial resilience and operational efficiency in a dynamic market environment.