Bonds

N.C. panel OKs Turnpike Authority’s $1.1 billion bond, TIFIA loan request

The North Carolina Local Government Commission has approved the North Carolina Turnpike Authority’s request to issue up to $1.1 billion of revenue bonds and secure a Transportation Infrastructure Finance and Innovation Act loan.

At its Tuesday meeting, the LCG approved the authority’s plans to finance over $1 billion of work on Phase 2 of the Complete 540 project, also known as Raleigh’s Outer Loop.

State Treasurer Dale Folwell chairs the North Carolina Local Government Commission.

N.C. State Treasurer’s Office

The NCTA expects to sell the Series 2024 A and B senior lien turnpike revenue bonds to partly finance the costs of land acquisition, design, construction and equipping of Phase 2 of Complete 540.

The work consists of extending the Triangle Expressway for about 10 miles from I-40 to I-540/I-87/U.S. 64/U.S. 264 in Knightdale.

The authority also expects to enter into a TIFIA loan agreement in 2024 with the U.S. Department of Transportation to borrow up to $424 million. Proceeds of the loan will also be used to help finance the project.

The project is intended to connect Apex, Cary, Clayton, Fuquay-Varina, Garner, Holly Springs and Raleigh, while relieving traffic on I-440, I-40, I-87, N.C. 42, N.C. 55 and the Ten Ten Road.

Construction is scheduled to begin next spring, with the road expected to open to traffic in 2028.

Most bond sales in the state must be approved by the LGC, chaired by State Treasurer Dale Folwell, which reviews if the amount that municipalities or authorities want to borrow is reasonable for the projects proposed and their ability to pay it back.

Last week, Fitch Ratings raised the NCTA’s outstanding senior lien turnpike revenue bonds, senior lien turnpike revenue bond anticipation notes and subordinated TIFIA loan ratings to BBB-plus from BBB.

Fitch also assigned BBB-plus ratings to the authority’s proposed Series 2024 A and B senior lien turnpike revenue bonds and subordinated Series 2024 TIFIA loan. Fitch’s outlook for both the bonds and TIFIA loans is stable.

“We’re delighted with the upgrade,” Folwell told The Bond Buyer on Tuesday.

“Upgrades mean lower borrowing costs and that means lower costs for toll road users,” he said. “It’s a sign of our state’s credit quality and stability.”

Fitch said its upgrade “reflects the strong financial metrics associated with the expected financing for Phase 2 of the Complete 540 expansion project. Coverage metrics are pressured in the near term with mandatory debt service coverage ratios (DSCRs) averaging 1.5x through 2027 under the rating case but are expected to improve following the opening and ramp-up of Phase 1.

“The metrics associated with the financing of the Complete 540 project when including Phase 2 are strong under the rating case, with scheduled DSCR averaging 2.0x from 2024 through 2062,” Fitch said.

Fitch noted the rating assignment “reflects the Triangle Expressway’s history of robust traffic and revenue growth and the Complete 540 expansion project’s commuter-based traffic profile, supported by an expanding service area with strong population and economic growth. The rating is further supported by a commitment from the North Carolina Department of Transportation to fund operating, maintenance and rehabilitation costs if toll revenues are insufficient, strengthening the bonds’ gross pledge.”

Complete 540-Phase 2 is also supported by a completion guarantee from NCDOT during the construction phase.

Triangle Expressway and the Complete 540 extensions are expected to become attractive alternatives to the currently congested toll-free roadways, Fitch said, and also become a main route to the biggest employment center in the region, Research Triangle Park.

“Economic activity in the service area is expected to contribute to future traffic growth, with the recent addition of two parkway interchanges leading to continued ramp-up on the existing expressway,” Fitch said.

“However, with the limited number of toll roads in the area, there still exists the potential for sensitivity to annually increasing toll rates, given uncertainty as to overall demand and perceived value of time savings,” according to Fitch.

Also last week, S&P Global Ratings assigned a BBB underlying rating to the authority’s proposed Series 2024 A and B senior-lien revenue bonds and subordinate Series 2024 TIFIA loan.

At the same time, S&P affirmed the BBB rating on the authority’s senior turnpike system revenue bonds and BBB rating on the subordinate Series 2021 TIFIA loan. The outlook is stable.

S&P noted that a pledge of the expressway’s receipts secures bondholders.

“The authority’s TIFIA loan provisions allow the loan to spring to parity with senior obligations upon a bankruptcy-related event. Because of these considerations, we equalize the senior- and subordinate-lien ratings,” S&P said.

“The ratings reflect our view of the toll road’s strong enterprise risk profile and adequate financial risk profile,” said S&P credit analyst Andrew Stafford.

“Our enterprise risk profile determination incorporates this toll road operating in a relatively large metropolitan statistical area that provides important links within the Raleigh-Durham region, with historically strong traffic demand for a relatively new facility, notwithstanding modest adverse impacts of the COVID-19 pandemic,” S&P said.

“Our financial risk profile determination incorporates debt service coverage (DSC) metrics that we expect will be pressured but remain at adequate levels, supported by strong state support for operations and maintenance expenses, if needed,” according to S&P. “Our financial risk profile assessment also considers the Triangle Expressway system’s history of consistently exceeding forecasts.”

S&P added its stable outlook “reflects our view that the Triangle Expressway will be able to maintain financial metrics consistent with an adequate financial risk profile as revenue-generating segments from phases 1 and 2 of the Complete 540 project come on line.”

In a related move on Oct. 25, Moody’s Investors Service upgraded the authority’s $143.2 million senior lien toll revenue bonds and $166.5 million TIFIA loan for the Monroe Expressway to Baa2 from Baa3. The rating outlook was revised to stable from positive.

Moody’s said its upgrade “reflects Monroe Expressway’s continuing strong traffic and revenue performance, which have led to sound credit metrics that outpaced Moody’s expectation at financial close.”

S&P in June raised its long-term rating on the authority’s Monroe Expressway senior toll revenue bonds and the TIFIA loan to BBB-plus from BBB. The outlook is positive.

Also at its latest meeting, the commission approved Durham’s request to issue $181 million of bond anticipation notes, the proceeds of which will go to fix utility infrastructure and equipment.

Chowan County got the green light from the commission for a $35 million installment financing to demolish the John A. Holmes High School, which was built in 1950 and has 600 students. It is the only high school in the Edenton-Chowan School District and the county plans to build a 146,644-square-foot school to replace it.

The LGC approved the Raleigh Housing Authority’s request to issue $30 million of conduit revenue bonds for a loan to KTJ397, a Minnesota limited partnership. Proceeds would go toward building a 180-unit multifamily rental housing development. Additionally, proceeds from a $26 million conduit revenue bond would go to Gresham Lake Family, a North Carolina limited partnership, to build a 156-unit multifamily rental housing development.

The LGC monitors the financial well-being of 1,100 local government units in the state and provides guidance on statutory requirements. On a few occasions the LGC has assumed financial control of those local government units deemed to be in a bad financial condition and helped them get back on track.

On Tuesday, the commission also approved a memorandum of understanding the town of Eureka has with the town of Freemont to transfer to it the administrative, financial and operational ownership of the wastewater system.

Eureka has been under the financial management of the LGC since July 2019. It has a population of 183 and 108 sanitary sewer connections. Fremont, which has a population of 1,463, has 735 sanitary sewer connections.

Fremont has been accepting and treating wastewater from Eureka, but both are designated as distressed utilities by the LGC.

Eureka was awarded a $20 million state appropriation for water and wastewater infrastructure improvements that will be used to address the issues with its system, according to the commission.

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