North Texas Tollway Authority
System Second Tier Revenue Refunding Bonds
A deftly managed pricing strategy for NTTA effectively navigates significant market volatility
Siebert Cisneros Shank senior-managed this transaction in October, 2018.
Purpose. Proceeds of the Series 2018 were used to refund all of the NTTA System First Tier Variable Rate Revenue Refunding Bonds, Series 2009D, Series 2011A and Series 2012C in addition to making a deposit to the Shared Second Tier Debt Service Reserve Fund and paying costs of issuance of the Bonds.
- Through the refunding, NTTA reduced its variable rate risk from NTTA’s debt profile from 6% to 2.5%;
- $178.4 million of swaps associated with the Series 2009D Bonds were also terminated in conjunction with the refunding. NTTA used cash to pay swap termination payments.
Security. The Series 2018 Bonds are secured by a Second Tier lien on a pledge of tolls and other revenues of the NTTA System and all money held by the Trustee in the various funds and accounts created under the Trust agreement.
Structure. Fixed rate bonds amortizing on 1/1/2030 through 1/1/2038 and 1/1/2045 through 1/1/2050; optional Redemption on 1/1/2028 at par.
Market Conditions. Market conditions in the week leading up to pricing were some of the most volatile seen in some time with major central banks ramping up their quantitative tightening program, the 10-year treasury note rising above 3.25% (its highest level since 2011), the 30-year treasury bond rising above 3.43% (its highest since 2014), and the Dow Jones Industrial Average dropping nearly 1,400 points in two days. Munis were under additional pressure from aggressive selling spurred by a higher than usual amount of customer sell lists (bids wanted in excess of $300 million) after the rise in rates compelled investors to mark down bond portfolios. From September 28 up to the day before pricing, 30-Year MMD increased by 26 bps.
Marketing. SCS developed a slides-only investor presentation which was viewed by 59 different investors; 17 of these investors submitted orders. Leading up to pricing, SCS worked with the financial advisors to evaluate the effectiveness of bond insurance and the use of alternative couponing on an option adjusted basis to broaden the investor demand.
Pricing Strategy. After receiving reads of limited investor appetite for bonds beyond 30 years, SCS deftly maneuvered this volatile market by recommending a structure that utilized multiple coupons (4.00% and 4.25%), reduced the principal amount in the 2050 maturity and amortized the reduction in earlier year (2030 – 2038) so as to limit the risk of widening the spread on the 2050 maturity. This strategy resulted in the 2050 maturity being 3.6x oversubscribed and improved overall net present value savings.
Pricing Results. Despite the volatile market conditions, SCS ultimately received $2.19 billion in priority orders from 80 different investors:
- As result of the syndicate’s strong pre-marketing effort and aggressive pricing strategy, the bonds were over 6.0x oversubscribed and spreads were reduced by as much as 8 basis points at reprice;
- the Series 2018 Bonds generated net present value savings of over $25.7 million (6.8% of refunded bonds);
- the spreads to MMD on the Series 2018 Bonds were tighter by up to 2 bps compared to the Second Tier transaction priced in October 2017.