Pennsylvania Turnpike Commission
Oil Franchise Tax Senior Revenue Refunding Bonds, Series 2016A
and Subordinated Revenue Refunding Bonds, Series 2016B
5th transaction managed by SCS for Pennsylvania Turnpike since 2009
Having not issued this credit since 2013, the transaction represented PTC’s first Oil Franchise Tax (“OFT”) financing since the Commonwealth took significant actions under Act 89 to increase funding for transportation infrastructure including, the elimination of the cap on the average wholesale price per gallon, which is used to calculate OFT collections.
In the months prior to pricing, SCS worked with PTC to monitor the market and dual track both a forward delivery transaction to price as early as June and the original schedule of an August pricing to current and advance refund outstanding OFT Revenue Bonds with a September closing. SCS worked with PTC and its advisors to evaluate the OFT swap portfolio and subsequently assisted the working group to execute the solution to move the existing basis swaps to other bonds, so PTC could effectively refund the bonds that had been originally tied to the swaps.
As part of the marketing effort, SCS created an electronic investor presentation which was viewed by 39 investors, 14 of which placed $484 million orders (50% of the total institutional orders). Prior to pricing, we worked with several investors to achieve credit approval and answered multiple questions from key investors that participated in the transaction.
The transaction priced during a week of heavy supply, with total volume for the week expected at $11.5 billion, the highest weekly volume since early June, and over 30 deals of at least $100 million scheduled to price during the week.
- Day before pricing: 10-year MMD yield was revised upwards by 2 bps while the 10-year U.S. Treasury increased by 5 bps
- Day of pricing: Continued negative tone and other deals had to widen prior to entering the market by as much as 10 bps – MMD reads on the day showed cuts by as much as 5 bps
SCS entered the market with spreads more aggressive than the consensus scale and by the end of the order period, nearly $1.1 billion in priority orders had been placed, with priority orders ranging from 1.97x to 7.49x par offered for 2016A and 2.18x to 5.37x on the 2016B. As a result of this oversubscription, spreads were reduced across the board from 2 to 7 bps. There were orders from 50 investors, including 6 investors who were not previously holders of PTC’s bonds and were not required to report as well as 7 investors who were noted to be holders of the bonds to be refunded. Spreads were tighter than on comparable maturities in the 2013 OFT transaction, by 7-14 bps on the Senior Bonds and 10-19 bps on the Subordinated Bonds. The 15-year Senior Bonds priced at +42 bps and Subordinated Bonds priced at +66 bps, essentially on top of where the Turnpike priced its Senior Mainline (A1/NR/A+) credit in June 2016.