Pennsylvania Turnpike Commission
Revenue Refunding Bonds
2nd Series of 2017 (November)
3rd Series of 2017 (December)
PTC achieves tightest spreads to the MMD index of any uninsured MLF deal or uninsured subordinate deal since 2008
Pennsylvania Turnpike Commission’s Second and Third Series of 2017 Bonds sold in October and December were SCS’s sixth and seventh senior-managed transactions for PTC since 2009. The 2017 Bonds were issued to advance refund a portion of PTC’s outstanding Turnpike Subordinate Revenue Bonds and MLF Turnpike Subordinate Special Revenue Bonds.
Over several months, SCS diligently presented advance refunding opportunities of PTC’s outstanding bonds to generate debt service savings including creating a customized interest rate break even and sensitivity model for PTC’s bonds.
The first of the two transactions was sold in October 2017 prior to any proposed revisions to Federal tax reform. As a part of the marketing effort on the Second Series, SCS created an electronic investor presentation which was viewed by 25 investors, 11 of which placed $425 million in orders (29.89% of the total institutional orders). During premarketing, SCS pro actively garnered detailed investor reads from 46 institutional investors.
The Second Series transaction was 3.5x oversubscribed, generating more than $1.42 billion of institutional orders placed by 56 different investors. 36.8% of all institutional orders ($523 million), were placed by 9 of the top 20 holders of the bonds to be refunded. Ten orders were placed by institutions who did not hold PTC’s MLF and Subordinate bonds. In response to the strong investor response, SCS tightened spreads by up to 5 bps at re-pricing, resulting in the tightest spreads to the MMD index of any uninsured MLF deal or uninsured subordinate deal since 2008.
After the pricing of the Second Series transaction, SCS continued to evaluate refunding candidates for the Commission. On November 2nd, Republican leaders in the House released their proposed Tax Reform Bill. The House Bill included provisions that would have eliminated the tax-exemption for advance refundings. While the Commission achieved aggressive pricing on the Second Series, the transaction was capped at a $400 million bond authorization. SCS worked closely with the Commission to prepare a new Board Resolution, documents for the Attorney General’s approval and rating agencies. Given that the year-end was approaching, all steps needed to be accomplished on an accelerated time frame.
During the week prior to the expected pricing, nearly $14 billion of new issue supply entered the market. Transactions that priced earlier in the week experienced widening spreads and several were downsized. MMD saw double-digit increases Monday through Wednesday. At that point the Commission’s pool of refunding candidates had declined from $180 million of bonds on November 15th to $70 million of bonds on November 29th. The transaction priced during a week of very heavy supply, with total negotiated volume for the week expected at approximately $17 billion, of which at least 32 deals were a minimum of $100 million.
The transaction was originally scheduled to price on Tuesday, December 5th, however, SCS recommended the Commission accelerate the pricing of its transaction in order to take advantage of the stable Monday morning market and get ahead of the weeks large new issue calendar. In response to a strong marketing effort, SCS proposed tightening spreads 7 – 8 bps at re-pricing for the PTC Subordinate Revenue Bonds and 4 – 6 bps for the MLF-Enhanced Revenue Bonds.
The 2017 transaction was 5.0x oversubscribed, garnering more than $1.55 billion of institutional orders placed by 68 different investors. SCS achieved spreads that were at or through the levels on the 2017 Second Series Subordinate Bonds and are the tightest spreads to MMD of any uninsured 5% coupon MLF or Subordinate bond since 2008.
In total, as a result of aggressive pricing, the Commission achieved an aggregate present value savings of $62 million.