156 Toll Road Study and Appendices - Transportation Agency for ...

Highway 156 Financial Feasbility AnalysisPage 3 of 10May 10, 2013funding may be available through toll revenues for Phase 2, and when those funds would beavailable.Current Market ConditionsDespite a rise in interest rates these last couple of months, interest rates have been lower thancurrent levels less than 4% of the time over the past decade. The yield curve has flattened comparedto last year; rates are lower by up to 38 basis points in later maturities, but higher by up to 9 basispoints in the earlier maturities. Also, credit spreads for “BBB” rated entities are considerably tighter,as they fell by 40 basis points compared to one year ago.Supply continues to remain at healthy levels as issuers take advantage of opportunities in the lowinterest rate environment. Similarly, municipal market demand remains strong. There continues tobe interest in well structured toll revenue projects such as Highway 156.A number of the assumptions within this plan are based on recent market conditions. Theseassumptions, as described herein, are critical to the viability of the financing plan. It is important tonote that, if municipal and general market conditions worsen, the financial feasibility of the projectwill need to be re-examined.Plan of Finance – General AssumptionsThere are many important inputs and assumptions to the financial feasibility analysis. The analysis isbased upon “sketch-level” toll revenue projections provided by RBF Consulting. The four tollingplans examined by RBF Consulting are described in the next section. For this “sketch-level”analysis, annual operating and maintenance (O&M) costs are calculated at 15% of gross revenueseach year. The cost estimates do not include long-term replacement & renewal (R&R) costs for thetoll facility. The next phase of this study should include R&R costs to capture the full life-cyclecosts of the facility in examining financial feasibility.Toll revenues are first used to pay expected operating and maintenance (O&M) costs for the facility:the remaining revenues are net toll revenues. Net toll revenues are the source of repayment for anyborrowing used to construct the toll road. There are two forms of borrowing currently considered inthe financial feasibility analysis: (1) toll revenue bonds, and (2) a federal loan.Toll revenue bonds are assumed to be sold on a tax exempt basis, with investors receiving a seniorlien on net toll revenues: they would not have access to other county or regional funds. PFM hasassumed interest rates reflective of “BBB” underlying credit ratings without bond insurance for thetoll revenue bonds. The borrowing structure includes a debt service reserve fund (DSRF) sized to10% of the part amount of bonds. Interest on the bonds is capitalized during the constructionperiod; i.e., interest payments that are due through 2021 are included in the size of the initialborrowing. Repayment of debt service on the toll revenue bonds is structured to increase over time,commensurate with growing toll revenues, with the objective of maintaining senior lien annual bondcoverage of at least 2.0x (i.e., annual net revenues divided by annual debt service is at least equal to2.0). That coverage target is stressed at times when future borrowing capacity for Phase 2 isexamined.