North Texas Tollway Authority
System Revenue Refunding Bonds, Series 2022 A&B
September 14, 2022
The 2022 A&B Bonds are being issued to refund a portion of NTTA’s Series 2015B and 2017 A&B Bonds and to refinance the ISTEA Loan with TxDOT. NTTA’s ratings were upgraded by S&P and also received an upward outlook revision from Moody’s to Positive based on strong traffic and revenue recovery in the wake of the COVID-19 pandemic.
Series 2022A Bonds included serial bonds from 2024 to 2026 and from 2036 to 2040, including bifurcated maturities in 2039 and 2040, and the Series 2022B Bonds included serial bonds from 2024 to 2029. Tax law allowed for only a partial tax-exempt refunding of the 2017 A&B maturities, so a cash defeasance of a portion of the unrefundable par was also incorporated. Refunding escrows funded with OMS for additional refunding savings, while cash defeasance escrow was funded with SLGS.
Leading up to pricing, extreme volatility persisted in both the municipal and Treasury markets, following the worst performance in August in 30 years for muni bonds as concerns over inflation and Fed rate hikes continued to weigh on investors. In the week leading up to pricing, MMD increased across the curve by a total of 10 to 17 bps, with daily moves of up to 8 bps. The market was focused on the September 13th CPI number and the impact that it would have on a potential Fed rate hike later in the month. CPI came in weaker than forecast, causing renewed volatility in both the bond and equity markets, with MMD increasing 8 bps and the Dow dropping over 1,200 points the day before NTTA was scheduled to price the Bonds and the 10-year UST reaching its highest level in 3 months.
Given heavy investor focus on the Tuesday CPI number, SWS recommended that NTTA wait to enter the market until Wednesday (September 14) to allow time for the market to absorb the CPI results. SWS led the development of the investor roadshow which was viewed by 69 different investors, 42% of which ultimately submitted orders. SWS pre-marketed the transaction on Tuesday (September 13) amidst significant market volatility, allowing SWS to acquire critical feedback from investors on couponing alternatives that would be of interest in the current market. On the morning of pricing, SWS recommended waiting to confirm investors levels given that Treasuries had opened weaker. Once SWS had investor confirmation and the market began to stabilize, we recommended commencing with the order period. Given no material new developments in the market the morning of pricing, SWS recommended leaving spreads unchanged vs. pre-marketing levels. In order to meet a range of investor demand, SWS recommended offering a variety of coupon alternatives on the longer maturities. 2022A Bonds were offered with a 5.25% coupon in 2038 and 4.125% and 5.00% coupons in 2039 and 2040.
Despite a choppy market, SWS generated $2.1 billion in priority orders from 81 different investors (3.0x oversubscription) - 41 of which did not previously report NTTA holdings. At re-pricing, SWS tightened spreads by 2-5 bps on both series, except for the 2024 and 2025 maturities which were left unchanged based on expected MMD increases in those years. Compared to another toll road issuance (A1/AA-) priced the day prior, final spreads on NTTA’s First Tier Bonds were up to 8 bps tighter. Generated savings of $37.2 million (5.1% of refunded par).