Interest rates push OCTA to consider refinancing
Transportation planners today approved an agreement with Lehman Bros. and others to evaluate whether the bond debt for the 91 Freeway toll lanes in Orange County needs to be refinanced.
The action was prompted after the bond insurer for the 91 Express Lanes debt was downgraded by several credit agencies. As a result, the interest rates on the bonds have increased and are now costing the Orange County Transportation Authority, which operates the toll lanes, $30,000 a week, an OCTA official said.
About $100 million in variable-rate bonds are insured by Ambac Assurance Corp., which was downgraded by Fitch Inc. and placed on negative credit watch by Moody’s and Standard and Poor’s, said Kirk Avila, OCTA’s Express Lanes manager.
In addition to Lehman, the underwriting team includes Goldman Sachs, JP Morgan Securities Inc. and Merrill Lynch. The team will assess OCTA’s options and recommend to the OCTA board in November whether restructuring is called for, Avila said.
John Moorlach, chairman of the county Board of Supervisors and an OCTA board member, said Ambac lost its AAA credit rating because it insured sub-prime loans and was hit, “like so many others,” by the mortgage crunch.
“Big issues like this are affecting municipalities around the country,” he said. “We’re dealing with the cost of doing business.”
OCTA bought the 10-mile Express Lanes in 2003 for $207.5 million from California Private Transportation Co., a consortium of companies. As part of the deal, OCTA took responsibility for the former owner’s $135-million bond debt and quickly refinanced to take advantage of interest rates below 5%, almost 3 percentage points lower than the original rate.
Splitting the debt into fixed and variable-rate bonds combined with a lower interest helped save the Express Lanes an estimated $500,000 a year, Avila said.
“We’ve saved the 91 customers about $2 million in the last four years with the structure we put in place,” he said. “Unfortunately, now it has gone the other way.”
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