Heavy Buying Traffic for Tollway Agency Bonds


Investors on Thursday snapped up more than $1.5 billion in municipal bonds backed by tolls of the Foothill/Eastern Transportation Corridor, making it the largest tax-exempt sale on Wall Street this year.

Securities firms handling the sale, which refinanced an earlier bond issue in an effort to improve the Foothill's cash flow, stopped taking orders after one hour as institutional buyers ordered three times as many bonds as were available.

The sale extended the repayment date of the bonds by five years. The roads--which are maintained by Caltrans--were originally scheduled to be paid for and turned into freeways in 2035.

The Eastern toll road was completed in February, 14 months ahead of schedule. A 17-mile segment has been open since October. The final segment of the 12-mile Foothill North was completed in January.

Revised traffic forecasts for both roads, recently released by the Transportation Corridor Agencies, predicted that traffic on the roads would lag behind original projections.

Restructuring the roads' finances will save $400 million in principal and interest over the next 10 years, said Wally Kreutzen, chief executive of the toll road agencies.

"Investors are clearly bullish on the Orange County economy," Kreutzen said. "They see that the roads are needed; they see the imbalance between jobs and housing."

In California, a wealthy state with high taxes, municipal bonds are in high demand from investors who want to avoid state income tax.

The Transportation Corridors Agencies operates 51 miles of toll roads in Orange County. The sale of bonds for the Foothill/Eastern corridor offered higher yields than are normally available in California.

"Just about every major institution is going to participate in this loan," said Joe Piraro, who runs about $1.8 billion in municipal bonds, including a California fund, for Van Kampen Funds in Oakbrook Terrace, Ill. "This has got California appeal and national appeal."

The sale included ordinary interest-bearing bonds and the less frequently issued zero-coupon bonds, which don't pay interest until maturity. Some of the bonds were insured and rated "AAA," while others were rated "Baa3" by Moody's Investors Service and "BBB-" by Standard & Poor's. The uninsured bond ratings were one notch above junk.

The largest portion of the sale, $831 million of interest-bearing bonds, were tentatively priced with yields ranging from 4.5% in 2004 to 5.77% in 2040. The bonds in 2040, which yield nearly a half percentage point more than 30-year bonds sold by the state, were among the most sought after, managers said.

"That's going to be a great trading bond and become a bellwether for the California market," said Andrew McCullagh, who manages about $900 million for Delaware/Voyageur Asset Management in Denver. "I would have put in for more of those bonds if I could."

The toll-road sale also included $373 million in capital-appreciation bonds, or zero-coupon bonds. They were tentatively priced with yields ranging from 5.63% in 2017 to 6.09% in 2038.

Bond sales in general were helped Thursday by a government report showing consumer prices unchanged in June, a condition that eased concerns the Federal Reserve will raise short-term interest rates next month.

"The feeling is that there is somewhat benign inflation," said Bill Mason, head trader at David Lerner Associates Inc., the largest muni broker on Long Island, New York.

Thursday's bond sale marked the second time Orange County toll road officials have refinanced their roads. A $1.4 billion refunding of the San Joaquin Hills toll road took place in 1997, less than a year after it opened to significantly less-than-expected traffic.

Times Staff Writer Megan Garvey contributed to this report.

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