Idaho Transportation

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Idaho to join the Garvee nation in May

The Bond Buyer:
The Daily Newspaper of Public Finance
The state plans to issue about $200 million in grant anticipation revenue vehicle bonds that will be repaid with future federal transportation grants. Idaho will join 14 states and two territories that have issued Garvees, according to the Federal Highway Administration.
The issuance by the Idaho Housing & Finance Association is the first installment in a program that is slated to total $1.2 billion in Garvees over several years.

It also marks a milestone for Gov. Dirk Kempthorne, who is expected to leave office within a few weeks upon his confirmation as secretary of the U.S. Department of Interior.

The issuance will mark the end of a long process for the issuer, said John Sager, chief financial officer and vice president of the Idaho HFA. “We’ve been working on putting together the team working group and financing team for about a year,” he said. “We’re looking at pricing hopefully the week of May 1.”

Idaho does not issue general obligation debt, and the state’s housing finance agency was deemed the most appropriate vehicle to serve as issuer for such a large debt program.
“We’ve done nonprofit facilities throughout the state since 1997,” Sager said. “We’re the most experienced issuer in the state by far.” Citigroup Global Markets Inc. will run the books on the deal. Sager said there would be a retail order period the day before final pricing.

“On our housing debt we typically sell a good percentage to in –state retail, and we expect it will be the same on this initial Garvee deal,” he said.

MBIA Insurance Corp. will provide insurance, Sager added. The deal drew an underlying A -plus rating from Fitch Ratings. Moody’s Investors Service assigned an Aa3 rating. Standard & Poor’s is not rating the deal.

“One key issue we always look at in Garvees is the issue of reauthorization risk,” said Fitch analyst Scott Trommer. The federal surface transportation financing authorization is typically enacted for a six-year period, which most recently happened in 2005, after two years of temporary reauthorizations following the 2003 lapse of the previous authorization.

Idaho’s Garvees have an 18-year final maturity, which exposes them to at least three reauthorization cycles, Trommer said. There are other Garvees with 12-year final maturities, he said, which only exposes them to two reauthorization cycles and often garners a notch higher rating.

“An interruption of federal transportation funding we view as highly unlikely, ” he said. “A practical downside risk is some change in federal transportation policy that may risk flow of funds to a particular state.”

That risk may be greater for states that receive more federal transportation funding than they generate in motor fuel taxes, Trommer said. Idaho received $1.40 for each $1 it contributes on motor-fuel tax revenue.

Nonetheless, the Idaho deal provides bondholders strong protections, according to the Fitch analyst.

They include a covenant by the state Transportation Department to request obligation of federal surface transportation funds for debt service, the state’s continuing appropriation of federal surface transportation funds, and an additional bonds test requirement that projected debt service cannot exceed 30 percent of Idaho’s federal transportation aid apportionments.

Bond proceeds will finance six projects to improve highways around the state, with more projects slated for financing in future years.

“This will be the first of hopefully about five issues under the program, one issue per year,” Sager said. Ballard Spahr Andrews & Ingersoll LLP and Skinner Fawcett are co-bond counsel. Orrick Herrington & Sutcliffe LLP is underwriters’ counsel. The Garvees mark a hard-fought political triumph for the governor. The “Connecting Idaho” package, as Kempthorne dubbed it, was the centerpiece of his 2005 legislative agenda.

It nearly died in a House committee under pressure from debt-averse GOP lawmakers who thought their fellow Republican in the governor’s office was borrowing too freely. Kempthorne forced the issue by vetoing a series of unrelated House bills, saying that by doing so, he would keep the House in session until lawmakers approved a Garvee bill, which they eventually did.

The battle was rejoined this year, when a bill was needed to authorize the actual sale of the first Garvee bonds; in the end Kempthorne’s original $218 million request was scaled down to $200 million. Kempthorne is awaiting confirmation as federal interior secretary, at which point he will resign from the Idaho governorship.

He was hardly in a modest mood when he signed the 2006 Garvee legislation last Friday in a ceremony held at an overpass over Interstate 84.

“It’s quite fulfilling that one of the final pieces of legislation I sign be something I care so deeply about and for which I fought so hard,” Kempthorne said, moving on to ruminate about President Eisenhower and the Interstate Highway System, President Lincoln and the Transcontinental Railroad, and Lincoln’s assassination on Good Friday, 1865.

“Incidentally, today is Good Friday, April 14,” Kempthorne said at the signing ceremony. “It is a beautiful spring day, and we are gathered to sign this legislation — legislation that will get construction underway to bring the State of Idaho together from north to south and from east to west.”

Published 4-28-06