Oklahoma Turnpike to sell bonds amid legislative push for reforms

The Oklahoma Turnpike Authority will head to market this week with its biggest-ever revenue bond sale to continue financing a controversial expansion project supported by a recent toll hike that has spurred legislation to give state lawmakers the power to authorize rate increases and to limit its outstanding debt.

The $1.3 billion new money and refunding deal, led by Goldman Sachs, is slated to price Tuesday, following a same-day retail-order period.

It provides a second round of financing for OTA’s 15-year ACCESS Oklahoma (Advancing and Connecting Communities and Economies Safely Statewide) program, which was officially launched by Gov. Kevin Stitt in February 2022 to widen existing toll roads and build new ones at a projected cost that has risen to $8.2 billion from an initial $5 billion.

The new debt and OTA’s $1.94 billion of outstanding bonds are secured by the turnpike system’s net revenue and a share of state motor fuel tax collections.

In the wake of the OTA board’s approval in December of a toll increase that is expected to increase systemwide toll revenue by 15%, along with a plan for automatic 6% toll hikes in future years, Republican and Democratic state lawmakers filed several bills to curb the authority’s powers.

Measures to be considered in the Republican-controlled legislature include bills that would require legislative approval for higher tolls and impose caps on outstanding OTA bonds.

Howard Cure, director of municipal bond research at Evercore Wealth Management, said while OTA is “a fairly solid credit,” attempts to usurp its power over toll rates raise a red flag.

“Any time you want to get an analyst or bond buyer nervous is when you insert some sort of political process when it comes to controlling rates or amount of debt outstanding,” he said.

OTA Executive Director Joe Echelle said past toll hikes spurred similar legislation and that the authority will be meeting with bill sponsors after the legislative session begins next week. 

“The thing that the turnpike authority has done very well in the past is explain the benefits of the turnpike authority being able to raise tolls as needed to fund its capital programs,” he said. “The number one thing that I try to talk to legislators about is the need of these projects, the cost of them, how they’re built pales in comparison to the need.”

The preliminary official statement for the deal includes disclosure about the potential for bills that could impair OTA’s obligation under trust agreements and violate state and federal constitutional contract clauses.

Wendy Smith, the authority’s finance director, said such moves could lead to bondholders taking action.

Meetings last week in Chicago, Boston, and New York gave investors opportunities to ask questions, she said. 

“We had very positive responses from the investors,” Smith said. “People are really excited about this issue.”

Rating agencies highlighted OTA’s toll-setting ability.

S&P Global Ratings, which affirmed its AA-minus rating and stable outlook ahead of the new deal, said it views “OTA’s independent authority to set toll rates and demonstrated practice of increasing rates to support rising debt service requirements under previous capital programs as supporting credit quality.” 

Moody’s Ratings said the affirmation of its Aa3 rating and a stable outlook “reflects recent and planned toll rate increases that will strengthen debt service coverage ratios” as OTA’s large-scale capital program ramps up.

“The affirmation also incorporates our expectation of weaker long-term credit metrics balanced by flexibility to defer portions of the capital program if necessary,” Moody’s added.  

Republican State Sen. Lisa Standridge filed bills requiring legislative approval for toll increases, capping OTA’s outstanding bonds at $2.71 billion, and creating a Turnpike Legislative Oversight Board to examine OTA’s functions, activities, policies, procedures, and expenditures. 

Standridge, who represents Norman, one of the communities impacted by a toll road expansion, also filed Senate Bill 80, which sets out requirements for public notification, input, and oversight before new or modified turnpike projects can proceed. 

“As a nation we give the worst of the worst criminals, including serial killers, due process; we certainly owe landowners in the path of a potential turnpike the same,” she said in a statement. “This legislation ensures that the OTA operates with full transparency and accountability, prioritizing the interests of affected residents and businesses.”

Democrat State Rep. Annie Menz, who also represents Norman, filed bills giving the legislature power over toll increases and limiting OTA’s outstanding bonds at $3.15 billion.

“I believe that with my proposed legislation creating a bond debt ceiling for Oklahoma Turnpike Authority, and requiring legislative approval for toll increases, we would ensure Oklahoma taxpayers and turnpike users the kind of transparency that they deserve,” she said in a statement. “Oklahomans should have a say in their toll increases and where their money is going, and these bills are a great start.”

Bills filed by other Senate Republicans include one seeking legislative power over toll hikes and another that would prohibit the authorization of turnpike projects without approval in a special election by a majority of property owners within a one-mile radius of a turnpike project. 

Oklahomans for Responsible Transportation, which has been fighting against the ACCESS program, said it will be supporting measures to limit OTA’s power.

As for the upcoming bond sale, the group is disappointed that OTA ”continues to misrepresent the viability of the ACCESS turnpike projects,” it said.  

“Investors should be aware that the city of Norman remains overwhelmingly opposed to these unwanted highways,” the group said in a statement. “Oklahoma citizens are also fed up with the OTA’s predatory over-building, runaway toll increases, and callous disregard for property rights and environmental concerns.”  

Lawmakers filed a barrage of bills aimed at reforming OTA in 2023, but only one became law after the House and Senate overrode Gov. Kevin Stitt’s veto.

The law, which strips the governor of his sole ability to appoint the six-member OTA board, allowing legislative leaders to also make appointments, is the target of an ongoing court challenge OTA filed in January 2024. 

An investigative state audit of OTA ordered in March 2023 by Oklahoma Attorney General Gentner Drummond, who raised concerns about the authority’s financial conduct, has yet to be released. 

An initial $500 million of bonds sold for the ACCESS program in October 2023 had been delayed by litigation brought by property owners in the path of tollway expansion projects. After the Oklahoma Supreme Court ruled in the turnpike’s favor in the lawsuits in 2023, justices subsequently validated the initial debt in a 6-3 decision.

The latest bond issue, which is also rated AA-minus with a stable outlook by Fitch Ratings, consists of $1.087 billion of Series A second senior revenue bonds structured with serial maturities in 2035 through 2045, according to the preliminary official statement. Most of the debt — $741 million — is in term bonds due in 2050 and 2055.

The $223.3 million of Series B second senior revenue bonds, which carry serial maturities in 2032 through 2042, will refund the authority’s 2017 Series A bonds.

Because those bonds are not yet callable, the debt has an October forward delivery date. On Friday, Jordan Perdue, OTA’s senior financial analyst and legislative liaison, said the par amount was projected at about $151 million and the present value savings at around $9.2 million.

Co-managers are Jefferies, Morgan Stanley, PNC Capital Markets, Raymond James, Stifel, and BOK Financial Securities. Hawkins Delafield & Wood is the bond counsel and Hilltop Securities is the financial advisor. 

OTA expects to issue an additional $6.5 billion of bonds for the ACCESS program. 

“Our intention is to be back in the market every year and a half to two years, depending on our expenditure of the funds, and that is really reliant on our ability to get projects to construction,” Echelle said.