Transportation

The professionals with Acacia Financial Group have developed a particular expertise with transportation projects joining our debt analysis capabilities with our modeling innovations. Our professionals have worked on a wide variety of projects including toll roads and bridges, transit projects, privatizations, State-wide funding programs, port authorities, etc. We have assisted our clients not only with debt issuances and the implementation of derivative products, but also developing comprehensive financial forecasting models, presenting information before rating agencies and governmental boards, securing funding from local, State and Federal levels. Major clients that have been represented include the Delaware River Port Authority, the South Jersey Transportation Authority, the New Jersey Turnpike Authority, the New Jersey Highway Authority, New Jersey Transit, the New Jersey Transportation Trust Fund Authority, and the Port Authority of New York and New Jersey.

Delaware River Port Authority
The Delaware River Port Authority (“DRPA”) is vested with the ownership, control and operation and collection of tolls or other revenues of the bridges across the Delaware River known as the Benjamin Franklin Bridge, the Walt Whitman Bridge, the Commodore Barry Bridge and the Betsy Ross Bridge. The DRPA also operates, through a subsidiary, the Rapid Transit System more commonly known as PATCO providing commuter rail service between southern New Jersey and Philadelphia across the Ben Franklin Bridge.

In 2001, the DRPA executed four swaption transactions relating to the four bond issues with a combined notional amount of approximately $900 million. We advised the DRPA with the procurement of swap and municipal bond insurance, the evaluation of tax risks, option periods, and variable rate basis, and the competitive bidding process for the selection of counter-parties. Our professionals specifically negotiated the operative Schedules to the ISDA Master Agreements for each of these transactions. The DRPA garnered in excess of $42 million in up-front savings from the implementation of these transactions.

In 2001, the DRPA issued its 2001 PDP Bonds, Series A and B (a) to convert prior 1999 PDP A Bonds from taxable status to tax-exempt status and (b) to provide funding of certain economic development projects. Due to the clarification of certain projects to be funded by the 1999 PDP A Bonds, the DRPA was able to convert approximately $100 million of the prior bonds to tax-exempt status generating an excess of $4 million in present value savings. In addition to performing its traditional financial advisory services including rating agency presentations, financial analysis, document review, and pricing analysis, we developed and implemented a unique hedging product to protect to DRPA against movements in the redemption price of the 1999 PDP A Bonds. The 1999 PDP A Bonds contain a “market” call provision wherein the redemption price for bonds to be redeemed is a function of statistical Treasury information released on a weekly basis. The actual redemption price of 1999 PDP A Bonds to be redeemed could be calculated until within one week of actual redemption. Therefore, the DRPA was at risk for movements in Treasury rates between the period when the DRPA priced the refunding bond issue (the point in time when the DRPA determines the amount of funds to borrow for redemption) and the final determination of the redemption. If Treasury rates were to fall in this period, the DRPA could have had an over-issuance of bonds and if Treasury rates were to rise in this period, the DRPA could have had insufficient funds to effectuate the refunding. Our professionals developed a cost-effective hedge product wherein the DRPA purchased and subsequently sold certain Treasury securities at times and in amounts to offset the movement in the redemption price of the 1999 PDP A Bonds. This product proved highly effective and was effectuated at a cost of more than $1 million less than competing proposals provided by other counter-parties.

In 1999, the professionals of Acacia Financial advised the DRPA with the issuance of $422 million of Revenue Bonds, Series 1999 under the DRPA’s operative 1998 Senior Indenture and $272 million of Port District Project Bonds under a new 1999 Subordinate Indenture. The 1999 Revenue Bonds funded a portion of the DRPA’s capital program for the next five years and the 1999 Port District Bonds provided funds for various economic development projects in Philadelphia and Camden port district area improvements. The DRPA’s $272 million Port District Project Bonds were issued as two separate series consisting of a $164 million taxable issue and a $107 million tax-exempt issue.

In connection with the issuance of the Revenue Bonds and Port District Bonds, our staff assisted the DRPA with the development of a long-term budgetary analysis of the DRPA’s fiscal operations under numerous toll increase scenarios and bond issuance sizings. Beyond the traditional revenue and expense projections, these analyses have included sensitivities for inflationary movement, toll transactions and PATCO ridership adjustments, vehicular distributions changes, E-ZPass usage penetration, differential discount programs, debt structuring alternatives and future capital borrowings. This effort culminated with the approval for the 50% toll increase for the bridges and incremental PATCO fare increases, along with the implementation of the E-ZPass collection system and new discount fare program which became effective on December 18, 1999. With the rating agency presentation prepared by our professionals, the DRPA was successful in securing investment grade ratings for the subordinate (non-eligible for benefits of toll covenant) bond issue from Moody’s and S&P. This included a rating upgrade from S&P. Acacia Financial’s professionals negotiated attractive bond insurance quotations facilitating aggressive marketing and pricing of the DRPA’s Port District Project Bonds. We additionally structured creative delayed par put options within the guaranteed investment contracts for the DRPA’s newly funded debt service reserve fund thereby providing an effective hedge or efficient borrowing mechanism in the event of higher future interest rates.

In 1998, our staff advised the DRPA through the issuance of approximately $188 million of refunding bonds. These bonds consisted of both tax-exempt forward refunding bonds and taxable advance refunding bonds in order to provide a synthetic advance refunding to provide approximately $6.0 million in debt service savings and the accelerated access to an additional $7.0 million in operating reserve fund monies. Through the refunding, we assisted in the preparation of a new operative senior bond indenture to provide the DRPA with greater flexibility in the issuance of future bridge related and economic development debt issuances which proved beneficial with the issuance of the 1999 Revenue Bonds and Port District Project Bonds.

Toll Road Consolidation – New Jersey Highway Authority
As financial advisor to the New Jersey Highway Authority in the consolidation of New Jersey’s toll roads, the professionals at Acacia Financial reviewed the consolidation reports and merger legislation, developed bridge-financing mechanism to fund EZ-Pass liability, reviewed financial pro-forma and proposed consolidation bond financing structures.

In addition, our professionals assisted in the issuance of $123 million Senior Parkway Revenue and Refunding Bonds, 1999 Series and $243 million Senior Parkway Revenue and Refunding Bonds, 2000 Series. The 2000 Series used a forward refunding structure and the initial sizing of the 2000 Series bonds assumed 0% SLGs (State and Local Government Securities) for the escrow. This was done to minimize the effect of transferred proceeds. Prior to closing, the working group re-evaluated the market and investments available and decided not to take delivery on the SLGs as an escrow funded with open market securities would provide a greater benefit to the New Jersey Highway Authority.

New Jersey Transportation Trust Fund Authority
In connection with providing financial advisory services for the $953 million new money issuance of the New Jersey Transportation Trust Fund Authority (“TTFA”) in October of 2005, these individuals were called upon to develop a completely unique system to analyze TTFA cash flows. The TTFA faces (prior to, and to a lesser degree subsequent to, recent legislation) solvency issues. The TTFA receives certain statutory funds, including most substantially certain gas and diesel fuel taxes, as well as other legislatively approved funds. From these funds, the TTFA needs to provide for debt service (on existing debt and future debt of the TTFA as well as certain NJ Transit debt), certain operational costs of the Department of Transportation and the intent to provide (if able) for future Transportation projects on a pay-as-you-go basis. The prior limitation of statutorily available funds of only $805 million per year coupled with the existing debt service has essentially precluded the issuance of any additional debt for capital projects following the 2005 bond issuance (absent the near exclusive use of capital appreciation bonds due to existing debt service levels of nearly $805 million in the years 2008 – 2012). The limitation (prior to the recent legislation) of any final debt maturity to no more than 21 years from the date of issuance limited the ability to restructure the debt over a longer period of time to produce near-term debt service relief to yield more debt capacity.

In addition to providing all the traditional financial advisory services associated with the 2005 new money issuance (e.g. transaction coordination, debt structuring, documents review, rating agency and bond insurance direction and correspondence, etc), these individuals, at the request of the TTFA, the State Treasurer and the Legislature developed a comprehensive cash-flow analysis for the entire TTFA system. This analysis incorporated all the existing and potential sources of TTFA revenue (e.g. statutory and legislative appropriations, gas taxes, bond proceeds, etc.) and expenditures (e.g. existing and future debt service, capital projects paid from pay-as-you-go funding, on-going expenditures for the DOT, local aid, etc.) and allowed for the manipulation by the user of any assumption. This possible manipulation included, not only simple assumptions of gas tax rates, gas and diesel usage assumptions and other fixed revenues or expenditures, but also debt limitation constraints (such as maximum annual aggregate debt service, final term, future borrowing rates) and desired amounts of capital funding with targeted pay-as-you-go funding ratios.

The elegance of this model illustrates the capabilities of Acacia Financial, as it was, not only comprehensive, but also unique in the manner in which the targeted solution was determined. Rather than requiring the user to randomly select debt issuance amounts over time (i.e. annual amounts), the user simply input the constraints on the system (i.e. statutory debt limitations, gas tax rates, targeted future capital funding, etc.) and the model solved for the maximum amount of debt that could be issued, whether constrained by statutory limit, available revenue limit or sufficient funding achieved. In this way, the model solved solutions in the same manner that a user would test the problem. Rather than having to arbitrarily input multiple permutations of debt issuances over time and testing to see if the particular scenario produced a solvent system, the model allowed the user to easily input any proposed scenario and immediately determine if the scenario was (a) simply insolvent, (b) insolvent but solved by successive deficit borrowings (tax implications notwithstanding), (c) solvent and incorporating capital borrowings and pay-as-you-go funding, or (d) better than solvent (i.e. requiring no capital borrowings after some period of time and solving all capital requirements by pay-as-you-go funding).

The innovative use of multiple nested tests in the model allowed the user the ability to swiftly and accurately discern whether any combination of desired funding, revenue and expenditure constraints was feasible. It is this type of creativity and desire to produce analyses that solve client’s problems that distinguish the professionals of Acacia Financial.