The Illinois State Toll Highway Authority heads into the market this week with $500 million of new money debt that leaves just another $1.5 billion of borrowing still to come for its$14.8 billion capital program.

The fixed-rate bonds will sell Wednesday, according to tollway officials. Proceeds will fund upgrades and expansion projects in the Move Illinois capital program, now in the 12th year.

The ISTHA bonds are among the highest-rated debt related to the Illinois state government, but it still pays penalties for the association — although that penalty could ease given the state’s latest credit upswing, market participants said of the downstream benefits of the upgrades.

The 294-mile system in northeastern Illinois has completed 70% of the work planned and has already sold $4.3 billion of the $6.3 billion of authorized borrowing to support the program. After the latest sale, another $1.5 billion is planned. Work will continue through 2027.

“As we look at 2023, it will be one of our largest years, with $1.47 billion budgeted to support delivery of two of largest and most complex projects,” Cassaundra Rouse, the authority’s executive director, told state lawmakers at a House committee hearing on the agency’s budget earlier this month.

The 2023 capital plan allocates $314.8 million for system-wide roadway and bridge repairs to keep the existing tollway system in good repair, as required under bond covenants. Another $615.3 million will fund the ongoing design and reconstruction work for the Central Tri-State Tollway (I-294) Project.

Another $506.3 million is allocated to continue planning and construction for the new I-490 Tollway and new interchanges connecting to the Jane Addams Memorial Tollway (I-90), Tri-State Tollway (I-294), the Illinois Route 390 Tollway, as well as providing direct access in and out of O’Hare International Airport as part of the Elgin O’Hare Western Access Project.

BofA Securities is the bookrunning senior manager and Jefferies is the joint senior manager. PFM Financial Advisors LLC and Backstrom McCarley Berry & Co. LLC are advisors. ArentFox Schiff LLP is bond counsel.

 The bonds carry a backloaded structure maturing between 2041 to 2045 to fit into the system’s overall debt structure.

Fitch Ratings, Moody’s Investors Service, and S&P Global Ratings affirmed the system’s AA-minus/Aa3/AA-minus ratings, respectively, ahead of the sale. The system has $6.8 billion outstanding when counting debt sold for prior capital programs.

“The rating reflects our opinion of the authority’s very strong enterprise risk and financial risk profiles as well as a large capital funding plan that will require additional debt to complete,” said S&P analyst Joe Pezzimenti.

“The stable outlook reflects our assessment of the high and relatively price-inelastic demand for authority facilities during our two-year outlook period, allowing ISTHA the flexibility to raise tolls as needed to ensure continued strong financial performance,” S&P said.

“The rating reflects the essentiality of the tollway system, evidenced by its long-term growing traffic base and moderate price elasticity,” Fitch said. “The rating further reflects ISTHA’s prudent debt management with strong historical and projected debt service coverage ratios with a major capital program underway.”

The risks associated with a large program are offset by the authority’s history of delivering big spending programs on time and under budget as well as its healthy balance sheet position, and proactive history of toll rate hikes as needed, Fitch said.

While the system took a hit in the COVID-19 pandemic — as commuter traffic slowed from a state shutdown and remained down amid work-from-home trends — total traffic hit 94% of 2019 levels in 2022. Passenger traffic was still down 8.1% last year, but commercial traffic has shown more resiliency and was up 5.8% over 2019 levels.

Traffic for the first two months of 2023 was 99% of levels from the same period in 2019.

The tollway’s unaudited fiscal 2022 total operating revenues were just below $1.6 billion, an increase of 5.4% from fiscal 2019. Fiscal 2022 debt service coverage ratios rose to 2.4 times from 2.3 times a year earlier as passenger traffic recovered and commercial rates rose under ongoing scheduled rate hikes.

“The outlook is also based on the stable credit profile of the state of Illinois,” Moody’s noted.

While Gov. J.B. Pritzkzer appoints board members and lawmakers govern the tollway’s statutes, the tollway operates as an independent agency and toll revenues are pledged to operations and debt repayment. A 2016 constitutional amendment installed a lockbox on transportation revenues so they can only be spent for transportation-related costs.

The authority’s board adopted a $1.55 billion budget at its December meeting. The authority will spend $517 million on debt service and $427 million toward maintenance and operations, with other funds paying for projects. Two bond sales of $400 million and $500 million are planned this year.

Commercial toll hikes accompanied passage of the capital program and that has lifted revenue. In recent years, the increases were tied to a percentage of the consumer price index over the previous year, but in September the board voted to change the formula to one based on the last three years, easing the hit for toll payers.

A 20-year bond in the authority’s 2021 sale landed at a 43 basis point spread to Refinitiv Municipal Market Data’s AAA benchmark and the 20-year in a 2020 sale landed at a 50 bp spread.