Hsu - National Association of Counties

Los Angeles County Metropolitan Transportation Authority
Regional Connector TIFIA Loan – A Case Study
Presented by Victor Hsu
Norton Rose Fulbright
National Association of Counties
2014 Annual Conference & Exposition
July 12, 2014
A. Overview of LA Metro
B. Overview of TIFIA Loan Program
C. LA Metro’s Regional Connector TIFIA Loan – A Case Study
D. Conclusion
Los Angeles County Metropolitan Transportation Authority
• LA Metro’s bus and rail operation is the third largest public
transportation system in the United States.
• Serves as transportation planner and coordinator, designer,
builder and operator for one of the nation’s largest, most populous
• 9.8 million people – nearly one-third of California’s residents – live
and work within LA Metro’s 4,083-square mile service area.
Los Angeles County Metropolitan Transportation Authority
• Bus fleet includes over 2,400 CNG buses
• Commuter rail system includes almost 90 miles of track,
consisting of 8 lines and 80 stations
• Nearly 9,200 employees
• FY 2015 Adopted Budget of $5.0 billion. In addition to State and
Federal grants and fare box revenues, principal revenue sources
include three 1/2-cent-sales tax levied in Los Angeles County:
Prop A, Prop. C and Measure R.
Measure R Sales Tax
• 1/2-cent sales tax for transit purposes collected in LA County, from April
2009 through March 2039
• Estimated to generate approximately $40 billion throughout its 30-year life
• Currently budgeted to generate $708,400,000 in FY 2014
• Secures over $2 billion in obligations, including:
$686,050,000 of Measure R Senior Sales Tax Revenue Bonds, Series
2010-A (Taxable Build America Bonds) and Series 2010-B (Tax-Exempt).
Rated AAA by S&P and Aa2 by Moody's.
Funding Agreement with conduit borrower Crenshaw Project Corporation
(CPC) supporting debt service on CPC's $545,900,000 TIFIA Loan. Rated
A- by S&P.
$160,000,000 TIFIA Loan and related Measure R Junior Subordinate Sales
Tax Revenue Bond 2014-A TIFIA Series (Regional Connector TIFIA Loan).
Rated A- by S&P and A by Fitch.
$856,000,000 TIFIA Loan and related Measure R Junior Subordinate Sales
Tax Revenue Bond 2014-B TIFIA Series (Westside Purple Line Extension
Section 1 TIFIA Loan). Rated A- by S&P and A by Fitch.
Los Angeles County Represents a Large and Diverse
LA Metro 30/10 Initiative
LA Metro 30/10 Initiative
LA Metro 30/10 Initiative
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LA Metro 30/10 Initiative
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30/10 Initiative Map
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• Created by Transportation Infrastructure and Innovation Act of
1998 originally to assist with financing large-scale transportation
projects involving tolls and other forms of user-backed revenues
• TIFIA program offers three types of financial assistance:
– Direct Loans
– Loan Guarantees
– Standby Lines of Credit
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• TIFIA Loans offer combined construction phase and permanent
financing of capital costs
• Long tenor
• Flexible repayment terms
• Fixed rate set at one basis point above the corresponding SLGS
rate for similar maturity
• Can fund up to 49% of total project cost (or 33% of total project
cost for certain projects not subject to springing lien)
• TIFIA Loans are negotiated with and funded by the U.S.
Department of Transportation.
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Program Eligibility
Any project eligible for federal assistance through existing surface
transportation program is also eligible for the TIFIA program.
Examples of eligible projects include:
• Transit
• Rail
• Highways
• International Bridges and Tunnels
• Freight Rail Facilities
• Intelligent Transportation Systems (ITS)
• Intermodal Projects (including port access projects)
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Springing Lien
• Upon the occurrence of a Bankruptcy Related Event, the TIFIA
Loan shall be secured by a first priority security interest in the
Collateral on a parity with the Senior Obligations.
• Faux Subordination  TIFIA Loan is subordinate except when it
really matters.
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TIFIA Loans (continued)
• Project Financings vs. System Financings
• How do we solve the springing lien problem? Three possibilities:
– Have the Secretary of Transportation waive the springing lien requirement
– Create a conduit borrowing structure so that the springing lien affects the
collateral of the conduit but not the true borrower (worked in 2012, now a
– Change the law!
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Moving Ahead for Progress in the 21st Century Act
MAP-21 affected the TIFIA program in several significant ways:
• The share of direct loan funding for a project was increased from
33% to 49% (though it remains 33% for projects that do not
include a springing lien)
• The springing lien requirement is eliminated for projects that are
not funded by project revenues (like tolls) but instead are funded
by revenues unrelated to project performance (like sales tax
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TIFIA Loans (continued)
• Congress authorized $750 million in budget authority for FY 2013
and $1 billion for FY 2014. This budget authority is sufficient to
fund up to $17 billion in principal amount of TIFIA Loans.
• Rural projects were given specific eligibility criteria, and the
minimum project cost for rural projects was lowered from $50
million to $25 million.
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TIFIA Participation
under MAP-21
under MAP-21
Under MAP-21
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Springing Lien
Waiver Limit (33%)
TIFIA Funding Increased under MAP-21
$ in millions
Credit Subsidy/Loss Reserve
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Loan Capacity
Selection & Funding of a TIFIA Project
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TIFIA Documentation Requirements
Source: FHWA
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LA Metro
Regional Connector TIFIA Loan
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Proposed Terms for LA Metro Regional Connector
TIFIA Loan Agreement
• Borrower: LA Metro
• Principal Amount: $160 million
• Security: Pledge of TIFIA Pledged Revenues
– Measure R Sales Tax Receipts less Senior and Subordinate Obligations Debt
Service, and less Fees and Expenses
– Parity with obligation to make Crenshaw Funding Payments and subordinate all
obligations under existing Measure R Trust Agreement (ultimately rejected)
• 5% Debt Service Reserve Fund
• 1.25 times Additional Bonds Test
• 1.25 times Annual Coverage Ratio Covenant
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Security and Measure R Revenue Pledge for
LA Metro Regional Connection TIFIA Loan
• Measure R debt is secured by pledge of all Measure R taxes (less
15% Local Return and State administrative fee)
• Same pledge structure for Prop A and Prop C debt (i.e., all
categories except Local Return and admin fee)
• Received opinion from outside counsel confirming the legality of
85% pledge
• Board approved the 85% pledge prior to first Measure R bond
issue; specified in Measure R Trust Agreement
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Flow of Funds for LA Metro Regional Connector
TIFIA Loan Repayment
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Measure R Senior Lien Structure
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Additional Indebtedness
• Covenant that no additional Measure R debt will be issued unless
Projected TIFIA Pledged Revenues are at least 1.25 times annual
TIFIA Debt Service
• Covenant that projected revenue of each Measure R expenditure
category (e.g. transit, highway) is 1.10 times debt service
attributable to each expenditure category
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Measure R Expenditure Categories
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LA Metro Regional Connector TIFIA Loan
• Direct loan instead of conduit borrowing structure
• TIFIA insisted on being secured under the Senior Measure R
Trust Agreement on a third lien basis under the Measure R Sales
Tax Revenue flow of funds, directly behind Senior Bonds and
Subordinate Obligations and senior to the Crenshaw TIFIA Loan
• Required significant surgery to the Senior Measure R Trust
Agreement to accommodate TIFIA’s demands
• Repayment obligation evidenced by Measure R Junior
Subordinate Sales Tax Revenue Bond in addition to TIFIA Loan
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Measure R Outstanding Debt
 As of July 1, 2014, $686,050,000 of Senior Debt was
No Subordinate Obligations are currently outstanding
First draw for Crenshaw TIFIA loan in June 2015
 Coverage of Senior MADS ($42.6 million in FY16, including 35%
BAB subsidy) by audited FY13 revenues ($576.4 million) is
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Amortization of TIFIA Loans
• Amortization of principal to meet overall Measure R funding needs
and resources consistent with the Long Range Transportation
• Principal amortized annually:
– Regional Connector – FY20 through FY37
– Crenshaw – FY22 through FY37
– Purple Line Extension – FY20 through FY37
• Back-loaded amortization is critical:
– maximizes the benefit of low TIFIA Loan rate
– increases the chances that LA Metro’s 30/10 Initiative will be realized
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 What TIFIA Giveth, TIFIA Taketh Away
 Security Matters
 Size Matters
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