Los Angeles County Metropolitan Transportation Authority
Regional Connector TIFIA Loan – A Case Study
Presented by Victor Hsu
Partner
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
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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 counties.
• 9.8 million people – nearly one-third of California’s residents – live and work within LA Metro’s 4,083-square mile service area.
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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.
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• 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.
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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

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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(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
(nonstarter).
– 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 nonstarter).
– Change the law!
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MAP-21
Moving Ahead for Progress in the 21 st 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 revenues).
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(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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Under SAFTEA-LU
TIFIA;
33%
Under MAP-21
TIFIA;
49%
Non-
TIFIA;
67%
Springing Lien
Waiver Limit (33%)
Non-
TIFIA;
51%
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$12,000
$10,000
$8,000
$6,000
$4,000
$2,000
$0
$122
$1,200
$122
$1,200
FY10 FY11
SAFETEA-LU
Credit Subsidy/Loss Reserve
$7,500
$10,000
$750
$1,000
FY12
MAP-21
Loan Capacity
FY13
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Source: FHWA

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A CASE STUDY

• 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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•
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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• 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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KEY DIFFERENCES WITH CRENSHAW 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
Agreement
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 As of July 1, 2014, $686,050,000 of Senior Debt was outstanding.
 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
13.5x.
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• Amortization of principal to meet overall Measure R funding needs and resources consistent with the Long Range Transportation
Plan
• 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
– i ncreases 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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