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Presented by Victor Hsu Partner Norton Rose Fulbright National Association of Counties

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.

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Presented by Victor Hsu Partner Norton Rose Fulbright National Association of Counties

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  1. Los Angeles County Metropolitan Transportation AuthorityRegional 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

  2. Overview of LA Metro Overview of TIFIA Loan Program LA Metro’s Regional Connector TIFIA Loan – A Case Study Conclusion 46591182

  3. 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. 46591182

  4. 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. 46591182

  5. 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. 46591182

  6. Los Angeles County Represents a Large and Diverse Region 46591182

  7. 46591182

  8. LA Metro 30/10 Initiative 46591182

  9. LA Metro 30/10 Initiative 46591182

  10. LA Metro 30/10 Initiative 46591182

  11. LA Metro 30/10 Initiative 46591182

  12. 30/10 Initiative Map 46591182

  13. TIFIA Loans • 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 46591182

  14. TIFIA Loans • 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. 46591182

  15. TIFIA Loans • 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) 46591182

  16. TIFIA Loans • SPRINGING LIEN 46591182

  17. TIFIA Loans • 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. 46591182

  18. 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 (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! 46591182

  19. TIFIA Loans • MAP-21 • 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 revenues). 46591182

  20. 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. 46591182

  21. TIFIA Participation Increased under MAP-21 TIFIA Participation Increased under MAP-21 SpringingLienWaiverLimit (33%) 46591182

  22. TIFIA Funding Increased under MAP-21 46591182

  23. Selection & Funding of a TIFIA Project 46591182

  24. TIFIA Documentation Requirements Source: FHWA 46591182

  25. LA MetroRegional Connector TIFIA Loan A CASE STUDY 46591182

  26. 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 46591182

  27. 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 46591182

  28. Flow of Funds for LA Metro Regional Connector TIFIA Loan Repayment 46591182

  29. Measure R Senior Lien Structure 46591182

  30. 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 46591182

  31. Measure R Expenditure Categories 46591182

  32. LA Metro Regional Connector TIFIA Loan • 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 46591182

  33. Measure R Outstanding Debt • 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 • Coverageof Senior MADS ($42.6 million in FY16, including 35% BAB subsidy) by audited FY13 revenues ($576.4 million) is 13.5x. 46591182

  34. Amortization of TIFIA Loans • 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 • increases the chances that LA Metro’s 30/10 Initiative will be realized 46591182

  35. CONCLUSIONS • What TIFIA Giveth, TIFIA Taketh Away • Security Matters • Size Matters 46591182

  36. Disclaimer • Norton Rose Fulbright LLP, Norton Rose Fulbright Australia, Norton Rose Fulbright Canada LLP, Norton Rose Fulbright South Africa (incorporated as Deneys Reitz Inc) and Fulbright & Jaworski LLP, each of which is a separate legal entity, are members (“the Norton Rose Fulbright members”) of Norton Rose Fulbright Verein, a Swiss Verein. Norton Rose Fulbright Verein helps coordinate the activities of the Norton Rose Fulbright members but does not itself provide legal services to clients. References to “Norton Rose Fulbright”, “the law firm”, and “legal practice” are to one or more of the Norton Rose Fulbright members or to one of their respective affiliates (together “Norton Rose Fulbright entity/entities”). No individual who is a member, partner, shareholder, director, employee or consultant of, in or to any Norton Rose Fulbright entity (whether or not such individual is described as a “partner”) accepts or assumes responsibility, or has any liability, to any person in respect of this communication. Any reference to a partner or director is to a member, employee or consultant with equivalent standing and qualifications of the relevant Norton Rose Fulbright entity. The purpose of this communication is to provide information as to developments in the law. It does not contain a full analysis of the law nor does it constitute an opinion of any Norton Rose Fulbright entity on the points of law discussed. You must take specific legal advice on any particular matter which concerns you. If you require any advice or further information, please speak to your usual contact at Norton Rose Fulbright. 46591182

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