1. 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

2. A.Overview of LA Metro B.Overview of TIFIA Loan Program C.LA Metro’s Regional Connector TIFIA Loan – A Case Study D.Conclusion 465911822

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. 465911823

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. 465911824

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. 465911825

6. Los Angeles County Represents a Large and Diverse Region 465911826

7. 7

8. LA Metro 30/10 Initiative 465911828

9. LA Metro 30/10 Initiative 465911829

10. LA Metro 30/10 Initiative 4659118210

11. LA Metro 30/10 Initiative 4659118211

12. 30/10 Initiative Map 4659118212

13. TIFIA Loans 13 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 14 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 15 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 16 SPRINGING LIEN 46591182

17. TIFIA Loans 17 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) 18 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 19 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). 46591182

20. TIFIA Loans (continued) 20 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 Springing Lien Waiver Limit (33%) TIFIA Participation Increased under MAP-21 4659118221

22. TIFIA Funding Increased under MAP-21 4659118222

23. Selection & Funding of a TIFIA Project 4659118223

24. TIFIA Documentation Requirements 4659118224 Source: FHWA

25. LA Metro Regional Connector TIFIA Loan A CASE STUDY 4659118225

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 4659118226

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 4659118227

28. Flow of Funds for LA Metro Regional Connector TIFIA Loan Repayment 4659118228

29. Measure R Senior Lien Structure 4659118229

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 4659118230

31. Measure R Expenditure Categories 4659118231

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 4659118232

33. Measure R Outstanding Debt 33  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. 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 4659118234

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

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