REVISED
Meeting_Body
FINANCE, BUDGET AND AUDIT COMMITTEE
JANUARY 15, 2026
Subject
SUBJECT: I-105 EXPRESSLANES PROJECT - TOLL REVENUE BONDS AND TIFIA LOAN FINANCINGS
Action
ACTION: APPROVE RECOMMENDATION
Heading
RECOMMENDATION
Title
ADOPT:
A. a Resolution (Attachment A) that authorizes the issuance and sale of a combined aggregate principal amount not to exceed $1.7 billion for the I-105 ExpressLanes Project in the form of the Toll Revenue First Lien Bonds in one or more series, Toll Revenue Third Lien Bonds, and/or TIFIA Loan Agreement and the taking all other actions necessary in connection with the issuance of the bonds and/or loan; and
(REQUIRES SEPARATE, SIMPLE MAJORITY VOTE OF THE BOARD)
B. the revised Toll Policy (Attachment B).
Issue
ISSUE
Authorization of Metro’s inaugural toll revenue backed financing is required to support completion of the I-105 ExpressLanes Project (“Project”). The Project is currently advancing construction on segment 1, which began in February 2025, and is fully-funded. The Board approved the funding plan for segments 2 and 3 in October 2025, which is comprised of the State Solutions for Congested Corridors (“SCCP”) grant funding, and toll revenue backed debt obligations.
To complete construction and minimize borrowing costs, the Project needs financing through the issuance of long-term toll revenue bonds and obtaining federal credit assistance. Both debt obligations will be repaid from toll revenues once the ExpressLanes are completed and placed into operation.
The toll revenue backed financing plan consists of issuing toll revenue bonds and executing a Transportation Infrastructure Finance and Innovation Act (“TIFIA”) loan agreement with the U.S. Department of Transportation (“DOT”). Specifically, an estimated total of $525 million of the Toll Revenue First Lien Bonds, Series 2026-A (“Toll Bonds”), together with the Toll Revenue Third Lien Bonds, TIFIA Series 2026-A Loan Agreement (“TIFIA Loan”) in an estimated total of $850 million, will provide funding for a portion of the remaining Life-of-Project (“LOP”) budget of $1.521 billion. The current schedule targets a February 2026 Toll Bonds issuance and TIFIA Loan closing to align with the construction funding needs.
Background
BACKGROUND
The Project will convert the existing High Occupancy Vehicle (“HOV”) lane to one tolled ExpressLane and an addition of a second tolled ExpressLane to provide two tolled ExpressLanes in each direction. The traffic and toll revenue forecasts supporting the Project’s projected toll revenues were developed as part of the investment grade traffic and revenue study, which provides the analytical basis necessary to support the Project and its financing plan.
I-105 ExpressLanes Project:
The I-105 ExpressLanes Project is being delivered using the Construction Manager/General Contractor (“CM/GC”) method, with phased work packages. The CM/GC contractor was procured in 2022; construction contracts were awarded in 2024 for Segment 1 and in October 2025 for Segments 2 and 3. The Segment 1 Identified Work Package construction is underway; Segments 2 and 3 are proceeding per the October 2025 award. The Project converts the existing HOV lane to an ExpressLane and adds a second ExpressLane in each direction on I-105 from I-405 to Studebaker Road, delivered as Segment 1 (I-405 to Central Ave) and Segments 2 and 3 (Central Ave to Studebaker Rd.). The RTCS was procured in 2022 via a design-build-operate-maintain (“DBOM”) contract and is coordinated with the CM/GC heavy civil work. Funding sources include Metro Local Measure M funding, SCCP grant funding, and toll revenue backed loans, including the Toll Bonds and the TIFIA Loan.
In conjunction with the Project, the Toll Policy approved by the Metro Board in January 2016 is being updated to reflect changes to the ExpressLanes program and includes the Project, alongside the I-10 and I-110 ExpressLanes.
The updated Toll Policy (Attachment B) will allow the Project to maintain the necessary federal performance standards by changing the HOV requirement for travel on the I-105 ExpressLanes from the current HOV lane policy of HOV2+ to HOV3+ when segment 1 of the Project opens in fiscal year(“FY”) 2028. This occupancy change is the only modification to the toll policy that is required. The change to HOV3+ for toll-free travel on the I-105 aligns with occupancy requirements currently in place on I-10 during peak periods and also aligns with occupancy requirements for free travel on priced lanes in Orange, Riverside, and San Bernardino counties. Moving to toll free travel for HOV3+ will allow the lanes to remain open longer before they become degraded, as witnessed on the I-10 and I-110. Based on conversations with rating agencies, Caltrans, and the TIFIA office regarding lane performance, revenue, and degradation, this modification to toll policy on the I-105 is recommended and will ensure Metro gets favorable rates on toll revenue bonds, saving the agency money.
Discussion
DISCUSSION
The proposed financing structure includes the issuance of Toll Bonds and the execution of a TIFIA Loan agreement, both secured by net toll revenues generated by the ExpressLanes. Both the Toll Bonds and/or the TIFIA Loan will finance a portion of the Project costs for segment 1 and segments 2 and 3, including construction capital, support services, utilities relocations, limited Right of Way (“ROW”), contingency, and Roadside Toll Collection System (“RTCS”) integration, and financing related costs.
Financing Need and Structure:
The funding plan for the $1.521 LOP approved by the Board at the October 2025 meeting includes local, state, and toll backed debt obligations sources summarized below. Financing costs, including costs of issuance and initial reserves for the first lien Toll Bonds, will be funded from bond proceeds. Debt service for the first lien Toll Bonds and the third lien TIFIA Loan is secured by and paid from net toll revenues. No operating subsidies from sales taxes are anticipated for debt repayment.
Toll Bonds:
The first lien Toll Bonds in an estimated amount of $525 million will be structured as fixed rate bonds and will be sold using a negotiated sale method. The financing may include tax-exempt and/or taxable series to optimize proceeds and investor demand; optional redemption features for future flexibility; capitalized interest through construction and early operations to align with toll revenue ramp-up; and a debt service reserve funded from bond proceeds. With an aggregate par amount of approximately $525 million, $348 million of the bond proceeds will be used for the Project construction and to pay the costs of issuance related to the transaction. Any use of capitalized interest and reserves will be sized at pricing to optimize total borrowing cost. If market conditions change, a negotiated sale provides Metro the flexibility to alter the sale date and/or bond structure, as needed. The underwriters will pre-market the bonds targeting as many institutional and retail investors as possible, assist with the credit rating process and advise on market conditions for optimal bond pricing.
TIFIA Loan:
A third lien TIFIA Loan with the Department of Transportation (“DOT”) in the amount up to $850 million will be secured by a third lien pledge on net toll revenues of the I-105 ExpressLanes. The TIFIA Loan is anticipated to be executed in parallel with the Toll Bonds, with a coterminous close in February 2026. With an aggregate par amount of approximately $850 million, $844 million of the loan proceeds will be used for the Project construction related to the transaction. The combination of the TIFIA Loan, together with the Toll Bonds, is projected to reduce overall debt service and enhance debt service coverage (as compared with a financing plan with only Toll Bonds). The TIFIA Loan will not be sold in the capital markets, as it is a direct loan with the DOT; its interest rate and execution will be consistent with the statutory State and Local Government Series securities rate plus 1 basis point at financial close.
Shutdown Contingency:
Given the uncertainty of a potential federal government shutdown and the resulting need to preserve the option of a sole issuance of a Toll Bonds financing, authority of not to exceed $1.7 billion is being requested. The combined aggregate proposed principal amount of not to exceed $1.7 billion of Toll Bonds and/or TIFIA Loan will ensure the Project LOP will be fully funded. The Toll Bonds and /or TIFIA Loan proceeds will be used for Project construction, Toll Bonds capitalized interest, Toll Bonds debt service reserve, and costs of issuance related to each of the transactions. Annual debt service will be paid from and secured by net toll revenues from the Project. This Toll Bonds issuance and TIFIA Loan support timely delivery, maintain state grant eligibility, and position the corridor for revenue service milestones prior to and following the 2028 Olympic and Paralympic Games.
Consistent with the Metro debt policy, underwriters for this transaction have been selected by Treasury and Congestion Reduction staff by a competitive Request for Proposal (“RFP”) process conducted by Sperry Capital Inc. (“Sperry”), Metro’s Transaction Municipal Advisor. Orrick, Herrington & Sutcliffe LLP and Nixon Peabody LLP were selected by Treasury staff and County Counsel to serve as Bond Counsel and Disclosure Counsel, respectively.
Toll Policy:
The toll policy change will better protect against performance degradation and preserve free-flow speeds on I-105 ExpressLanes, as evidenced by existing traffic data from I-10 and I-110. Based on conversations with rating agencies and the TIFIA office regarding lane performance, revenue, and degradation, this modification to toll policy on the I-105 is recommended to ensure the project receives an investment grade rating and remains eligible for TIFIA financing. Achieving the highest possible rating will reduce borrowing costs and allow Metro considerable cost savings over the life of the loan.
The toll policy change continues Metro’s effort to encourage carpooling and additional mode shift away from lower occupancy vehicle travel to transit or vanpool. It has been presented as an alternative to the public during various outreach meetings, and additional outreach is planned over the next two years as the planned change gets closer to implementation.
Determination_Of_Safety_Impact
DETERMINATION OF SAFETY IMPACT
Approval of this report will not impact the safety of Metro’s patrons or employees.
Financial_Impact
FINANCIAL IMPACT
The costs of issuance for the Toll Bonds will be paid from proceeds of the financing and will be budget neutral. Toll Bonds principal and interest expense for this financing will be added to subsequent fiscal year budgets payable through net toll revenues subject to the final debt service schedule.
The costs of issuance for the TIFIA Loan will be paid from Measure M Highway 17% allocated to I-105 ExpressLanes project. The TIFIA Loan interest payments are projected to begin in FY 2034 and principal payments in FY 2039. TIFIA Loan principal and interest expense once such payments begin will be added to subsequent fiscal year budgets payable through net toll revenues.
The funding sources for debt service of this financing will be reflected in future budgets under principal account 51101 and the bond interest account 51121.
Equity_Platform
EQUITY PLATFORM
Approval of this item is intended to reduce financial risk and maintain planned funding and schedules for Metro capital projects funded by toll revenues. The Project is located in a low-income area that includes Equity Focus Communities (EFCs). Specifically, 61% of census tracts within a three-mile radius of the Project are EFCs. That includes 67% of census tracts within Segment 1 and 62% of census tracts within Segment 2 and 3.
Congestion Reduction Staff completed equity assessments for Segment 1, 2 and 3 that identified potential projects that could be funded with future net toll revenue to benefit communities within a three-mile radius of the corridor. The equity assessment incorporated extensive community engagement including three pop up events, a travel survey, and four community meetings to present the draft report. In addition, monthly roundtables and a mobility audit were held with 21 Community Based Organizations (CBOs) to present and gather feedback on the assessment. When completed, the project will provide significant mobility improvements particularly the ExpressLanes, safety enhancements, and noise mitigation through new/taller soundwalls.
The I-105 ExpressLanes connects residents in EFCs to job centers in downtown Los Angeles and in the LAX/El Segundo/Hawthorne areas. Since the Project is expected to reduce travel times on the I-105, the Project will support increased access to opportunity. Furthermore, the Project is expected to shift vehicles from local arterials to I-105 ExpressLanes which will improve livability and reduce environmental impacts to corridor communities. Finally, Metro ExpressLanes has a Low-Income Assistance Plan (“LIAP”) that helps ensure low-income users have the ability to access and use the ExpressLanes.
Vehicle_Miles_Traveled _Outcome
VEHICLE MILES TRAVELED OUTCOME
Vehicle Miles Traveled (VMT) and VMT per capita in Los Angeles County are lower than national averages, the lowest in the SCAG region, and on the lower end of VMT per capita statewide, with these declining VMT trends due in part to Metro’s significant investment in rail and bus transit.* Metro’s Board-adopted VMT reduction targets align with California’s statewide climate goals, including achieving carbon neutrality by 2045. To ensure continued progress, all Board items are assessed for their potential impact on VMT.
While the agency remains committed to reducing VMT through transit and multimodal investments, some projects may induce or increase personal vehicle travel. However, these individual projects aim to ensure the efficient and safe movement of people and goods.
This Board item is expected to increase VMT in LA County, as it includes an investment that may produce additional vehicle trips as a result of increasing the roadway capacity on currently congested portions of I-105 ExpressLanes project. Although this item may not directly contribute to the achievement of the Board adopted VMT Reduction Targets, the VMT Targets were developed to account for the cumulative effect of a suite of programs and projects within the Metro region, which individually may induce or
increase VMT. Additionally, Metro has a voter-approved mandate to deliver multimodal projects that enhance mobility while ensuring the efficient and safe movement of people and goods
This Project is exempt from CEQA VMT mitigation requirements.
* Based on population estimates from the United States Census and VMT estimates from the highway performance monitoring system data between 2001-2019.
Implementation_of_Strategic_Plan_Goals
IMPLEMENTATION OF STRATEGIC PLAN GOALS
Recommendation supports the following Metro Strategic Plan Goal:
Goal #5: Provide responsive, accountable, and trustworthy governance within the Metro organization.
Alternatives_Considered
ALTERNATIVES CONSIDERED
The Board could defer the issuance of the Toll Bonds and TIFIA Loan to a later time or indefinitely. This is not recommended as it could delay the construction of the Project and federal credit assistance may not be available in the future. Current approval of the TIFIA Loan enables Metro to secure favorable interest rates under current market conditions, thereby reducing the Project’s long-term borrowing costs. It also ensures access to federal credit assistance at a time when future federal budget actions or administrative delays could constrain TIFIA program availability. Further, the TIFIA Loan’s flexible repayment structure lowers overall debt service requirements and enhances debt service coverage, thereby strengthening the Project’s financing plan. All these benefits may be lost if TIFIA is delayed or unavailable.
The Board could choose not to approve the updated Toll Policy but that is not recommended because the policy change is necessary to actively manage congestion and is critical for obtaining an investment grade rating that will provide lower financing costs for Metro. This policy provides the requested guidance to enable staff to make adjustments as needed to improve the performance of the ExpressLanes, to obtain necessary funding to expand the system consistent with prior Board directives, and support repayment obligations to bond investors and the federal government.
Next_Steps
NEXT STEPS
Upon Board approval, staff will proceed with achieving financial close on the Toll Bonds and the TIFIA Loan, continue construction activities, and return to the Board at a later date with construction updates and other project milestones.
Attachments
ATTACHMENTS
Attachment A - Authorizing Resolution
Attachment B -Toll Policy
Prepared_by
Prepared by: Rodney Johnson, Treasurer, (213) 922-3417
Biljana Seki, Senior Director, (213) 922-2554
Mark Linsenmayer, Executive Officer, Shared Mobility,
(213) 922-5569
Reviewed_By
Reviewed by: Anelli-Michelle Navarro, Interim Chief Financial Officer, (213) 922-3056
