Meeting_Body
AD HOC CONGESTION, HIGHWAY AND ROADS COMMITTEE
FINANCE, BUDGET AND AUDIT COMMITTEE
APRIL 11, 2018
Subject
SUBJECT: EXPRESSLANES TOLL BOND POOL
Action
ACTION: ESTABLISH AND APPOINT TOLL BOND POOL OF UNDERWRITERS
Heading
RECOMMENDATION
Title
ESTABLISH a Toll Bond Pool of underwriters, listed in Attachment A, from which underwriters will be selected for future negotiated debt issues for toll revenue bonds and other toll revenue backed debt issued under the ExpressLanes program through June 30, 2021, with two further 1-year options to extend.
Issue
ISSUE
To expand ExpressLanes in Los Angeles County and to construct the Tier 1 and Tier 2 projects identified in the 2017 ExpressLanes Strategic Plan (ELSP), Metro needs to determine how these projects will be funded and whether it is feasible to accelerate them. The ELSP assumes that virtually all the ExpressLanes projects will need to be funded by financing mechanisms.
At the September 2017 meeting, the Board approved the staff recommendation to develop solutions and programs based on a system financing approach and to present these to the Board for approval as they are finalized, as appropriate.
Staff has determined that establishing an underwriting pool for toll revenue bonds and any other toll revenue backed debt is an appropriate step in developing a process for the use of inter-fund borrowing of net toll revenues to support creation of the ExpressLanes network.
Discussion
DISCUSSION
Establishment of a Toll Bond Pool
To date, no debt has been issued for the ExpressLanes projects now in operation. Almost all of Metro’s existing debt has been secured by, and repaid from, three of its four sales tax revenue measures. No debt secured by Measure M sales taxes has been issued yet.
In 2016, an unsolicited proposal was submitted to the Office of Extraordinary Innovation that identified financing strategies that would enable acceleration of ExpressLanes projects consistent with a system financing approach.
Staff recommends the establishment of a Toll Bond Pool of underwriters with expertise in issuing debt for ExpressLanes, supplementary to Metro’s current pool of underwriters (which expires in June 2019), because of the unique nature of toll backed debt. Since Metro has never issued toll revenue backed debt and it is relatively uncommon for toll revenue bonds to be issued via competitive sales, it is likely that Metro will utilize negotiated sales for debt issuance as discussed in the Board-approved Debt Policy.
The Toll Bond Pool will be used in future negotiated debt issues for toll revenue bonds and any other toll revenue backed debt issued under the ExpressLanes program. For negotiated sales, staff will select underwriters using a mini-RFP process. Consistent with Metro’s Debt Policy, the selection of the underwriting team will assure the participation of Small Business Enterprise (SBE), Disabled Veterans Business Enterprise (DVBE), and Disadvantaged Business Enterprise (DBE) firms, subject to board approval of the financing. The senior manager(s) will be selected from the Toll Bond Pool. The other members of the underwriting team for toll revenue transactions may include members of both the Toll Bond Pool and members of Metro’s existing underwriting pool, as appropriate. A complete list of our existing underwriting pool is included in Attachment A. Participation in any transaction will depend on the size of the debt issue, timing and the type of debt issued.
Advantages of a Toll Bond Pool
While Metro is developing potential financing structures for the delivery of Tier 1 and Tier 2 Projects, the Toll Bond Pool will be able to provide market information and insight. The pool will also enable Metro to move quickly in forming financing teams if a negotiated sale is the recommended approach for a bond issue. The ability to select underwriters early in the underwriting process will enable us to benefit from their participation in structuring the debt, bond document development, and preparation for credit presentations.
All proposed debt transactions for the ExpressLanes will be presented to the Board for consideration with relevant financing documents, a proposed underwriting syndicate, and any other required documents consistent with Metro’s current financing approval process.
Toll Bond Pool Selection Process
Consistent with our Debt Policy, the Toll Bond Pool is recommended based on a competitive Request for Proposal (RFP) process conducted by Sperry Capital Inc., the ExpressLanes financial advisor. RFPs were distributed on December 11, 2017, to 43 firms and 19 proposals were received. Members of the Congestion Reduction Department, Treasury and the ExpressLanes financial advisor reviewed the proposals, evaluating them based on the criteria listed in the RFP.
The four firms that were ranked the highest by the review team are recommended for inclusion in the Pool. All firms have relevant experience and expertise, specific to the structuring and sale of toll backed debt, including the use of TIFIA loans. Additionally, each firm has a local presence with an investment banking office in Los Angeles County. The Toll Bond Pool will be retained through June 30, 2021 with two further 1-year options. See Attachment A, Summary of Underwriter Selection.
Determination_Of_Safety_Impact
DETERMINATION OF SAFETY IMPACT
Approval of this item will have no impact on safety.
Financial_Impact
FINANCIAL IMPACT
There is no cost related to the establishment of a Toll Bond Pool of underwriters. The Toll Bond Pool is not guaranteed any compensation.
Alternatives_Considered
ALTERNATIVES CONSIDERED
The selection of an underwriting pool may be deferred or the Board may elect not to establish a pool. These options are not recommended. The Debt Policy identifies that for a negotiated bond sale, the financial advisor will conduct a competitive process to select underwriters, either for a specific bond issue or through the establishment of a pool of underwriters to be used for bond issues over a defined time period. With a pool, it will be faster and easier to move forward with negotiated transactions because a full solicitation process will not have to be completed each time, which could save several months. The time saved would likely translate into construction cost savings by avoiding escalating costs as well as a lower rate in a volatile interest rate environment.
Next_Steps
NEXT STEPS
• Notify underwriters of their appointment to the Toll Bond Pool.
• Continue developing solutions and programs to support implementing a system financing.
• Present solutions and programs to the Board for approval.
Attachments
ATTACHMENTS
Attachment A - Summary of Underwriter Selection
Prepared_by
Prepared by:
Shahrzad Amiri, Executive Officer - Congestion Reduction Programs (213) 922-3061
LuAnne Edwards Schurtz, Deputy Executive Officer - Finance (213) 922-2554
Danny Ray Jasper, Jr. - Debt Manager (213) 922-4026
Reviewed_By
Reviewed by:
Stephanie Wiggins - Deputy Chief Executive Officer (213) 922-1023
Nalini Ahuja - Chief Financial Officer (213) 922-3088
