Agenda Item # 5
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Date: |
August 1, 2003 |
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Committee Meeting Date: |
N/A |
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Board Meeting Date: |
August 7, 2003 |
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ACTION
X
DISCUSSION
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| INFO
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BOARD MEMORANDUM
| TO: |
Santa Clara Valley Transportation Authority |
| | Board of Directors |
| | | | THROUGH: | Peter M. Cipolla |
| | General Manager |
| | | | FROM: | Scott D. Buhrer |
| | Chief Financial Officer |
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| SUBJECT: |
Debt Financing Secured By and Payable From 2000 Measure A Sales Tax |
RECOMMENDATION:
Adopt a Resolution authorizing the General Manager or Chief Financial Officer to take all necessary steps for VTA to issue bonds secured by and payable from 2000 Measure A in an amount not to exceed $550 million and to file a validation action in the Santa Clara County Superior Court with respect to one or more such bonds.
BACKGROUND:
Our FY 2003-04 and FY 2004-05 Adopted Budget assumes the issuance of approximately $140 million of bonds secured by and payable from 2000 Measure A. The proposed bond amount would provide the funds to accelerate reimbursement on a portion of the Repayment Obligation[1], the amount necessary to retire the 2002 Bond and Grant Anticipation Notes[2], and the amount necessary to provide interest payments for the bonds until the 2000 Measure A Sales Tax begins collection.
On June 5, 2003, the Board of Directors directed staff to explore the feasibility of the limited, temporary use of future Measure A revenues to fund most, if not all of the bus and light rail service reductions contained in the FY 2003-04 & FY 2004-05 Adopted Budget.
Subsequently, on June 19, 2003, the Board of Directors authorized the General Manager to take all necessary steps to issue bonds or commercial paper secured by and payable from 2000 Measure A and return to the Board of Directors for final action at the earliest possible date. Also on June 19, 2003 the Board directed staff to include the amounts necessary to fund BART preliminary engineering in the financing transaction brought back for final action.
In our status report dated June 30, 2003 (Attachment 1), we reported that the bid for letter of credit bank fees received by VTA was considerably higher than originally anticipated. Therefore, we looked at alternative ways to develop a financing program that would reduce the cost of borrowing. After reviewing numerous alternatives, we concentrated on two possible structures: 1) proprietary products involving similar concepts - synthetic variable rate bonds; and 2) auction rate securities. Both structures were discussed in our status report dated July 29, 2003 (Attachment 2).
DISCUSSION:
Based on our completed analysis, we have concluded that an auction rate securities program (ARS Program) provides VTA with the best overall value, given our current financial condition, the uncertainty of the Silicon Valley economy, uncertainty with regard to obtaining future additional revenue streams, and trends indicating increases in cost for insurance premiums (all factors that would influence the costs to VTA to refinance any current short term debt once the 2000 Measure A sales tax begins collection).
The proposed ARS Program will provide up to $550 million of available funding. Based upon Board member discussions at previous meetings and the requirements of our current budget, we have identified the following projects (subject to Board concurrence) to include in the ARS Program:
The costs, other than interest expense, associated with the proposed ARS Program include one-time transaction costs (e.g. underwriter, bond and disclosure counsel, rating fees, financial advisor, bond insurance premium, etc.) of approximately $6 million. There are also ongoing annual fees (e.g. broker/dealer, trustee/auction agent fees, etc.), of approximately $1.5 million for services related to remarketing the auction rate securities. Excluding interest expense, the total cost for a three-year program would be approximately $10.5 million. The funds to pay these costs have been included in the maximum proposed bond issue of $550 million.
Under the previously proposed Commercial Paper (CP) Program, our initial transaction costs (i.e. bond counsel, financial advisor, letter of credit bank, etc.) would have been approximately $2 million and ongoing annual fees to the letter of credit bank would have been approximately $5.2 million. Excluding interest expense, the total cost for a three-year CP Program would have been approximately $17.6 million.
With auction rate securities, VTA will have the ability to remain in variable rate mode after the 2000 Measure A sales tax begins collection until the sales tax expires in 2036. We will also have the option to remarket (which is different and less costly than refinancing) the auction rate securities as fixed rate long-term bonds. If VTA remarkets the auction rate securities as long-term bonds, we will receive credit for the insurance premium already paid to the insurer at the outset of the ARS Program, which reduces future transaction costs associated with the remarketing and conversion from variable to fixed rate long term bonds.
VTA’s ability to implement the proposed auction rate securities program is contingent on receiving final credit approval and an investment grade rating on the bonds. Additionally, as an added measure of protection for the insurer, VTA may be required to provide a debt service reserve fund or enter into a short-term variable to fixed rate swap agreement. These measures would provide added assurance that VTA would have the funds available to meet annual interest expense payments if variable rates increased beyond the assumed rate of 4% we used to calculate the maximum bond issue amount (i.e., $550 million).
Attachment 3 is a proforma Measure A Revenue and Expenditure Plan (Expenditure Plan). The amounts included in the expenditures include the proposed ARS Program and the other commitments made to date. The Expenditure Plan indicates that if the ARS Program is approved, approximately one half of the initial sales tax receipts would be available for Measure A projects beyond BART preliminary engineering. However, in order to issue tax-exempt bonds for the funds related to the service reductions in the FY 2003-04 and FY 2004-05 Adopted Budget, an applicable portion of the bonds will be characterized as a working capital financing. Therefore, due to tax law requirements, VTA will have a requirement to retire a portion of the bonds as soon as practical when 2000 Measure A sales tax revenues become available. This could affect the initial amount of sales tax receipts available for other 2000 Measure A projects.
ALTERNATIVES:
The Board of Directors could authorize Staff to issue a different amount of bonds secured by and payable from 2000 Measure A; however, the extent to which the amount could be increased would be subject to improvements in sales tax performance, an additional bonds test[7], and ultimately, credit approval by the bond insurer.
FISCAL IMPACT:
Approval of the recommended action will provide: 1) approximately $145 million of bond proceeds for operations, 2) $82 million to retire the 2002 Bond and Grant Anticipation Notes, 3) $92.5 million for the costs associated with implementing the proposed finance structure (to include capitalized interest expense and a potential debt service reserve fund), 4) $170 million to fund BART preliminary engineering, and 5) approximately $60.5 million for other Board approved capital projects.
Attachments:
1 – Status report, dated June 30, 2003
2 – Status report, dated July 29, 2003
3 – Proforma 2000 Measure A Expenditure Plan
4 – Resolution
| Prepared by: | Kimberly Koenig |
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