Committee-of-the-Whole September 11, Joseph G. Costello Senior Vice President, Finance

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1 Approval of Second Amendment to Tenth Supplemental Debt Resolution Committee-of-the-Whole September 11, 2018 Joseph G. Costello Senior Vice President, Finance 0

2 Commercial Paper What is commercial paper (CP)? CP is short-term debt issued by companies and governments, usually backed by a bank line of credit or by self-liquidity, which matures within 270 days. The issuer typically pays off principal of outstanding CP with newly issued CP referred to as a roll over. Allows an issuer to borrow funds at short-term rates for an extended period of time. 1

3 Commercial Paper What is CP used for? DART uses CP as initial financing for capital project construction and equipment/vehicle purchases. DART s most recently CP to purchase buses as part of a fleet replacement program Currently, DART s total outstanding CP is $125 million, backed by self-liquidity 2

4 Commercial Paper What is self-liquidity CP? Self-liquidity means that DART will pay back the current holder of the CP note (principal plus interest) with available funds if a new buyer can t be found (i.e. remarketing failure) Avoids bank costs, but requires DART to maintain $412 million of cash on hand (i.e. liquidity requirement) 3

5 Commercial Paper Program DART s a Self-Liquidity CP Program 10 th Supplemental Debt Resolution was Board adopted, April o Authorized $150 million o Liquidity requirement $309 million 1 st Amendment to the 10 th Supplemental Debt Resolution was Board adopted, May o Authorized $200 million o Liquidity requirement $412 million 4

6 Commercial Paper Program - continued DART s a Self-Liquidity CP Program 2 nd Amendment to the 10 th Debt Resolution: o Reduce authorization to $125 million o Liquidity requirement $258 million Supplemental Debt Resolutions (millions) 1 st Amend to 10 th Res. 2 nd Amend to 10 th Res. FY2014 FY2018 Description Current Proposed Authorization $200 $125 Liquidity Requirement $412 $258* * Liquidity requirement is based on outstanding commercial paper balance. 5

7 Commercial Paper Program - continued Planned Phaseout of the Self-Liquidity CP Program Financial Plan assumes continued repayment of up to $30 million each fiscal year until Following final payment, the self-liquidity program would be discontinued. Proposed FY 2019 Financial Plan (millions) FY 2018 FY2019 FY2020 FY2021 FY2022 Description Budget Proposed d d d CP Repayment during fiscal year ($30.0) ($30.0) ($30.0) ($30.0) ($20.0) CP Outstanding beginning of fiscal year CP Outstanding end of fiscal year $110.0 $80.0 $50.0 $20.0 $0.0 6

8 Proposed New Commercial Paper Program 17 th Supplemental Debt Resolution Resolution to B&F Committee 09/18/2018 Maximum Authorized $250 million Liquidity requirement* $ 0 million Would be used as interim financing for upcoming projects, including Cotton Belt and bus replacement. * Commercial Bank(s) selected through and RFP process and approved by the Board will act as the liquidity provider for DART 7

9 Proposed New Commercial Paper Program - continued Planned use of New CP Program (Cotton Belt) Proposed Financial Plan assumes $227 million of CP issued over five years, FY Proposed Financial Plan estimates $20.8 million of interest expense over five years. Proposed Financial Plan FY19 - Commercial Paper Cotton Belt (millions) Description FY2019 Proposed FY2020 FY2021 FY2022 FY Year CP Issuance (Bank-backed CP) CP Interest Expenses (Bank-backed CP) (0.8) (2.5) (4.4) (6.0) (7.1) (20.8) 8

10 Proposed New Commercial Paper Program - continued Planned use of New CP Program (Bus Replacement) Proposed Financial Plan assumes $400 million of CP issued and retired over five years, FY Proposed Financial Plan estimates $50.4 million of interest expense over five years, FY Proposed Financial Plan FY19 - Commercial Paper Bus Replacement (millions) Description FY2025 FY2026 FY2027 FY2028 FY Year CP Issuance (Bank-backed CP) CP Interest Expenses (Bank-backed CP) (9.3) (9.5) (8.8) (10.6) (12.2) (50.4) 9

11 Review of Commercial Paper Programs for the next 5-Years Proposed Financial Plan FY19 - Commercial Paper 5-Year Plan (millions) Description FY2019 Proposed FY2020 FY2021 FY2022 FY Year CP Outstanding (Self-Liquidity CP) $110.0 $80.0 $50.0 $20.0 $0.0 $110.0 CP Repayment (Self-Liquidity CP)* ($30.0) ($30.0) ($30.0) ($20.0) $0.0 ($110.0) CP Issuance (New CP) * Financial Plan proposed for FY2019 projects outstanding self-liquidity commercial paper to be paid off by FYE 2022 **Commercial Paper issuance anticipated for upcoming projects such as Cotton Belt 10

12 Staff Recommendation: 11 Approve the 2 nd Amendment to the 10 th Supplemental Debt Resolution. 11