Regional Transportation District (Colorado) North Metro Certificates of Participation

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1 Regional Transportation District (Colorado) North Metro Certificates of Participation Brenden Morgan Debt Manager, RTD Dee Wisor Butler Snow LLP Jason Simmons FirstSouthwest May 8, 2015

2 Summary Introduction and Overview of RTD Legal Considerations Financial Considerations 1

3 Overview of the Series 2014A Certificates of Participation This innovative financing allowed RTD to fund rail for a new corridor in the Denver Metropolitan Region while allowing RTD to: preserve scarce voter authorized debt capacity to be used for other projects, and maintain compliance with all internal and external operating policies and bond covenants. This transaction represented the first time a rail corridor has been financed through the issuance of lease debt, with the rail line to be constructed serving as the leased asset. 2

4 Overview of RTD History and Overview Service Area Created in 1969 by the Colorado General Assembly RTD is governed by a 15 member Board, with one elected member from each of the 15 districts comprising RTD s geographic area RTD s statutory mandate is to operate an integrated public transportation system in the Denver metropolitan area RTD s system currently includes buses, paratransit and lightrail Service area population: over 2.8 million (over 57.0% of Colorado s total population) Serves 40 cities and towns in 8 counties 2,348 square miles in service area Current Service Overview (As of Dec. 31, 2014) 1,011 active buses (434 leased to private carriers) 172 light rail vehicles with 46 stations 323 paratransit vans (Access-a-Ride) 138 fixed routes 77 Park-n-Ride locations representing 30,090 parking spaces SkyRide to Denver International Airport 89.9 million annual revenue service boardings and million annual total boardings 2,664 RTD employees excluding private contractors 3

5 FasTracks FasTracks Map Funding and Construction Status At an election held on November 2, 2004, RTD was authorized by voters to issue up to $3.477B of debt obligations to finance a multi-year transit expansion plan known as "FasTracks. RTD has made significant progress in the build out of the FasTracks plan despite lower than expected sales tax revenues and higher construction costs. The North Metro Corridor is an 18-mile transit corridor between Denver Union Station located in Downton Denver and 162nd Ave. in Thornton, Colorado. Prior to the funding made available from the 2014 COPs the North Metro Corridor had not received any funding. 4

6 RTD Financing Structures Sales Tax Revenue Bonds Historically RTD has primarily utilized Sales Tax Revenue Bonds for capital construction projects. RTD s Senior Lien Sales Tax Revenue Bonds are rated (AAA/Aa2/AA+) and FasTracks Sales Tax Revenue Bonds are rated (AA+/Aa2/AA). RTD is limited in its ability to issue Sales Tax Revenue Bonds for FasTracks by total par, maximum annual and maximum total debt service limitations authorized by the 2004 Election. To date, RTD has issued obligations in an aggregate principal amount of $2.83B pursuant to such authorization. Remaining voter authorization is insufficient to permit the issuance of Sales Tax debt in the principal amount required to fund completion of FasTracks. As a result, RTD has developed innovative means to finance the build out of FasTracks absent additional voter authorization of debt or taxes. 5

7 RTD Financing Structures Certificates of Participation RTD has issued Certificates of Participation ( COPs ) to primarily fund the acquisition of rolling stock or certain types of capital construction projects such as maintenance facilities and parking garages. RTD s Certificates of Participation are rated (A/Aa3/A) reflecting the lien position below the Sales Tax Revenue Bonds, the parity position of COP payments with operations of RTD, and the annual appropriation nature of the lease payments. RTD has internal constraints driven by the comprehensive financial model and the issuance of additional Certificates of Participation is limited by RTD s Net Revenue Coverage Policy of 1.20x. 6

8 Principal Parties for the Series 2014A COP s Issuer/Lessee Lessor Financial Advisor Bond Counsel Co-Disclosure Counsel Co-Disclosure Counsel Senior Managing Underwriter Underwriters Counsel Trustee Regional Transportation District RTD Asset Acquisition Authority First Southwest Company Butler Snow LLP Hogan Lovells US LLP Bookhardt & O Toole J.P. Morgan Kutak Rock UMB Bank, n.a 7

9 Key Legal Considerations Taxpayer Bill of Rights (TABOR) Significant Documents Lease Purchase Agreement Ground Lease o For a portion of the property already owned by RTD Mortgage and Indenture of Trust Certificates of Participation Title Insurance Policies 8

10 Key Legal Considerations All of right of way not owned Ground lease Condemnation o But not for railroad property Flyover easements Conveyance of land when all acquired Railroad making use of portion of ROW No dedicated maintenance facility Rail cars not part of leased property Commuter rail cannot be operated without subsidy Federal tax issues Private use limits Construction risk 9

11 Financing the North Metro Corridor As part of RTD s goal to find innovative solutions, they have implemented an unsolicited proposal process to help assess attractive construction and financing opportunities. After receiving and reviewing an unsolicited proposal, RTD ran a full RFP process to build and finance the North Metro Corridor. While the construction proposals were very favorable for RTD, it was determined that the financing options were not as attractive as what RTD could achieve on its own. 10

12 Financing the North Metro Corridor The RTD financing team evaluated using sales tax revenue bonds which would have provided the lowest cost of borrowing, but voter capacity issues would not have allowed for the full issuance amount required. COPs were evaluated and through work with RTD staff and bond counsel it was determined that this corridor would work for COPs. COPs do not require voter approval because RTD's payment obligations are subject to annual appropriation therefore do not constitute a "multiple-fiscal year obligation. With overall interest rates still near historical lows, RTD choose to move forward with COPs to finance the North Metro Corridor. 11

13 The Series 2014A Certificates of Participation RTD issued its Certificates of Participation, Series 2014A in the principal amount of $ M to fund: construction of its North Metro Rail Line to 104th Ave., a reserve fund, and costs of issuance. To comply with a Board mandated Net Revenue Coverage of 1.20x on all outstanding indebtedness, the COPs bear interest only through 2022 to help through RTD s pinch years. Principal on the Series 2014A COPs was amortized from 2023 through

14 Ratings Considerations Despite the unique nature of the leased property, the COPs were assigned credit ratings of "Aa3" by Moody's and "A" by S&P and Fitch, in line with RTD s other outstanding COP s. The rating reflected certain credit strengths and weaknesses of RTD and the proposed COPs including: The strong economic and demographic factors of the Denver metro area, The credit strength of RTD including the financial policies and management practices, Position in the RTD cash flow at the bottom of the flow of funds on parity with operating expenses, and Potential further deterioration of coverage from additional issuances of sales tax bonds and COP s for future capital and rolling stock needs. 13

15 Key Marketing Considerations The RTD financing team established an investor marketing plan that focused on: The essentiality of the North Metro Rail Corridor to the mission of RTD and its political support, The ability of holders of the COPs to prevent RTD from providing service on the North Metro Rail Corridor in the event of nonappropriation, The financial strength of RTD, The progress RTD has made in the FasTracks plan, The experience RTD has in managing significant projects, and The key aspects of the North Metro project. RTD generated a recorded investor presentation and had several one-onone calls with investors. 14

16 The Results of the Series 2014A COPs The Market The Series 2014A COPs was an innovative financing that: Established the ability to finance a portion of a rail corridor with lease debt, Was at the time the second largest issuance of tax-exempt certificates of participation in the past five years, Was at the time the largest issuance of certificates of participation in the transportation sector in the past ten years, and Was at the time only one of two certificates of participation issued in a principal amount greater than $400M with a 30 year final maturity in the past ten years (Source: Thomson Reuters). The Series 2014A COPs were selected as the Deal of the Year by the BondBuyer for the Southwest Region. 15

17 The Results of the Series 2014A COPs - RTD The Series 2014A COPs provided significant benefits to RTD by allowing them to move forward with the FasTracks program while: Leaving the remaining voter authorization of Sales Tax Revenue bonds, and Providing financing at a True Interest Cost of 4.44%, below what was originally built into the financial model. 16