HRTAC Technical Advisory Committee
May 19, 2015
JoAnne Carter, Managing Director 4350 North Fairfax Drive
Suite 580
Arlington, VA 22203 703-741-0175
David Miller, Managing Director 300 S. Orange Avenue
Suite 1170
Orlando, FL 32801 407-648-2208
Table of Contents
I. Financial Planning for HB2313 Revenues
II. Northern Virginia Transportation Authority Case Study
III. Toll Financing Overview
HRTAC’s
Project
Funding
Capacity
Performance of HRTAC’s RevenueStreams Policy for Debt Service Coverage Policy for Reserves Mix of PAYGO & Debt Additional Bonds Test Types of Debt used Credit Rating Interest Rates Debt Structure Project Priorities Desired Timing for Project Delivery
• Review all project schedules and cost estimates in year of expenditure dollars to support financial modelling
• Decide on HB2313 revenue growth projections, or range of growth projections, to
analyze
• Decide on bond covenants and structure, or appropriate range of bond
parameters, to analyze
• Develop a long term financial plan to determine HB2313 funding capacity with a
reasonable and fiscally unconstrained schedule for all projects
HRTAC Planning Approach Outline
•
Major factors all three credit agencies evaluate:
– Underlying economic drivers of the revenue streams
– Breadth & concentration of tax base
– Revenue trends/performance, diversity & volatility/sensitivity of pledged
streams
– Collection mechanics
– Legal protections for bond holders, i.e., bond covenants such as ABT,
reserves, flow of funds
– Debt service coverage (DSC)
•
Key measure of debt affordability, correlates annual debt requirements to
available annual revenue
•
Measure used to limit overall issuance in legal documents, i.e., the
Additional Bonds Test (“ABT”)
•
Strong focus from rating agencies on coverage when assessing special
tax-backed bonds (i.e., sales tax) & revenue bonds
•
High ratings typically follow higher coverage and more conservative ABTs,
all other factors held equal
Importance of Debt Service Coverage (DSC)
• PFM can perform preliminary HB2313 revenue capacity analysis for HRTPO based on different debt service coverage thresholds/ABTs
• Potential scenarios to consider include:
– Scenario 1: 1.75x Coverage based on current year revenues & Level annual debt service per issue, Assumes “AA” rating
» Standard ABT Structure
– Scenario 2: 1.25x Coverage based on current year revenues & Level annual debt service per issue, Assumes “A” rating
» Reduced ABT Test increases debt capacity
– Scenario 3: 1.50x Coverage based on projected revenues & Ascending debt service, Assumes “A” rating
» Utilizing projected revenues & ascending debt service both further increases capacity
Long Term Financial Planning is On-Going
9
• Recommended approach involves careful consideration of all the issues and
alternatives related to infrastructure development
• Alternative modeling process allows capital, revenue, and operating inputs to
impact financing requirements within stated program policy constraints
Revenue Forecast
•Annual revenue forecast •Annual O & M Budget •Potential Revenue Enhancements •Sensitivity analysis
Capital Planning Debt Management Financial Policies
•Annual project capital expenditures
•Timing & amount of revenues & matching funds
•Total program
requirements & impact on borrowing needs •Debt mgmt policy •Pay go vs. bond financing •Inter-program loans •Debt service coverage targets
•Target capital reserve •Borrowing needs
determined at CIP program level
•Bond sizing structured for total CIP program •Financing Costs allocated to projects on pro-rata basis
II. Northern Virginia Transportation Authority
Case Study
• PFM was engaged as NVTA’s financial advisor in 2007
– Virginia Supreme Court ruling on February 29, 2008 found original funding approach to be unconstitutional
• After passage of HB2313, PFM was tasked in June 2014 to complete a
comprehensive scope of work
– Financial analytics
– Organizational boot-strapping
– Bond validation & inaugural financing
Northern Virginia Transportation Authority (“NVTA”)
Financial Analytics
•What are the advantages and disadvantages of both debt and pay-as-you-go (PAYGO) funding approaches? •Given the recommended PAYGO & debt project lists for FY2014, what would NVTA’s financial profile look like? •Under various scenarios, what is NVTA’s long term funding capacity for debt & PAYGO approaches?
•What would be the key legal & credit provisions for an NVTA borrowing program? •What is the impact/treatment of NVTA debt on member localities?
•What types of debt structures should NVTA consider?
Organizational “Boot-strapping”
•Technical support & participation in regional Financial Working Group, Board Finance Committee & other groups as requested •Staff support to NVTA Executive Director & CFO
•Formulation & adoption of financial & debt management policy •FY2015 budget preparation
•Revenue estimation efforts •Allocation of benefit dialog
Inaugural Financings
•Expert witness testimony in NVTA’s bond validation suit by JoAnne Carter
•Formulation & implementation of interim financing to maximize FY2014 funding (closed June 26, 2014) •Achieved superior credit ratings of Aa1/AA+/AA+ on long-term bonds
•$69.045 million Transportation Special Tax Revenue Bonds sold and closed in December, 2014
NVTA Scope of Work
• Essentially a sales tax-backed bond
• No credit enhancement from NVTA members or the Commonwealth
• Bonds achieved strong credit ratings of Aa1/AA+/AA+ with stable outlooks
• NVTA’s Sales Tax Revenue Bonds, Series 2014 were sold on a negotiated basis in December, 2014
Overview of NVTA Bond Structure
13
NVTA
Revenue Source Rate
FY 2014 Aggregate Revenue (Audited) 70% Allocation to NVTA ($) 30% Allocation to Member Localities ($)
Retail Sales Tax
0.7% of retail
purchase amount $223,371,345 $156,359,942 $67,011,404
Regional
Congestion Relief Fee (Additional
Grantor’s Tax) $0.15/$100 of value $38,008,947 $26,606,263 $11,402,684
Transient
Occupancy Tax 2% of room rate $24,222,873 $16,956,011 $7,266,862
• Generally, toll revenue bond covenants are more restrictive than those for special tax bonds
• Most important are a Rate Covenant & an Additional Bonds Test (“ABT”)
– Governs toll rate setting by defining how much toll revenue must exceed annual debt service
– ABT limits debt issuance
– Tested & must be met at time of bond issuance
– Stricter covenants lead to higher credit ratings
• Flow of Funds
– Specifies when and where revenues are received and expended
– Describes which amounts are paid first, including debt service, administrative expenses, payments to localities and filling or refilling of reserves
• Establishment of debt service & other reserves
• Allowance for multiple liens, including subordinate debt
• Budget, audit, and other reporting requirements
Basics of Toll Revenue Bonds
•
Common approach to project planning and phasing
•
Common approach to setting toll rates considering both
financial feasibility and traffic management
•
Consolidated toll collection system and back office
•
Ability to implement a regional toll system financing/ bonding
approach, as opposed to individual “stand-alone” project
financing
•
Integrated plan for toll projects, if any, and leveraging HB2313
revenues
•
Over time, significantly improved credit ratings and expanded
bonding capacity
Regional System Financing Example –
Central Florida Expressway Authority
17
• The CFX system is comprised of 109 centerline miles of expressways within Orange County in Florida
‒ 741 Lane Miles
‒ 14 Mainline Toll Plazas ‒ 64 Ramp Plazas
‒ 301 Toll Collection Lanes
• All CFX facilities are integrated into one system
• Toll revenues are combined to support its overall capital plan
• Toll revenues secure CFX’s revenue bonds under one Master Bond Resolution and subject to one system debt policy
• Recent financing related to completion of the western loop around Orlando advanced a project that would not be financially feasible outside of the system concept.
• Develop a long term financial plan to provide funding for prioritized projects
– Determine a comprehensive and reasonable fiscally unconstrained project development schedule
– Consider HRTAC’s credit profile including parameters for debt burden & debt affordability
– Optimize the use of HB2313 tax revenue within desired credit profile
– Establish a firm foundation for financial sustainability
– Build a flexible planning model to analyze multiple alternatives
• For Toll Projects, if any, determine project financing inputs and attributes
– Develop detailed traffic & revenue forecasts
– Develop refined project costs including toll collection capital and operating costs
– Determine parameters for debt burden & debt affordability (different than special taxes)
– Evaluate role of TIFIA and VTIB, if any
– Analyze structural alternatives for HRTAC’s toll backed debt
• Integrate components into a strategic financial plan
– Comprehensive plan incorporating all projects, all HB2313 revenue, and tolling, if any
– Forms part of the basis for any rating agency discussions
– Guides the agency and other stakeholders with respect to project planning and implementation
