SAN DIEGO–San Diego Association of Governments (SANDAG) has issued $335 million of its Series 2019 Capital Grant Receipts Revenue Bonds to help finance the construction of the Mid-Coast Trolley Project.
The bonds will accelerate SANDAG’s receipt of an approximately $1.04 billion grant with the Federal Transit Administration under the Capital Investment Grant program.
“The bonds were issued at a low borrowing cost, which will allow us to maximize the use of federal dollars for the project,” said SANDAG Chair and Poway Mayor Steve Vaus. “The Mid-Coast Trolley project is the largest transit project in the San Diego region’s history, and once complete, San Diegans will feel the positive impact for generations to come.”
The Series 2019 Bonds were issued on July 30 in a total par amount of $335 million, maturing from 2023 through 2027, with an estimated all-in borrowing cost of 1.91%. Principal and interest on the Bonds will be repaid from monies received by SANDAG under a Full Funding Grant Agreement made available by the FTA through the Capital Investment Grant (CIG) program. The Bonds were designated as “Green” given the significant benefit the Mid-Coast Trolley Project is expected to have in reducing emissions in the San Diego region.
The Mid-Coast Trolley Project, which is currently under construction, will add nine new stations and extend San Diego Trolley service for 11 miles from Old Town to UC San Diego and University City. It is expected to begin service in late 2021.
The bonds were sold last week, with Wells Fargo Securities serving as lead underwriter and Public Financial Management (PFM) serving as Financial Advisor. Ahead of pricing, a SANDAG management team met with key investors in San Francisco, New York, and Boston to discuss the Mid-Coast Trolley Project and the proposed financing.
The bonds were ultimately sold to 51 different investors who placed over $3.1 billion of orders. Strong demand enabled SANDAG to reduce interest rates from the initial offering. A number of environmental and socially-conscious investors participated in the green offering. SANDAG is one of the first agencies to successfully securitize a New Starts Grant on a stand-alone basis in over a decade.
SANDAG’s innovative approach to financing the Mid-Coast Trolley Project has saved the agency millions of taxpayer dollars. The financing also achieved a number of “firsts” in the California market.
SANDAG was previously awarded a $537.5 million Transportation Infrastructure Finance and Innovation Act (TIFIA) loan from the U.S. Department of Transportation’s Build America Bureau in June 2017. The loan provided a low-cost, flexible-borrowing tool that provided cost savings. SANDAG was the first self-help county in California to issue Bond Anticipation Notes to accelerate receipt of its TIFIA Loan in April 2018. With the bond sales, it is among the first agencies in over a decade to successfully sell bonds secured solely by a New Starts Grant.
The bonds received a rating of “A-” from Standard & Poor’s, which noted that the rating reflected the federal government’s high level of commitment to the CIG program as well as SANDAG’s progress on the Mid-Coast Trolley Project, which is more than 50% complete, on schedule, and on budget.
The CIG is the primary program through which the federal government supports large, locally-planned transit projects across the nation. SANDAG was awarded a New Starts CIG in September 2016 in the approximate amount of $1.04 billion, following a rigorous, multi-year application process. Demand for the CIG program frequently exceeds available funding, with project funding determined based on both project justification and local financial commitment. The Mid-Coast Trolley Project received a “Medium-to-High” overall project rating, among the highest assigned by the FTA to any active project.
SANDAG has received approximately $430 million to-date under the CIG program, with an additional $613.4 million expected between Federal Fiscal Years 2020 and 2026. The Series 2019 Bonds will allow SANDAG to accelerate receipt of funds during construction and allow completion of the Mid-Coast Trolley project by 2021.
The cost of the $2.1 billion project is being split between the federal New Starts Program, which has committed $1.04 billion, and the region’s TransNet program, the local half-cent sales tax for transportation administered by SANDAG. The Series 2019 Bonds are expected to represent the final piece of financing required to successfully deliver the Mid-Coast Trolley Project to the region.