SAN DIEGO–The San Diego Association of Governments (SANDAG) refinanced its outstanding Transportation Infrastructure Finance and Innovation Act (TIFIA) loan for the Mid-Coast Trolley project by securing a replacement loan at a significantly lower interest rate of 1.75 percent, which will save more than $123 million during the life of the 25-year loan.
The winning financial strategy comes in the final year of construction of the Mid-Coast Trolley project, which will extend the UC San Diego Blue Line Trolley 11 miles, from Old Town to the University community. The project will add nine new Trolley stations, including two on the UC San Diego campus. Service is expected to begin in late 2021.
In March 2020, when the Federal Reserve cut interest rates and the 30-year treasury rate dropped, SANDAG staff requested a discussion with the United States Department of Transportation’s Build America Bureau to investigate options to lower the TIFIA loan’s 2.72 percent interest rate. The pandemic’s impact on transportation revenues was a key consideration in the development of a strategy to replace the loan because a new loan that only modified the interest rate without adding a scope or additional borrowing would not have received consideration previously. By July, a strategy was in place and work began to replace the earlier loan agreement with a new, lower-rate agreement.
“Refinancing the loan for the largest infrastructure project in the region’s history is great news for the region,” said SANDAG Chair and Encinitas Mayor Catherine Blakespear. “Reducing the long-term borrowing costs for this project means there is more money available for other critical transportation projects. Executing smart fiscal decisions is a hallmark of the SANDAG approach.”
In November 2020, the Board of Directors voted to reduce the total debt service and approved the refinancing of the San Diego County Regional Transportation Commission’s TIFIA loan.
The TIFIA loan received a rating of “A+” from S&P Global Ratings and “A” from Fitch Ratings. The Commission’s senior lien debt was reaffirmed at AAA by S&P and Fitch, and the subordinate lien debt reaffirmed at AA by S&P and AA/F1+ by Fitch.
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 awarded the initial $537.5 million 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.
In 2019 SANDAG issued Capital Grant Receipts Revenue Bonds to be repaid with monies received by SANDAG under a Full Funding Grant Agreement made available by Federal Transit Administration for the project. With the 2019 bond sales, it was among the first agencies in more than a decade to successfully sell bonds secured solely by a New Starts Grant. The replacement of the previous loan without a change in scope or loan amount is another landmark transaction. The loan is the first completed TIFIA replacement loan without additional project scope or borrowing, and the first TIFIA loan to close since the November 2020 election.
The Mid-Coast Trolley Project will extend Blue Line Trolley service from Santa Fe Depot in downtown San Diego north to the University community, serving major activity centers such as Mission Bay Park, the VA Medical Center, UC San Diego, and University Towne Centre. Nine new stations are part of the project and are under construction. Major construction work began in 2016, with service anticipated to begin in late 2021.