Houston Metro Seeks LOC for Light Rail

DALLAS -Houston's Metropolitan Transit Authority is seeking a new letter of credit to back its short-term debt as it plans a $3 billion expansion of its light-rail system.

Financial adviser Drew Masterson of First SouthwestCo. told the authority board that Depfa Bank may not renew its $200 million letter of credit when it expires in June. The MTA, more commonly known as Metro, is looking for a new backer for its commercial paper program, which it is increasing from its current $200 million size to $300 million.

The transit agency is planning to begin construction on two lines this summer, using its short-term financing. The commercial paper used to launch projects is later refunded by long-term debt.

Masterson said that finding a replacement for Depfa might be difficult in the current economic climate.

"All the letter of credit banks are up to their eyeballs with demand right now," he said.

Nonetheless, the board approved seeking a new LOC that would raise the debt coverage to $300 million. Alternatives to new security include delaying or deleting some capital projects, according to Metro staff.

The agency carries current debt of $143 million, all in commercial paper. Cash reserves come to $188 million.

Currently 86% of Metro's borrowing funds general mobility payments to local governments.

Metro's annual interest rate on its commercial paper dropped to 1.99% in February from an average of around 3.5% since the borrowing began in January 2006.

The commercial paper debt does not count against a $640 million cap on long-term borrowing through bonds backed by the agency's 1-cent sales tax, officials said.

Commercial paper, while not used to fund capital projects such as rail lines, can be used for covering gaps in sales-tax reimbursement from the state. Metro collected $482 million in sales tax and $53 million in fares during fiscal 2007, compared to its $436 million operating expenses.

The transit authority is expanding its rail system, which began with a 7.5-mile line. A high-speed bus system that won federal approval for funding under a public-private partnership program last year will instead become a rail system.

Projected costs of the planned North rail line have doubled from earlier estimates, while the cost of the Southeast line has quadrupled.

Metro president and chief executive Frank Wilson said the rapid escalation in cost is due to the upgrade from Bus Rapid Transit to light rail and that the initial estimates of cost were too low. The cost of the trains at $3.5 million each has added to the cost, and the inflation factor has increased.

The estimated cost of the two lines has soared from $434 million to $1.34 billion. Of that amount, Metro would cover $684 million with the balance coming from federal funds. Wilson hopes to lower those costs in negotiations with the contractor Washington Group Transit Management Co.

Wilson has said he expects the cost to fall below $3 billion.

 

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