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Maryland Jurisdictions Expanding P3 Strategies Despite Political Uncertainty

Posted in PPPs, Water

Despite perceived uncertainty as to the future of two, prominent transportation P3 projects, it appears that jurisdictions within Maryland are looking to P3 structures to solve a wider array of infrastructure issues in the state.

Prince George’s County, one of Washington, D.C.’s Maryland suburbs, recently entered into a first-of-its-kind stormwater P3 with a subsidiary to Corvias, a private company with P3 experience in housing “social” infrastructure.  The partnership entity, called “the Clean Water Partnership” will tackle regulatory requirements for stormwater management, arising out of the controversial “Stormwater Management – Watershed Protection and Restoration Program (HB 987)” passed during the Maryland General Assembly’s 2012 session.  In short, Maryland law directs state jurisdictions to assess fees to discourage construction of hard surfaces that don’t absorb groundwater, and would then instead runoff into the Chesapeake Bay.  Following the mid-term elections, several Maryland jurisdictions regard Governor-elect Hogan’s ascendance as a mandate to repeal what detractors call the “Rain Tax,” but Prince George’s County appears to look to the private sector as an alternative path to managing the problem.

Under the “Clean Water Partnership,” Corvias Solutions, with its partner AbTech, will employ a “specialized” stormwater absorption technology, under a $100 million 30-year contract.  The net result sought is reduced runoff, which could justify lower fees.  In other words, high hopes reign that a repeal or restriction of the Rain Tax would not adversely affect the policy goal of reduced runoff into the Chesapeake.  Corvias has indicated an intention to expand this model throughout the Northeast.

VP Biden Calls for Greater Investment in Port Infrastructure

Posted in Ports

On November 12, during a keynote address at the annual convention of the American Association of Port Authorities in Houston, Vice President Biden issued a call to action for greater investment in U.S. port facilities.

“We are investing less than one percent of our GDP in transportation infrastructure . . . ranking 28th in the world among advanced nations.  That is simply unacceptable.”

The Vice President stated that after years of underinvestment, more than $90 billion in port improvements are needed by 2020.  In part, these improvements are needed to prepare for a significant increase in shipping over the next several years.  The Vice President projected that “Ports can expect to ship 50% more cargo by 2020 than they do now, and that’s probably a low estimate.”

With this desperate need to improve port facilities, Vice President Biden noted the opportunity ports have to deliver projects through public-private partnerships (PPPs), acknowledging that ports have experience in using PPPs to deliver projects.  Further to this point, the Vice President praised the recently enacted Water Resources Reform and Development Act, which received bipartisan support in Congress and provides both funding and a low-cost credit program for water projects.

Orange County Toll Agency Successfully Refinances Over $1 Billion of Toll Revenue Debt

Posted in Financing, Tollroads/ Turnpikes/ Managed Lanes

The San Joaquin Hills Transportation Corridor Agency today successfully refinanced $1.4 billion of its $2.2 billion in outstanding debt issued to fund construction of the 73 Toll Road. “This is great news for drivers and the communities that surround the 73 Toll Road,” said Scott Schoeffel, Chairman of the San Joaquin Hills Transportation Corridor Agency, the joint powers authority responsible for financing the 73 Toll Road. “Refinancing improves the agency’s long-term financial health by lowering the annual debt service payments and improving financial flexibility.”

The bond issue was well received by the market with $2.5 billion in orders for a bond issue sized at $1.4 billion reflecting the 73 toll road’s performance, rating upgrade and confidence in the credit profile. By taking advantage of the current historically low interest rates and extending the maturity dates of the prior bonds, the Agency was able to reduce the pressure on the Board to increase toll rates to the advantage of the users of the road. The interest rate on the restructured bonds averages 4.74 percent. The previous average was 5.72 percent – a reduction of nearly 100 basis points.

It is truly a remarkable achievement in this credit environment for a toll agency to receive such a positive response to the restructured debt given the size of the transaction and difficulties faced by other toll agencies across the country and demonstrates the trust the market has in the management of the Agency and the positive indicators for the road in the long-term.

The bond issue consisted of:

  • $1.1 billion in tax-exempt Senior Lien Current Interest Toll Road Revenue Bonds, with a 1.3-times coverage ratio requirement.
  • $300 million in tax-exempt Current Interest Junior Lien Toll Road Refunding Revenue Bonds, with a 1.1-times coverage ratio requirement.

The agency originally issued $1.1 billion in bonds in 1993 to finance construction of the 73 Toll Road. In 1997, the agency issued $1.4 billion of refunding bonds to refinance all but $220 million of the original 1993 bonds. In 2011, because of the severe financial stresses caused in part by the Great Recession, the agency restructured its debt by means of an agreement with existing bondholders, which amended a number of key covenants in the Master Indenture of Trust and extended the maturities on $430 million of the 1997 bonds to 2042.

Standard & Poor’s and Fitch Ratings rated the agency’s Senior Lien Bonds BBB- and the Junior Lien Bonds BB+. Both ratings are higher than the agency’s previous ratings.

An additional feature of the transaction involved a tender offer and an offer to amend the terms of certain existing bonds that are not callable to further improve the refinancing results.

Barclays and Goldman Sachs acted as joint lead bookrunners; Nossaman acts as general counsel to the Agency.

EPA Presents WIFIA Listening Sessions in Los Angeles

Posted in Financing, Water

The Environmental Protection Agency (EPA) is currently holding a roadshow of listening sessions across the US to provide information on the Water Infrastructure Finance and Innovation Act (WIFIA) and its proposed five-year pilot program to provide an alternative funding source for a variety of water infrastructure projects.

The EPA presented in Los Angeles on October 17, 2014 where attendees included representatives from public and private finance, contractors, water operators, state and local government entities and legal and financial advisers from across southern California.

During the first part of the listening session, the EPA provided an overview of the WIFIA legislative framework including the type of projects which are able to be financed through WIFIA.  The second part of the listening session was more analytical and provided examples of how WIFIA may benefit particular projects.  Audience input was sought throughout the presentation on a range of issues.

Key takeaway messages from the WIFIA session included:

  • Appropriations: The EPA has not received appropriation yet to support the WIFIA program.  Appropriations are expected next year subject to the determination of Congress. The Act allows an appropriation of $20,000,000 in the fiscal year 2015 escalating to $50,000,000 for the fiscal year 2019. The EPA are expecting that for each dollar appropriated they will be able to loan out ten dollars (i.e. similar to the TIFIA 10:1 ratio). There is also a sense that this loan ratio may increase because of the differences in lender risk profile between a toll road with full demand risk transferred as compared to a water project with a fixed service payment and no demand risk transfer.
  • No use of Tax-Exempt Financing: One of the key differences between the Transport Infrastructure Finance and Innovation Act (TIFIA) and WIFIA is that tax-exempt financing is not permitted to be used in conjunction with WIFIA. One of the rationales provided for this is the objective of increasing investment in water projects without replacing existing water financing sources such as state revolving loan (SRF) funds.  The likely impact of the ban of tax-exempt financing sources in conjunction with WIFIA will be that issuers with AAA or AA ratings may not apply for WIFIA since it will likely be cheaper to obtain finance by issuing only tax-exempt bonds.  The proposed approach may also discourage the use of private activity bonds which have also been used with success on P3 transportation projects.
  • Refinancing: The EPA does not know if WIFIA could be used to refinance projects.
  • Criteria for Evaluating Projects: There is currently no guidance within WIFIA as to the weighting of each of the project eligibility criteria. Assuming demand for WIFIA exceeds the appropriation allocations in the pilot program, a key challenge for the EPA will be determining which projects are eligible to be financed through WIFIA. The EPA intends to carry out further work to prioritize the existing criteria so that eligibility can be clearly determined.
  • Application process: The application process for WIFIA has not yet been determined but will likely mirror the TIFIA process.
  • Interplay between SRF and WIFIA: The EPA is further considering the ability for SRF and WIFIA to be used together however currently there appear to be no prohibitions on this.

The final EPA listening sessions will be held in San Francisco on November 17, 2014 and Washington, DC on December 8, 2014.

AASHTO Releases Updated Matrix of Transportation Revenue Options

Posted in News, Policy

The American Association of State Highway and Transportation Officials (AASHTO) recently released an updated version of its popular roadmap of US transportation funding options, Matrix of Illustrative Surface Transportation Revenue Options, which may be accessed here.

The tool examines the five surface transportation revenue sources currently in place and considers 33 other potential sources of revenue. Updates to the tool include a bubble display and bar chart that allow users to see how much revenue the funding sources considered might generate. The tool is intended to serve as a technical resource that Congress can reference when developing the next long-term surface transportation bill.

For more information, please visit AASHTO’s website.

The Texas Department of Transportation Shortlists Three Development Teams for the Grand Parkway Segments H, I-1 and I-2 Project

Posted in Design-Build

On July 31, 2014, the Texas Department of Transportation (TxDOT) issued a Request for Qualifications (RFQ) soliciting qualifications from teams interested in entering into a design-build contract and a comprehensive maintenance agreement for the Grand Parkway Segments H, I-1 and I-2 Project.  Following a two-month process, which included questions and answers from interested industry participants and an industry workshop, TxDOT received Qualification Statements on September 30, 2014. Over the next month, the Qualification Statements were evaluated by TxDOT.  On October 30, 2014, TxDOT announced the short list of the teams most qualified to compete for the Grand Parkway Segments H, I-1 and I-2 contracts. Below is a listing of the shortlisted teams, along with the major equity members, that will be invited to submit detailed proposals.

  • FBW LLC: Fluor Enterprises, Inc., Balfour Beatty Infrastructure, Inc., Williams Brothers Construction Co., Inc.
  • Zachry/Odebrecht/Parkway Builders: Zachry Construction Corporation, Odebrecht Construction, Inc., Traylor Bros., Inc.
  • Grand Parkway Infrastructure: Ferrovial Agroman US Corp., Webber, LLC, Granite Construction Company

TxDOT anticipates issuing a draft Request for Proposals in early November and the final Request for Proposals in December 2014, with the expectation that the winning proposer will be selected and the contracts awarded in April 2015.

State Highway 99, also known as Grand Parkway, is a proposed 180-mile circumferential highway traversing seven counties in the Greater Houston Area.  The shortlisted teams will compete for the latest TxDOT project for segments of the Grand Parkway.  TxDOT is developing Grand Parkway Segments F1, F2 and G through a comprehensive development agreement awarded in 2013 to Zachry Odebrecht Parkway Builders.

Grand Parkway Segments H, I-1 and I-2 is a 52-mile, controlled-access facility that will traverse four counties from US 59 to the SH 146.  One of the goals for the Grand Parkway Segments H, I-1 and I-2 Project is to sustain and expand economic opportunities in the region.

Design and construction costs for the project are estimated to be in the range of approximately $830 million, exclusive of right of way and maintenance costs. The design-build contract and comprehensive maintenance agreement will require the selected bidder to design and build the project and then maintain the project for 25 years after completion.

This is one of several active “mega” design/build projects being pursued by TxDOT, including the Harbor Bridge Project in the Corpus Christi area.

Six Teams Submit SOQs for Reissued UC Merced 2020 Project RFQ

Posted in PPPs, Social Infrastructure

The Regents of the University of California (the “Regents”), on behalf of the University of California, Merced (“UC Merced”), announced on October 30, 2014 that it received Statements of Qualifications (SOQs) from six teams in response to the reissued Request for Qualifications (RFQ) for the UC Merced 2020 P3 Project (the “Project”).

The reissued RFQ was released on September 25, 2014. The six teams that submitted SOQs in response to the reissued RFQ were substantially the same six teams that responded to the initial RFQ released in April 2014.

The respondents and their equity members are (in alphabetical order):

  • EP2 Developers (EP2):  Edgemoor Infrastructure & Real Estate LLC, Plenary Group (Canada) Ltd. and Education Realty Trust, Inc.
  • E3 2020:  Balfour Beatty Investments, Inc.
  • Gateway2Learn:  HOCHTIEF PPP Solutions North America;  Meridiam Gateway2Learn, LLC
  • Innovation Partners:  Hunt Development Group LLC and Shikun & Binui, Ltd.
  • Merced Campus Collaborative:  Lend Lease (US) Investments, Inc., Macquarie Capital Group Limited and ACC OP Development, LLC
  • Merced 2020 Partners:  Skanska Infrastructure Development Inc. and Fengate Capital Management Ltd.

The complete list of respondent team members may be found at the UC Merced 2020 Project website.

The Project represents the second phase of campus development under UC Merced’s Long Range Development Plan and involves a significant campus expansion to support projected enrollment growth from 6,200 current students to 10,000 students by the year 2020.

The project consists of the comprehensive development, design, construction, and financing of academic, administrative, research, recreational, student residence and student services buildings, together with utilities and infrastructure, outdoor recreation and open space areas, and associated roadways, parking and landscaping.  The Project will also include operations and maintenance of some or all of these facilities.  The Regents intend to make shortlist decisions in December 2014.

Orange County Transportation Authority Issues Request for Qualifications for the I-405 Improvement Project

Posted in Design-Build

On October 27, 2014, the Orange County Transportation Authority (OCTA) issued a Request for Qualifications (RFQ) soliciting statements of qualifications (SOQs) from qualified firms interested in submitting proposals for the design and construction of the $900 million I-405 Improvement Project (the Project) through a design-build contract. OCTA is seeking a private firm that is experienced in managing, designing and constructing general use roadways.

The Project will consist of designing and constructing an improvement that generally adds one general-purpose lane in each direction of I-405 from approximately Euclid Street to Interstate 605. The Project is located in Orange County, in the Cities of Costa Mesa, Fountain Valley, Huntington Beach, Seal Beach and Westminster.

Firms will have until December 18, 2014 to submit their SOQs in response to the RFQ. OCTA will then review the SOQs and shortlist the most highly qualified firms to provide design-build services for the Project. The anticipated announcement of shortlisted proposers is set for March 9, 2015.

The RFQ is posted on OCTA’s website here.

Federal Court Orders DOT to Respond to Sierra Club’s Unsafe Tank Car Lawsuit

Posted in Rail and Transit

A Federal Court has ordered the Department of Transportation (DOT) to respond to a lawsuit filed by three environmental organizations—Earthjustice, Sierra Club and ForestEthics—in which the parties asked the court to order DOT to respond to the organizations’ request for an emergency order banning the use of DOT-111 tanks cars for the shipment of crude oil by rail.

DOT has 60 days to provide the Court with a response to Sierra Club’s lawsuit, which alleges that DOT is in violation of the law for failing to respond to its “Unsafe Tank Car Petition.”  The petition, filed with DOT on July 15, 2014, argues that the continued transport of crude oil in older model rail cars poses risks to public safety.  The petitioners assert that DOT should restrict the shipment of “volatile crude oil in unsafe DOT-111 tank cars,” and that DOT’s failure to do so previously is “inexcusable given the long string of findings by the National Transportation Safety Board that the legacy DOT-111 tank cars are extremely vulnerable to puncture, spilling oil, and precipitating explosions and fires in train accidents.”

Shortly after the Unsafe Tank Car Petition was filed, on July 23, 2014, DOT and the Pipeline Hazardous Materials Safety Administration (PHMSA) issued a much anticipated proposed rulemaking on Enhanced Tank Car Standards and Operational Controls for High-Hazard Flammable Trains (for a breakdown of the rulemaking, click here).  The Sierra Club issued a statement responding to the rulemaking, arguing that the proposed rules “do not adequately address the immediate and growing threat posed by crude-by-rail accidents.”

DOT and PHMSA have not issued any specific reply to the Unsafe Tank Car Petition and it is this lack of response that Sierra Club sought review of in the federal court.  Specifically, the environmental organizations argued that the Government’s failure to respond puts it in violation of the law that requires federal agencies to respond to matters before it within a reasonable time.

The Federal Court denied a motion filed by the Sierra Club to expedite the petition, which was opposed by DOT.  However, the Court ordered DOT to file a response to Sierra Club within 60 days.  DOT’s response is due on November 21, 2014 and Sierra Club will have fourteen days to respond in turn.  The InfraInsight Blog will provide a summary of DOT’s response when it is submitted.

Enactment of SB 785 Clears Caltrain Electrification for Design-Build

Posted in Design-Build, Legislation, Rail and Transit

California Governor Edmund G. Brown, Jr., has signed California Senate Bill (SB) 785. As my colleague Nancy Smith has observed, enactment of SB 785 is a major step forward for the State of California, because now many more state and local agencies can use design-build.

One of the immediate benefits of this change is that the much-anticipated Caltrain electrification project will be able to proceed as a design-build procurement.  The authority of the Peninsula Corridor Joint Powers Board (JPB) to issue design-build contracts was slated to expire at the end of this year, but SB 785 extends that authority until 2024.

The Peninsula Corridor Electrification Project is a key component of the Caltrain modernization program. It will electrify the Caltrain Corridor from San Francisco’s 4th & King Station to approximately the Tamien Caltrain Station and convert the Caltrain fleet from diesel-hauled passenger coaches to electric multiple unit train sets. In conjunction with the project, the JPB plans to increase frequency of service up to six trains per peak hour per direction by 2019.

In 2019 service between San Jose and San Francisco will utilize a mixed fleet of EMU’s and diesel locomotives. Diesel locomotives will be phased out (or used on the lighter density service between San Jose Diridon Station and Gilroy) as the EMUs come one line.

“The electric trains will enhance capacity and allow the system to deliver cleaner, quieter, shorter trip times and, potentially, more frequent service for the corridor,” PCJPB said.  “It will allow Caltrain to almost double the system’s forecasted daily ridership by 2040. Greenhouse gas emissions will be reduced by 177,000 metric tons, automobile vehicle miles traveled will shrink by 619,000 miles daily, and billions of dollars in economic value will be created, including nearly 100,000 new jobs.”

In September 2013, the JPB approved the use of the design-build contracting approach for the electrification project. A Request for Proposals (RFP) will be issued January 2015. A contract award is expected in fall 2015.