Financial Close Achieved for Consolidated Rent-A-Car Facility at LAX

Courtesy of LAWA

Los Angeles World Airports (LAWA) and LA Gateway Partners, LLC  (LAGP), together with equity providers and lenders, achieved Financial Close on the approximately $2 billion consolidated rent-a-car facility (ConRAC) at Los Angeles International Airport (LAX) on December 6, 2018.

LAGP is owned indirectly by funds managed by Fengate Asset Management (“Fengate LAGP US I, LLC”, 83.3%) and PCL Investments USA, LLC (“PCL LAGP Partnership LP”, 16.7%). After achieving Commercial Close on November 6, 2018, Fengate and PCL proceeded to secure private financing for the project  comprised of (a) approximately $458 million in notes due in 2046 issued by LAGP, and (b) a construction loan of approximately $73 million with National Bank of Canada as lender.  Fengate and PCL are making equity contributions to the project.

Moody’s assigned an A3 rating to the notes based in part on the strength of the availability-based revenue stream from LAWA under the terms of the design-build-finance-operate-maintain (DBFOM) agreement and the fact that PCL Construction Services Inc. (design-builder), Johnson Controls, Inc. (operator) and MVI Field Services, LLC (Quick Turn Around area (QTA) sub) are experienced contractors.  The notes were issued by way of private placement to three life insurance companies.

LAWA will contribute approximately $690 million to the capital costs of the project through construction period payments and a final completion payment. Once the ConRAC is operational, LAWA will make availability payments to LAGP, which payments are subject to deductions for unavailability and other failures to meet the performance standards set forth in the DBFOM Agreement.

The ConRAC facility will relocate over 20 existing rental car locations scattered around the airport area into one convenient location adjacent to the 405 freeway. The ConRAC facility will include 6,600 ready/return spaces, 10,000 idle vehicle storage spaces, 1,100 rental car employee spaces and a QTA area that allows for car washing, fueling and light maintenance. The facility will be approximately 5.3 million square feet in size and will be connected to the LAX Automated People Mover (APM), which reached financial close in June.

The ConRAC and the APM projects, slated for completion in 2023, will transform the airport and dramatically improve the experience for travelers at LAX.   These projects, with a collective contract value in excess of $7 billion, represent the first two public-private partnerships to be entered into by the City of Los Angeles.

Commercial Close Achieved for Groundbreaking ConRAC Project at LAX

Los Angeles World Airports (LAWA) and LA Gateway Partners (LAGP) have reached commercial close on the design-build-finance-operate-maintain (DBFOM) agreement for the consolidated rent-a-car facility (ConRAC) at Los Angeles International Airport (LAX).  In reaching this milestone, LAWA’s ConRAC project becomes the first public-private partnership for a ConRAC facility in the United States.  LAGP will now proceed to close the financing for the project, which is expected to occur in December.  The financing structure will be a private placement.

Leading up to commercial close, LAWA’s Board of Airport Commissioners and the Los Angeles City Council both unanimously approved the roughly $2 billion DBFOM availability payment agreement for the project.  The Board’s approval came on October 18, 2018, and the City Council took its action on October 31, 2018.

Courtesy of LAWA

The 5.3 million square foot ConRAC facility will include 6,600 ready/return parking stalls, 10,000 idle storage and 1,100 rental car employee parking spaces, easily making it the largest ConRAC facility in the nation.  The new facility will be the anchor of LAX’s Landside Airport Modernization Program, which includes a new Automated People Mover (APM), various stations, and a connection to LA Metro’s Crenshaw Light Rail Line.  The APM is under construction pursuant to a separate DBFOM agreement.  For more information on the APM project, please see the following blog post, Financial Close for Automated People Mover (APM) Project at LAX.

The ConRAC DBFOM agreement requires LAGP to design, build and partially finance the ConRAC facility, and then operate and maintain the facility until the end of the agreement’s 28-year term.  LAWA will make milestone and other periodic payments to LAGP during construction.  Once the ConRAC facility is available for use by rental car customers, LAWA will make availability payments to LAGP, which may be adjusted downward if the facility does not meet specified availability and performance requirements.

For more details, click here to read the full press release from LAWA.

Port of Wilmington Uses P3 Concession to Develop Port Facilities

The State of Delaware and a subsidiary of Gulftainer Company Limited (“Gulftainer”) have finalized a concession agreement for the operation and further development of the 100-year-old Port of Wilmington (“Port”).

While the concession agreement signed on September 18, 2018 is not publicly available, it is expected, based on deal terms described in Port documents submitted in support of approval of the P3 transaction,[1] that the agreement grants Gulftainer exclusive rights to manage the Port for a 50-year term. In return, Gulftainer agrees to invest up to $584M in the Port in the first 10 years to improve the Port’s cargo terminal facilities, $411M of which will be used to develop a new 1.2 million TEU (twenty-foot equivalent units) container terminal. Gulftainer will pay concession fees to the State based on cargo volume along with periodic adjustments for inflation. These fees could reach $13M by the tenth year of the concession.[2] At the end of the concession, Gulftainer must hand the Port facilities back with the capacity to handle specified minimum service and tonnage volume requirements.

In May 2017, Diamond State Port Corporation (“DSPC”), the state entity that owns and operates the Port, issued an RFQ seeking private partners to develop, finance and/or operate port-related infrastructure.[3] After evaluating submissions, DSPC signed a non-binding letter of intent with Gulftainer in December 2017.

As Gulftainer is a port management and logistics firm based in the United Arab Emirates (“UAE”), the concession agreement was reviewed by the Committee on Foreign Investment in the United States (“CFIUS”). CFIUS evaluates the national security implications of foreign investments in United States companies and operations and may prohibit foreign investment that poses a threat to United States national security. In June 2018, CFIUS determined that the agreement was not a “covered transaction” under Section 721 of the Defense Production Act of 1950,[4] and as such the parties were cleared to execute the agreement.

The Wilmington/Gulftainer deal is comparable to the $1.3B lease and concession agreement entered into in 2010 by Maryland Port Administration (“MPA”) and Ports America Chesapeake, LLC (“Ports America”) for the development and operation of the Seagirt Marine Terminal (“Seagirt”).[5] As with the Wilmington/Gulftainer concession, the Seagirt concession has a 50-year term and Ports America agreed to make significant capital investments, including developing a new terminal.[6] Ports America’s financing included a combination of tax-exempt bonds and equity. The Seagirt P3 deal reportedly enabled the State of Maryland to avoid the need to incur additional debt, provided a capital reinvestment payment to the Maryland Transportation Authority and allowed the port to handle larger vessels two years earlier than scheduled.

Ports are exploring alternative ways to deliver and finance large infrastructure projects, and the Wilmington and Seagirt P3 deals are examples of how private sector financing is being integrated into these transactions. Both deals demonstrate how, for the right projects, alternative approaches may allow ports to better capture the value of their existing infrastructure and accelerate delivery of port infrastructure improvements.

 

[1] DSPC Board of Directors Resolution 18-15 Regarding Recommendation of a Proposed P3 with GT USA Wilmington, LLC, available at http://www.portofwilmington.com/uploads/1/1/0/4/110497727/p3.pdf and http://www.portofwilmington.com/uploads/1/1/0/4/110497727/p3_presentation_-_4-6-18_dspc_board_meeting.pdf.

[2] “Governor Carney, Diamond State Port Corporation, Gulftainer Sign Agreement to Expand Port of Wilmington,” State of Delaware Press Release (September 18, 2018) available at https://news.delaware.gov/2018/09/18/governor-carney-diamond-state-port-corporation-gulftainer-sign-agreement-expand-port-wilmington/.

[3] “Request for Qualifications: Formation of a Public/Private Partnership (P3) with the Diamond State Port Corporation”, DSPC Public Notice, available at http://diamondstateportcorp.com/HTML/our_facilities/Bids&Proposals.htm.

[4] Letter from Department of the Treasury Deputy Assistant Secretary of Investment Security Regarding CFIUS Case 18-105 GT International Limited FZC (United Arab Emirates)/Certain Assets of Diamond State Port Corporation (June 25, 2018) available at https://governor.delaware.gov/wp-content/uploads/sites/24/2018/06/06252018-Letter.pdf; “Government Panel Signs Off on Port of Wilmington-Gulftainer Agreement”, Delaware Business Now (June 30, 2018) available at https://delawarebusinessnow.com/2018/06/government-panel-signs-off-on-port-of-wilmington-gulftainer-agreement/.

[5] Ports America Chesapeake, News Alert, available at https://www.pachesapeake.com/Seagirt/Default.aspx.

[6] Maryland Transportation Authority, “Public-Private Partnerships in Maryland,” available at http://mdta.maryland.gov/partnerships/tp3overview.html.

LA Metro Announces P3 Job Opportunity

Los Angeles County Metropolitan Transportation Authority has posted notice of an opening for a position as “Manager, Innovation” in its Office of Extraordinary Innovation.

The job responsibilities will include:

  • Managing and facilitating evaluation of unsolicited proposals submitted to the OEI
  • Managing OEI’s P3 advisors
  • Managing pre-procurement activities for P3 projects such as project screenings, qualitative and quantitative assessment and value for money analyses
  • Managing procurement schedules and project budgets
  • Coordinating among key LA Metro departments, staff and outside stakeholders
  • Participating in outreach for the P3 program and projects.

Applications are due by 5:00 pm September 21.

When Phil Washington became LA Metro’s Executive Director, one of his first initiatives was to create the OEI and reach out to industry to encourage innovative unsolicited proposals to advance LA Metro’s mission.  Metro’s goal is nothing less than to be the most innovative transportation agency in the U.S.  With the largest transit capital program in the nation, LA Metro seeks better solutions for delivering its major projects and improving mobility.  The OEI is focused on technological and financial innovations that deliver quality infrastructure and services at lower cost than traditional ways of doing business.  It is particularly interested in proposals for public-private partnerships to speed and improve capital project delivery.

To date the OEI has received 113 unsolicited proposals and vetted most of them through the first of its two-phase evaluation process, with 18 proposals currently in the second phase.  Thirteen proposals have been implemented or are in implementation or proof of concept.  One of the best examples is Metro’s Microtransit P3 pilot project, currently in the first implementation stage.  Through OEI’s program, Metro is in pre-procurement development for the West Santa Ana Branch light rail line and the Sepulveda Transit Corridor project, two of the biggest future projects in LA Metro’s capital program.

There will be no shortage of work, opportunity and stimulating professional experience for LA Metro’s new Innovation Manager.

Port of Vancouver USA Completes $251M Rail Access Improvement Project

The Port of Vancouver USA and its rail partners BNSF Railway and Union Pacific Railroad have substantially completed a $251M railroad access improvement project which significantly increases rail access in the port. The project creates a new rail entrance to the port, increases the port’s internal track miles from 16 to more than 50 (including a new loop track at the port’s Terminal 5 facilitating unit train transport) and increases rail capacity on BNSF and UPRR lines outside the port.  According to port CEO Juliana Marler, the project “reduces rail congestion on the mainline and expands [port] capacity to 400,000 rail cars per year.”

The project was funded from no less than 10 sources, including a High Speed Intercity Passenger Rail Program Grant ($15M); Freight Mobility Strategic Investment Board Grants ($13.4); a Transportation Infrastructure Generating Economic Benefit (TIGER II) Grant ($10M); BNSF funds and in-kind contributions ($8.1M); port tenant lease payments and user fees ($6.2M); a Federal Railroad Administration grant ($3.9M); and an American Recovery and Reinvestment Act Grant ($2.5M).

“It is a thrill to celebrate the West Vancouver Freight Access Project and the jobs it will bring. This project shows that the Port of Vancouver USA and the region is open for business as WVFA improves freight mobility dramatically and opens Southwest Washington to more trade opportunities,” Gov. Jay Inslee said. “Today is a great day of celebration for Vancouver and the entire state!”

The project is also spurring private investment in and near the port. Port tenants and neighbors, including United Grain Corp., Great Western Malting and Farwest Steel, have already invested more than $200 million in private funds to upgrade facilities and equipment and take advantage of increased rail capacity.

 

Updated: FRA Releases Latest Railroad Progress Report as PTC Deadline Looms

The Federal Railroad Administration (“FRA”) has released its latest Positive Train Control (“PTC”) implementation progress report for the 2nd quarter of 2018. The FRA’s latest report indicates that railroads are making steady progress toward PTC compliance.

FRA says that 15 railroads have installed 100% and 12 railroads have installed between 95 and 99% of the mandated PTC system hardware. In addition, all but one railroad has acquired sufficient spectrum required for PTC Implementation.

FRA states that railroad implementation of PTC has improved since December 2016, “where freight railroads had PTC active on just 16 percent of required tracks, while passenger railroads were at 24 percent[1].” FRA did note, however, that nine railroads are “at-risk.” FRA labels these railroads as at-risk because they have installed less than 90% of their PTC system hardware as of the reporting date. FRA further cautions that installation of all PTC hardware is only an initial phase of PTC implementation and would not merit consideration for an extension to the pending deadline.

Click here to read the original May 16, 2018 post.


[1]Press Release, FRA Publishes Railroads’ Quarter 2 PTC Data (Aug 23, 2018) available at https://railroads.dot.gov/newsroom/fra-publishes-railroads-quarter-2-ptc-data.

FRA Announces $318 Million in CRISI Grant Funding Availability

Last week FRA issued a notice of grant funding of $318 million for rail infrastructure and safety improvements through the Consolidated Rail Infrastructure and Safety Improvement Grants Program known as CRISI.  The deadline for applications is September 17, 2018.

CRISI grants are designed to assist with financing passenger and freight rail system improvements to achieve safety, efficiency, and reliability benefits.  Eligible applicants include states, public agencies, Amtrak, and Class II and Class III rail carriers and railroad or equipment manufacturer working with eligible applicants.

FRA will consider CRISI funding for intercity passenger rail service, to reduce rail congestion, and to improve short-line and regional rail infrastructure; projects to enhance passenger or freight multimodal connections; and  other safety improvements, including deployment of non-PTC safety technology.

FRA’s share of total costs for CRISI projects is not to exceed 80%, but  FRA prefers applications where the Federal projects costs is under 50 percent.

This is the second round of CRISI funding this year.  In May, FRA issued a funding opportunity for $250 million in CRISI grants for Positive Train Control.

FTA “Dear Colleague” Letter Raises Concerns Regarding Federal Share Treatment of TIFIA and RRIF Loans

The Federal Transit Administration (“FTA”) recently penned a “Dear Colleague” letter regarding the Agency’s implementation of the Capital Investment Grants Program, stating that FTA will consider federal loans or financing tools in the context of all federal funding sources for a project, implying that such financing assistance will be calculated as part of a transit project’s federal share. Other modal agencies consider federal loan programs, such as TIFIA or RRIF, to be part of a project’s non-federal share.[1]

The letter has caused a significant amount of discussion in the industry and on Capitol Hill. Treating federal loans as part of a transit project’s federal share would make it more difficult for project sponsors to meet federal-share requirements or to present a favorable benefit-cost ratio.

In response to FTA’s letter, Representative Peter DeFazio (D-OR) and Delegate Eleanor Holmes Norton (D-DC), the Ranking Members of the House Transportation and Infrastructure Committee and Highways and Transit Subcommittee, respectively, sent a letter to Secretary Chao saying the policy “directly conflicts with section 603(b)(8) of title 23, United States Code, which clearly establishes TIFIA as a non-Federal share of project costs if the loan is to be repaid with non-Federal funds.” House Appropriations Committee Chairman Rodney Frelinghuysen also sent a letter to Secretary Chao requesting clarification on the issue.

As we have noted often, the U.S. Department of Transportation has prioritized innovative project delivery approaches and leverage of federal funds in its administration of discretionary transportation funding programs. If FTA treats TIFIA and RRIF assistance as part of a project’s federal share, this would work at cross purposes to the Department’s broader efforts to promote innovative project delivery solutions, many of which rely on these low-interest federal financing tools.

 

[1] The Federal Highway Administration guidance on non-federal share states: “The proceeds of a secured TIFIA loan may be used for any non-Federal share of project costs required under Title 23 or Chapter 53 of Title 49, if the loan is repayable from non-Federal funds. See 23 U.S.C. 603(b)(8) on the terms and limitations of a TIFIA loan.” (https://www.fhwa.dot.gov/ipd/finance/tools_programs/federal_aid/matching_strategies/).

Federal Maritime Funding Opportunity Prioritizes Innovative Project Delivery

Sponsors of critical maritime transportation projects received welcome news this week, as the U.S. Department of Transportation (“USDOT”) published a Notice of Funding Opportunity (“NOFO”) for America’s Marine Highway Projects. This notice makes available roughly $7 million in recently-appropriated funds for the Short Sea Transportation Program (46 U.S.C. § 55601), commonly referred to as America’s Marine Highway Program (“AMHP”).

The U.S. Maritime Administration (“MARAD”) is in charge of this important, but perhaps not well-known, program:  “The America’s Marine Highway System consists of our Nation’s navigable waterways including rivers, bays, channels, the Great Lakes, the Saint Lawrence Seaway System, coastal, and open-ocean routes. The Marine Highway Program works to further incorporate these waterways into the greater U.S. transportation system, especially where marine transportation services are the most efficient, effective, and sustainable transportation option.”

Eligible projects include expansions of documented vessels or port and landside infrastructure that USDOT has previously designated as a Marine Highway Project. A current list of designated projects is available on the AMHP website. The NOFO encourages projects sponsors of designated projects to submit applications by the October 5, 2018 deadline.

In a continuation of this Administration’s efforts to use all available tools to incentivize innovation and efficient project delivery methods, this NOFO encourages project applicants to develop public private partnerships. Furthermore, the NOFO sets a maximum federal share of 80% for projects receiving AMHP grants, but stipulates that projects providing a larger non-federal share will receive preference.

In what is becoming a familiar set of key federal objectives (see, e.g., USDOT’s recent NOFOs for the INFRA and BUILD programs), this NOFO states that USDOT will consider the following when analyzing AMHP applications:

  • Supporting economic vitality at the national and regional level;
  • Utilizing alternative funding sources and innovative financing models to attract non-Federal sources of infrastructure investment;
  • Accounting for the life-cycle costs of the project to promote the state of good repair;
  • Using innovative approaches to improve safety and expedite project delivery; and,
  • Holding grant recipients accountable for their performance and achieving specific, measurable outcomes identified by grant applicants.

AMHP plays a critical role in moving people and goods throughout the United States using the country’s navigable waterways and is closely integrated with other elements of the U.S. transportation system.  The NOFO shows the USDOT’s commitment to encouraging innovation across the various types of the nation’s transportation infrastructure.

Q & A – Rail Infrastructure Needs at Ports

The American Association of Port Authorities (“AAPA”) recently released its State of Freight III – Rail Access and Port Multimodal Funding Needs Report.  For its report, AAPA surveyed its members to determine what aspects of rail infrastructure ports most need.

We thought it would be informative to talk with John Young, AAPA’s Director of Freight & Surface Transportation’s Policy, about the survey results and the report.

Courtesy of the American Association of Port Authorities

Nossaman:
John, thank you for taking the time to speak with us.  Can you please tell us a little bit about the AAPA?

John Young:
AAPA represents 130 public port authorities in the U.S., Canada, the Caribbean and Latin America. For more than a century, AAPA membership has empowered port authorities and their maritime industry partners to serve global customers and create economic and social value for their communities.

Nossaman:
The State of Freight report AAPA recently released is the third of a series.  Could you summarize for us your previous State of Freight publications?

John Young:
In AAPA’s 2015 State of Freight report, the focus of that survey was on intermodal connections.  One third of respondents said congestion at their port’s intermodal connectors caused port productivity to decline by 25% or more over the previous 10 years.  A large majority (80%) of respondents said they require at least $10 million for intermodal connectors through 2025, while 30% of respondents anticipated a need of at least $100 million.  In the 2015 report, respondents also stated that $28.9 billion was needed for 125 port-related freight network projects.

State of Freight II followed the 2015 passage of the FAST Act, which enacted many of AAPA’s top freight policies, such as providing dedicated funding for freight projects.  In 2016, AAPA, in partnership with the American Association of State Highway and Transportation Officials released the State of Freight II.  The results of this report established a baseline of freight infrastructure need to be $287 billion to build out a 21st century freight network.

Nossaman:
State of Freight III discusses the need for improved rail access — efficient transfer of containers and other bulk goods directly from a maritime vessel to a rail car and vice versa.

What did your members identify as the greatest barriers to improved rail access at ports?

John Young:
Sixty-seven percent of our members report that funding and financing options are significant barriers to improved rail access.

Nossaman:
We understand that ports are eligible for the U.S. DOT’s INFRA grant program (the rebranded “FASTLANE” program).  We noted the recent funding announcement awarding a $25.5 million grant to the Philadelphia Regional Port Authority to improve the Packer Avenue Marine Terminal.

What other federal funding tools are available to ports for land-side infrastructure improvements?

John Young:
Ports may utilize BUILD grants for landside infrastructure projects and in some cases TIGER in the past has been used for berth dredging projects.  In April of this year, U.S. DOT issued a Notice of Funding Opportunity making eligible $1.5 billion in grant funding.  The deadline to submit an application for a FY 2018 BUILD grant is July 19, 2018.

The BUILD program is this Administration’s rebranding of the TIGER grant program.  In 2018, port-related infrastructure projects received $72.7 million in Transportation Investment Generating Economic Recovery (“TIGER”) grants.

Ports also may apply for grant funding under the Consolidated Rail Infrastructure and Safety Improvements Program (“CRISI”).  In 2017, Congress authorized $65 million for a variety projects including highway-rail grade crossing improvement projects and projects to enhance multimodal connections.   Ports that are public agencies or a publicly chartered authority are eligible for CRISI funding.  CRISI applications are due June 21, 2018.  We are also working with Congress on revamping the Maritime Administration’s (“MARAD”) Strong Ports grant program.  We intend to make it more user friendly and to focus on small multimodal projects that connect both the landside and waterside networks more seamlessly to ports.  We believe this will better augment the current Marine Highway Program and the FAST ACT freight programs as well as BUILD and CRISI on enhancing connectivity to the marine network.

Another federal program that impacts port landside infrastructure is the Port Security Grant Program (“PSGP”).  Under the PSGP program, Ports can access federal funds to implement security measures that protect critical port infrastructure.  We will be releasing a report on the PSGP in the coming month.  Increasingly, when we talk about infrastructure investment we are also talking about supply chain security.  As our freight network is built out and the supply chain becomes more integrated with the infrastructure we must make the investments to secure it. Ports are the logical place to start.  Right now the federal government invests $100 million in the PSGP to protect 26% of the GDP that moves through our nation’s ports.  That’s a good deal right now, but the new report will illustrate that security challenges don’t stop, but evolve.

Nossaman:
Did your members identify any infrastructure barriers to rail access?

John Young:
Yes, 37% of respondents identified at-grade rail crossings and clearance restrictions (overpasses and tunnels) as major barriers to rail access.

42% of respondents cited grade separation and 23% cited overpass/tunnel heightening as pressing rail project needs.  Grade separation is important because it allows trains to cross over roads or other railroad tracks to eliminate congestion caused by blocked crossings and raising the heights of overpasses and tunnels allows taller trains so that carriers may double stack containers allowing for the more efficient movement of goods.

Nossaman:
What are the large infrastructure projects that survey respondents identified to improve rail access?

John Young:
On-dock rail facilities are the big ticket projects.  They allow containers to be hauled directly to and from docks, eliminating truck drayage.  Forty seven percent of respondents identified on-dock facilities as a pressing infrastructure need.

Nossaman:
How would much would on-dock facilities, eliminating grade crossings, and raising the heights of overpasses and tunnels improve throughput capacity at ports?

John Young:
Forty-three percent of our members report that improving rail access would contribute to over 25% more throughput capacity.  Other members with smaller projects report good, although lower throughput gains.

Nossaman:
Well, we want to thank John again for participating in this Q/A.

LexBlog