“It was the best of times, it was the worst of times…” Dickens could have been describing 2009, as the P3 market continued to look strong, notwithstanding the economic downturn. Last year three significant P3 deals reached financial close in the United States: in March the I-595 in Florida, in October the Port of Miami Tunnel also in Florida, and mid-December the North Tarrant Express in Texas. All were remarkable in their own right, and cumulatively earned Nossaman the top spot in Infrastructure Journal’s league tables in the North American Transport P3 legal advisor category.
We take a look back at what made the deals remarkable and what 2010 might bring…
I-595 The $1.8 billion I-595 Corridor Roadway Improvements Project was the nation’s first transportation concession to use an availability payment structure. The successful deal closing is remarkable because the private equity markets for U.S. projects had been essentially frozen for most of 2008. As the first PPP infrastructure deal to reach financial close in almost a year, the transaction signaled to the credit markets that infrastructure is still considered a strong asset class. This P3 was the first to use availability payments in a concession in the United States and allows Florida to complete a major transportation infrastructure project that would have been otherwise impossible given the dearth of public funds available. On the finance side, the flexibility of the parties to respond to change with a “can-do” attitude allowed the sponsor, ACS Infrastructure Development, to shift from its planned bond financing structure to a bank financing structure just weeks before the planned financial close. Without this flexibility, the transaction may well have terminated when it became apparent that the market would not bear such a large offering of alternative minimum tax debt. Similarly, the Florida Department of Transportation showed exceptional foresight to provide some protection from interest rate movements, and a risk-sharing mechanism for credit spread movements, which were key to keeping the transaction on track when volatility in the markets was at its highest levels. The American Road and Transportation Builders’ Association named the project their 2009 Project of the Year.
Port of Miami Tunnel The $900 million Port of Miami Tunnel and Access Improvements Project (POMT), which had been widely expected to be the first availability payment deal, ended up as the second, after the deal survived numerous political obstacles and a near death experience. The POMT contract incorporates several novel risk allocations to accommodate the development of the nation’s largest soft earth bored tunnel. The project is a first in the U.S., a technically challenging transport project, implemented through a P3, without charging tolls to motorists. The original bid price for the project was almost 50% less than the Florida DOT’s own internal estimate, evidence of the considerable value it will bring to the public sector. Although the Port of Miami Tunnel Project actually closed financing after Florida DOT’s I-595 Managed Lanes Project, many of the innovations incorporated into the I-595 financing protocols and its TIFIA loan structure were actually developed for the Port deal. While both financial market and political fluctuations delayed the project (the project was even terminated at one point) the Florida DOT remained flexible. They were able to accommodate Meridiam Infrastructure as the lead contractor’s choice for an equity partner after the original equity players pulled out late in the procurement. As the monoline insurance market disappeared, and PABs financing became untenable, the Florida DOT turned to the TIFIA federal credit assistance program, negotiating a deal-saving loan that sets precedent for what TIFIA can accomplish. In the end the Port of Miami Tunnel Project was delivered at a lower cost than the original bid. Project Finance International named the Port of Miami Tunnel its 2009 Americas P3 Deal of the Year.
North TarrantExpress The $2.02 billion toll concession agreement was financed using a senior bond transaction that was the first tax exempt private activity bond transaction to be sold “unwrapped,” without credit enhancement from an insurer or a bank – a truly remarkable feat in this financial market environment. One of the equity holders is the Dallas Police and Fire Pension Fund – marking the first time such a fund has been a direct equity holder in a transportation infrastructure deal
Nossaman was pleased to have the opportunity to work on all three deals, which represented all of the U.S. deals that reached financial close in 2009.
On the design-build front, both the $1.4 billion Metro Solutions Phase 2 in Houston, Texas and the $1.02 billion Dallas-Fort Worth Connector received notices to proceed.
Looking ahead, 2010 continues to hold promise for the P3 industry. The $2.68 billion IH-635/LBJ project in Texas, which reached commercial close this year will be moving toward financial close. North Carolina’s $640 million Mid-Currituck Bridge and Texas’ $2.68 billion second phase of the North Tarrant Express are both proceeding under pre-development agreements executed this year.
The stimulus funding coupled with new state PPP programs under development in Georgia, California, Nevada and Arizona, as well as a regional program in Los Angeles mean the next few years are likely to see ongoing P3 dealflow.
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