North Carolina, acting through the North Carolina Department of Transportation (NCDOT), reached a major milestone on May 20, 2015 when financial close was achieved on the I-77 Express Lanes Project – the first highway public-private partnership in the state. The project, with a design and construction cost estimated at approximately $591 million, will add 26 miles of tolled, express lanes along the existing I-77 corridor in the Charlotte region. The financing package includes $100 million of private activity bonds and a $189 million TIFIA loan from the U.S. Department of Transportation, all of which are to be repaid by the project’s developer, I-77 Mobility Partners. The developer will also invest approximately $248 million in equity and NCDOT, the project’s owner, will contribute approximately $95 million in public funds directly into the project.
The developer will design, build, toll, operate and maintain the express lanes for 50 years after construction and will assume the risk if toll revenues do not meet projections. The developer is comprised of Cintra Infraestructuras, S.A. and Aberdeen Global Infrastructure Partners II LP, as equity investors, and the design-build contractor is Sugar Creek Construction LLC, a company affiliated with W.C. English Incorporated and Ferrovial Agroman, S.A.
A unique feature of the project is a contractual provision that enhanced the creditworthiness, and facilitated the financing, of the project. Known as the Developer Ratio Adjustment Mechanism (DRAM), this contractual provision afforded contingent protection to lenders if the developer was unable to meet its debt service payment obligations due to insufficient revenues. Under the DRAM, if the projected total debt service ratio for the next forecasted debt service payment fell below a ratio of 1:0:1.0, then NCDOT, subject to certain limitations and conditions, would make payments to the developer for the benefit of the lenders to cover the shortfall. In no event could the DRAM payment exceed $12 million in any year or $75 million in the aggregate. This safety net for lenders, which lasts until final maturity of the TIFIA loan, was a key factor enabling the project to achieve investment grade ratings.
According to NCDOT’s press release, the project will provide immediate and long-term traffic management solutions within three years after the start of construction, avoiding piecemeal improvements to the I-77 corridor that would have taken two decades using traditional funding sources.
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