Perspectives



P3 Focus

As federal, state, and local budgets continue to shrink and the nation’s infrastructure needs escalate, the prospect of integrating private financing into the nation’s infrastructure investments is gaining steam. As such, it is expected that public-private partnerships (P3) will become an increasingly important financing mechanisms for future infrastructure investments throughout the US.

P3 Focus offers a snapshot of the dynamic and rapidly evolving P3 market in the US.1 This issue’s P3 Focus will first look at the US 36 Express Lanes Project in Colorado, then outline the upcoming P3 project pipeline, and finally provide an overview of recently passed and potential upcoming US P3 legislation.2

Deal Flow

Only one P3 deal reached financial close since the last edition of EFR, representing a total value of approximately $120 million.

The US 36 Express Lanes Project (Phase 2) in Denver, Colorado, reached financial close in February 2014. The project includes the construction of an express lane in each direction of the highway for bus rapid transit, high occupancy vehicles, and tolled single-occupancy vehicles, as well as the construction of two new general purpose lanes in each direction and a separate 12-foot multi-use path. The deal, the first P3 to close for the Colorado Department of Transportation, totals approximately $120 million and will be delivered through a 50-year Design-Build-Finance-Operate-Maintain (DBFOM) contract.

Plenary Group leads the consortium, acting as concessionaire for the project, and will provide approximately $20 million in equity to the project. The remaining project costs will be financed through a $60 million TIFIA loan, $20 million issuance of tax-exempt Private Activity Bonds (PABs), and a $20 million private loan to Plenary from Northleaf Capital. The PABs (5.94 percent interest rate) and the TIFIA loan (3.68 percent) were both rated at BBB-minus by Fitch, the lowest possible investment-grade rating.

The US 36 Express Lanes Project represents a departure from recent trends in the P3 market, as the concessionaire is being compensated through toll revenues, rather than availability payments. Generally, private entities have recently favored availability payments rather than accepting the risk associated with compensation via toll revenues.

P3 Pipeline

Since the last edition of EFR, the P3 pipeline has continued to grow with the release of two requests for qualifications (RFQs). In December, the Pennsylvania Department of Transportation released an RFQ for the Pennsylvania Rapid Bridge Replacement project. The project, set to be delivered via an availability payment-based DBFOM contract, will call for the concessionaire to be responsible for a bundle of structurally deficient bridges throughout the state, potentially as many as 200 to 1,000, depending on the level of funding made available by the General Assembly.

Elsewhere, the Michigan Department of Transportation released an RFQ for a freeway lighting P3 in March 2014. The project, anticipated to be procured as a DBFOM, will include upgrades to existing lighting infrastructure on freeways and tunnels in the Detroit Metro Region for 15 years.

A number of other P3 projects in the pipeline also reached important milestones as of late. Both the I-77 HOT Lanes project in North Carolina and the I-4 Ultimate project in Florida announced preferred bidders in April 2014. The Pennsylvania DOT announced a four team shortlist for the Rapid Bridge Replacement P3 project.

Other market activities in April included I-69 Section 5 in Indiana (commercial close), SH 183 Managed Lanes in Texas (bids submitted), and the Accelerated Regional Transportation Improvements (ARTI) project in California (project cancelled).

P3 Legislation

Federal

There have been several developments on federal legislation impacting the P3 market since the last issue of EFR. As mentioned in the December 2013 EFR, Representative John Delaney (D-MD) is working on legislation in the House to establish a $50 billion infrastructure fund capitalized by bond sales to US corporations. In the early part of 2014, Senators Michael Bennett (D-CO) and Roy Blunt (R-MO) have introduced the Senate’s version of the bill. Like the House bill, the Senate version would allow corporations to buy the bonds in exchange for the right to repatriate overseas earnings tax free in order to capitalize the fund.

Elsewhere in the Senate, Senators Mark Kirk (R-IL) and Mark Warner (D-VA) have introduced the Highway Innovation Act of 2014. The bill would increase the number of states that are eligible to participate in the Interstate System Reconstruction and Rehabilitation Pilot Program and the Value Pricing Pilot Program, both of which allow for tolling on sections of interstate highways under certain conditions. The bill has been assigned to the Environment and Public Works (EPW) Committee.

In the House, legislation intended to help job growth introduced by Representative Richard Neal (D-MA) includes certain provisions aimed at spurring private investment in infrastructure. There are four main infrastructure provisions in the bill:

  1. Water and sewer projects would be exempt from the PAB cap.
  2. The Alternative Minimum Tax on PABs would be repealed.
  3. The establishment of a national infrastructure bank, starting with a $10 billion initial investment from the Treasury.
  4. Permanent establishment of the Build America Bonds (BAB) program.

The bill has been referred to relevant House committees.

Another bill removing the PAB cap for water projects was introduced by Representatives Bill Pascrell (D-NJ) and John Duncan (R-TN). The bill would apply to water and wastewater infrastructure projects, and would remove them from the overall PAB volume cap.

Finally, members of the House and Senate are working in conference to develop a water resources bill, after each body passed their own version in 2013. One of the major differences between the two versions of the bill that will need to be reconciled is the establishment of a Water Infrastructure Finance and Innovation Authority (WIFIA) program, a loan program based on the successful TIFIA program that has helped in the financing of numerous transportation P3s. A WIFIA provision was included in the Senate version of the bill, but not the House’s.

Kentucky

The Kentucky Legislature recently approved P3-enacting legislation that would allow for local governments to utilize P3s on a range of project types. However, Governor Steve Beshear vetoed the legislation due to an objection over an amendment that would have prohibited tolling on the $3.5 billion Brent Spence Bridge project. The next legislative session for the state will begin in January 2015.

Alaska

State Senator Lesil McGuire introduced a bill incentivizing private investment in ports, roads, emergency facilities, and telecom projects in the Alaskan arctic. The bill would provide authority to the Alaska Industrial Development and Export Authority to provide loans, bonds, and bond guarantees for those project types.

Source: Atlanta BeltLine

Georgia

Two separate P3 bills were recently passed by the Georgia State Senate and House of Representatives. The Senate passed legislation allowing for the use of P3s in delivering social infrastructure. The legislation allows schools, local governments, state and local authorities, and higher education institutions to engage in P3 agreements. The bill also establishes an 11-person committee to establish P3 guidelines.

In the House, a bill enabling P3s for transit projects passed in March 2014. The bill applies to projects in urban redevelopment areas, and was passed to allow a P3 to be considered for the delivery of the planned Atlanta BeltLine project. The bill has been sent to the Senate Transportation Committee.

Despite the initial progress, both bills failed to advance further during this legislative session. The General Assembly reconvenes in January 2015, and it’s possible that the legislation could be re-introduced at that time.

Conclusion

With another closed deal, deal flow in the US P3 market continues to move at a slow yet steady pace. The P3 pipeline continues to grow as RFQs are released, and the potential is there for the pipeline to grow further as projects in the early planning stages move towards the procurement phases. In addition to the early pipeline, there are several potential deals that could reach financial close in the near future, so look for P3 deal flow to remain steady moving forward.

 

Notes:

    1. Information in this article is taken from vairous P3 news sites
    2. Legilslation presented in this section is not a comprehensive list, and is current as of April 2014. Information is subject to change. 

Image Header Source: Derek Jensen (Creative Commons)