Toll Road Update
Recent developments in the toll road industry are summarized below. These developments are based on our February 2008 research.
In the United States
- Pennsylvania Turnpike v. Tolling I-80: Solutions to Pennsylvania’s need for highway and bridge funding continues to generate controversy, though the current political climate seems to be leaning toward State approval of a PPP for the concession of the Pennsylvania Turnpike I-76 (the “Turnpike”). Governor Rendell continues to support the privatization of the Turnpike, which would require further enabling legislation, and has announced that he is working with the State Senate and others to determine an adequate solution to Pennsylvania’s urgent transportation needs. Currently distinct from Governor Rendell’s plans, State Senator John Gordner introduced Bill SB1280 earlier this month to eliminate the Pennsylvania Turnpike Commission (“PTC”) and privatize the Turnpike in three separate sections under a 50-year lease, which included a restriction on foreign ownership of the concessionaire. Gordner’s bill proposes substantially similar financial terms as those set forth in Act 44 (passed by the Pennsylvania legislature in July 2007, establishing an inflation sensitive, long-term funding stream to address Pennsylvania’s transportation funding crisis), as it includes a 25% initial toll increase in 2009 with 3% annual increases thereafter. The bill would, however, repeal Act 44 in full, including its authorization of tolling of I-80). Though the Governor has not announced support for this bill, he has spoken of certain elements of it favorably and has not commented on foreign ownership of the Turnpike, stating that his main interest is in finding the company that can provide the best value and expertise. The outcome of the legislation is still uncertain, as at least one more bill concerning Turnpike privatization is expected to be introduced this month by State Senate President Pro Tempore Joseph Scarnati.
By way of background, in September 2007, the Pennsylvania Department of Transportation (“PennDOT”) released an RFQ to solicit potential bidders for a concession to operate 531 miles of the Turnpike. Potential bidders were required to respond by October 1, 2007 by providing the requested information to PennDOT for review with its financial advisor, Morgan Stanley, who estimated the potential value of the project to be $12 to $18 billion. The competing transportation solution is a partnership between PennDOT and the PTC to generate up to $116 billion for Pennsylvania highway and bridge funding over the next 50 years under a long-term lease for the 311-mile portion of I-80 that runs through Pennsylvania. This partnership, through which PTC would maintain and collect tolls on I-80 and make lease payments to PennDOT for a 50-year term, is authorized by Pennsylvania’s Act 44, but needs approval from the Federal Highway Administration (“FHWA”) to convert I-80 into a toll road.
The I-80 plan, however, shows little hope of being approved by the FHWA, since the Federal law under which approval is being sought requires the tolls collected to be used solely to run and improve the tolled road, and the Citigroup study backing the I-80 plan (which has not been released to the public in full) describes a large surplus in annual toll revenues that the I-80 plan intends to use for highway improvements throughout the State.
- National Surface Transportation Report: The National Surface Transportation Infrastructure Financing Commission, a federal commission charged with analyzing future highway and transit needs and making recommendations for improving transportation infrastructure, released an interim report this month, responding to the physical and financial crisis involving U.S. transportation infrastructure. The commission observed that, throughout the U.S
Its main finding is that we need significantly more money to combat our transportation crisis, and that reliance on a federal fuel tax is not a sustainable long term strategic solution. The commission strongly encourages feedback and comment on its interim report for evaluating various financing options and future transportation solutions. It expects a final report to be released toward the end of 2008. The full report is available at http://financecommission.dot.gov/ and further related information is available at http://financecommission.dot.gov/. Comments on the report can be sent to the Commission Staff Director, Jack Wells, at
- transportation system demands are outpacing required investment,
- maintenance costs are competing with necessary expansion of the system,
- the fuel tax (the key funding source for transportation improvements) is no longer sufficient at current rates,
- more direct user charges should be explored, and
- we need more (and more intelligent) investment in, as well as better operation of, the U.S. transportation system.
- Jacksonville’s Outer Beltway RFQ Deadline Approaching: FDOT released a RFQ on December 3, 2007 (with Addenda released on January 16, 2008 and February 6, 2008) and a related Project Information Memorandum on December 13, 2007 for the approximately $1.8 billion First Coast Outer Beltway project, and requested submissions of statements of qualifications from proposers by March 5, 2008. The project is envisioned as a new four-lane limited access toll facility with approximately 13 interchanges, involving the St. Johns River Crossing segment in St. Johns and Clay Counties and the Branan Field-Chaffee Road segment in Clay and Duval Counties. The project also includes a major bridge structure across the St. Johns River for a total length of approximately 46.5 miles. The project envisions the partial removal of the existing two-lane Shands Bridge across the St. Johns River. FDOT plans to move the project forward on a DBFOM basis, pursuant to Section 334.30 of the Florida Statutes, and intends for the concession term to be more than 35 years. FDOT is considering private activity bonds, tax exempt debt, and/or TIFIA loans for the financing of the project. Consideration will be based on additional regulatory constraints and capital or operating costs, if any. FDOT currently intends to shortlist three (with an option for four) proposers. FDOT noted that a stipend of $1 million will be paid to short-listed proposers who submit unsuccessful detailed proposals. FDOT’s District 2 is running the project and has nominated Infrastructure Management Group as its financial advisor. Further information, including a copy of the RFQ, can be found at http://www.fdotfirstcoastouterbeltway.com/index.asp.
The Jacksonville RFQ follows the procurement currently underway for the approximately $1.5 billion I-595 Corridor Roadway Improvements Project. This project consists of the reconstruction, widening and resurfacing of the I-595 mainline (and all associated improvements to adjacent cross-roads, service roads and ramps) in central Broward County, Florida, from the I-75/Sawgrass Expressway interchange to the I-595/I-95 interchange, for a total project length of approximately 10.5 miles. FDOT expects to name a best value proposer in July 2008. Construction is expected to begin in 2009 and be completed in 2014.
- Port of Miami Tunnel Contract Awarded: FDOT has awarded the 35-year DBFMO concession contract for the Port of Miami Tunnel to the Miami Access Tunnel team of Babcock & Brown, Bouygues, and Transfield Services. The team submitted the lowest availability payment for the concession at approximately $33 million. FDOT subsequently issued a Notice of Intent to Award and the award had been awaiting an agreement among FDOT, Miami-Dade County and the City of Miami, after facing a delay when the City of Miami failed to approve funding in July 2007. This recent contract award announcement follows the approval of $50 million in funding contributions by the City of Miami and the establishment of an expanded Community Redevelopment Area agreement with Miami-Dade County in December 2007. The project will consist of building two 0.75-mile long tunnels connecting Watson Island to the port, allowing east-west travel and relieving the area of heavy truck and bus traffic.
- Miami Truck Tollway Proposed: P3Americas.com recently reported that a preliminary toll financing feasibility study by the Reason Foundation indicates a need for additional road capacity for trucking in the Miami port area and high-speed access from the planned Port of Miami Tunnel to Florida’s east coast. These findings have influenced a potential $1 billion truck-only roadway project that would be built along the existing roadway. The study reports that tolls on the new road could support 54-58% of the project costs over a 40-year period. With strapped public resources for a financing of this scale and risk, this potential project appears to be a good candidate for a possible PPP concession.
- New Jersey Asset Monetization Plan: Governor Jon Corzine announced a plan in his January 8, 2008 “State of the State” speech for the monetization of the State’s toll roads, the substance of which was released in a draft bill on February 4, 2008. The monetization plan focuses on the creation of a new State Public Benefit Corporation (“PBC”) to manage certain toll road operations under a concession agreement with the State. According to Corzine, this plan will pay down half of the State’s $32 billion debt and fund highway and bridge improvements “for a generation” and raise $37.6 billion over the life of the concession. His plan includes the issuance of bonds collateralized by future toll revenue to generate an initial giant cash infusion to the State, which debt would be serviced by maximum toll increases of 50% every four years from 2010 to 2022 (and by the cost of inflation thereafter) on the Garden State Parkway, New Jersey Turnpike and Atlantic City Expressway. These roads would be transferred to a newly-created Capital Solutions Corporation (“CSC”), that would then have legal authority to grant a long-term toll concession of the roads to the PBC. New Jersey Republican legislative leaders, however, have challenged the Governor’s plan, asserting that transferring assets to the CSC violates the New Jersey Constitution. Such legislators specifically point to Article IV of the New Jersey Constitution, prohibiting the granting of any privilege to any corporation or association. Of Corzine’s plan, assembly leader Alex DeCroce states, “We already know that this plan is not fiscally prudent, but now it appears the Governor’s proposal is not even constitutional. If that is the case, it would be the final blow to this already troubled proposal.” Though Corzine’s plan has yet to be adopted and faces considerable opposition, the Governor has made it quite clear over the last few months that he does not intend any PPPs in New Jersey’s future.
- Colorado Northwest Parkway Financing Closes: On December 21, 2007, Northwest Parkway LLC (“NWP”), a limited liability company indirectly owned 90% by Brisa Auto-Estradas de Portugal, S.A. (“Brisa”) and 10% by CCR, closed its term financing with the Royal Bank of Scotland (“RBS”), which acted as the sole underwriter. BNP Paribas, Caja Madrid and Caixa Geral de Depositos later joined as sub-underwriters. The term financing replaced a bridge loan facility that closed on November 21, 2007, which was also provided by RBS, at the time of the closing of the Concession Agreement. The term financing is comprised of a $249 million term loan facility, a $150 million liquidity facility and a guaranteed $60 million facility. The term financing facilities were rated BBB- by Standard & Poors and Baa3 by Moody’s. Chadbourne & Parke LLP served as legal counsel to NWP. The transaction has recently been named “North American Transport Deal of the Year 2007” by Project Finance Magazine.
The Concession and Lease Agreement became effective on November 21, 2007, at which time NWP paid to the Northwest Parkway Public Highway Authority a payment in the amount of $503 million. NWP also deposited $40 million in escrow, to be released upon the satisfaction of certain conditions related to the extension of the Northwest Parkway, and also agreed to pay an additional $60 million with respect to such extension upon the satisfaction of additional conditions.
- Virginia Beltway HOT Lanes reaches Financial Close: Representing the largest private equity investment in a greenfield toll road PPP in the U.S. to date, the Virginia Department of Transportation (“VDOT”), Transurban DRIVe and Fluor Enterprises, achieved financial close in December for the DBFOM concession for new Capital Beltway High Occupancy Toll (“HOT”) lanes. The transaction, a collaboration under which the Commonwealth will provide $409 million (24%) of the total project cost of $1.524 billion, includes a financial structure that allows the concessionaire to leverage its investment through tax-exempt debt and forecasts an equity IRR of 13%. Two lanes will be added to either side of the existing four lanes that comprise I-495 between Georgetown Pike and Springfield, and the four middle lanes will be converted to HOT lanes, which will be free for buses, carpools of three or more people and emergency vehicles. Construction is expected to begin in Spring 2008 and the lanes are expected to open in 2013.
- Viginia Midway Tunnel to Release RFQ: P3Americas.com reports that VDOT will release a Solicitation for Conceptual Proposals for its Midtown Tunnel Corridor Project available for download on its website on February 22, 2008 and will be posted for 120 days. The project covers construction of a new Midtown Tunnel under the Elizabeth River running parallel to the existing one, an extension of the MLK Freeway with a new interchange, and improvements to the existing midtown and downtown tunnels.
- PPP Coalition Launched: America Moving Forward: Recently, America Moving Forward, a nonprofit coalition in support of PPPs in transportation infrastructure, was unveiled. This exciting program plans a nationwide education and advocacy campaign for the advancement of PPPs throughout the country. It’s no secret that some states considering PPPs have faced considerable public criticism, in many instances due to lack of knowledge about the PPP process. PPPs are increasingly being considered as a practical, innovative solution to the country’s growing infrastructure crisis. It is estimated that it will cost more than $185 billion to maintain the country’s roads over the next five years and the National Highway Trust Fund currently holds less than 7% of that amount. In response, more and more states are pushing for PPP legislation and federal support is growing as well. Transportation Secretary Mary Peters praised various state-led PPP efforts in November 2007, including Puerto Rico’s recent goal of finalizing agreements to privatize two highways by September 2008. For more information on the coalition, visit www.americamovingforward.org.
Outside the United States
- Mexico Announces FARAC I:Following the success of FARAC I, the Mexican ministry of transport announced on February 7, 2008 the launch of the second package of highways (FARAC II) for private-sector auction from a bundle of 43 roads it has held in trust since 1994. This auction will involve the re-concession of three existing roads (San José del Cabo-Los Cabos International Airport, Culiacán-Mazatlán, and Guadalajara-Tepic) for a 30-year concession. The successful concessionaire will be required to construct an additional 8 connecting roads for a total of 400km. The assets are estimated to raise up to $2.5 billion and, though the RFP has not yet been issued, bidders are preparing for a proposal deadline of August or September 2008.
- Costa Rican PPP reaches Financial Close: Concessionaire Autopistas del Sol, owned by Itinere (Sacyr), Global Vía Infraestructuras, Soares da Costa and M&S DI-MS Desarrollos Internacionales, achieved financial close in December 2007 for the 25-year, $330 million toll road concession for highways totaling 76.8 km. The project is divided into three separate sections: San José to Ciudad Colón; Ciudad Colón to Orotina; and Orotina to Caldera, and will handle around 40% of the country’s highway trade volume. The transaction includes a financial structure that includes a 17.5-year minimum revenue guarantee from the Costa Rican government. Construction is expected to begin this month.
- Brazil Federal Road Concession Contracts Signed: Following Brazil’s federal government auction of seven highway stretches, totaling roughly 2,600 kilometers in length, to private concessionaires for a period of 25 years in October 2007, it was reported that Brazil’s transport agency has signed six of the seven contracts earlier this month. All five of the concession contracts awarded to Spain’s OHL have been signed, and OHL has secured a $200 million bridging facility from Deutsche Bank and Banco Espirito Santo. The other concession contract signed was for highway BR-153, awarded to BRVias, leaving the BR-393 in Rio de Janeiro, awarded to an Acciona-led consortium, as the last outstanding contract due to a legal contest of the award.