Focus on the financing of US transport projects in 2013

1. 36 infrastructure investor april 2013
u s t r a n s p o r t
These are heady days for US transport
finance.Afteraterrible2011wherejusttwo
privately financed transport deals closed,
2012markedareturntosomekindofform,
with five deals worth a combined $3.4 bil-
lion closing a total of $2.6 billion in bank
debt, bonds and government loans.
This year has picked up where
2012 left off. After the closing of the
US Route 460 Corridor Improvements
public-private partnership (PPP) in late
December with the issue of $293 mil-
lion in Private Activity Bonds (PABs),
2013 began with Puerto Rico’s privatisa-
tion of Luis Munoz Marin International
Airport at the end of February.
Sponsor Aerostar Airport Holdings
paid $615 million to secure a 40-year con-
cession of the airport and has committed
to $1.4 billion of capital improvements to
the airport over the life of the concession.
Aerostar secured $410 million in debt
tofinancetheconcessionandinitialcapital
works. A $350 million commercial bond
was priced at the end of February with a
coupon of 5.75 percent and rated Baa3
by Moodys. The amortising bond, with
a 22-year tenor, was expected to close as
Infrastructure Investor went to press. The
remaining debt came in the form of two
commercialbankdebttranches:a$50mil-
lion three-year capital expenditure facility
anda$10millionrevolvingcreditfacility,all
providedbyUBSandRBCCapitalMarkets
(alsojointbookrunnersonthebond)and
the First Bank of Puerto Rico.
And next…
Hot on the heels of Luis Munoz comes
the East End Crossing P3. The project
represents the state of Indiana’s side of
the $2 billion Ohio River Bridges mega-
project (Kentucky is building its $950
million bridge in the project with public
funds), and will connect KY 841/I-265
(Gene Snyder Freeway) in north-eastern
JeffersonCounty,Kentucky,toSR265(Lee
HamiltonHighway)insouth-easternClark
County, Indiana.
The $1.3 billion East End Crossing is
beingfinancedonanavailabilitypayment
basis,withthebulkofits$860millioncapi-
tal cost being funded by a PAB launched
on March 11 that is targeted to haul in
$641.5 million before the end of the first
quarter, though it may achieve as much as
$677 million. The bonds are being issued
by the Indiana Finance Authority (IFA)
in two tranches – a $445.4 million, 30-year
series A issue and a $196 million short-
term, series B offering. The IFA will pass
the funds raised to project sponsor WVB
East End Partners, a consortium of Walsh
Investors,VinciConcessionsandBilfinger
Berger International Holding. WVB and
theIndianaDepartmentofTransportation
(InDOT)willcontributeequitytocoverthe
remainder of the capital costs.
Mayer Brown partner George Miller,
whose team is representing WVB on the
transaction, says the remaining funds that
will give the project its anticipated $1.3
billion price tag come from additional
payments made by InDOT during con-
struction.
“In addition to the PABs there will be
milestonelumpsumpaymentsmadebythe
authorityduringconstruction,”saysMiller.
“This is in addition to the availability
payments once in operation. A portion of
these milestone payments will be used for
construction, and a portion will be used
to pay the PAB.”
TheEastEndCrossingandLuisMunoz
Airporthaveacombineddealvalueof$1.7
billion–morethanhalfof2012’stotaldeal
value-andhaveraiseddebtof$1.1billion,
With two major transport deals closing in the first quarter, the US market
has started 2013 with a bang. However, a limited project pipeline means
this year is unlikely to be the one that heralds a long-awaited boom in US
transport deals. John McKenna reports
sector focus
Quick off the mark
East End Crossing

2. 37april 2013 infrastructure investor
Sector report
compared with last year’s $2.5 billion from
five deals.
PAB reliance
Two of the last three deals in the US – East
End Crossing and Route 460 Corridor
Improvements – have relied entirely on
PABs for their funding solutions. Miller
describes these tax-exempt instruments,
available for highway and surface freight
projects,as“thefinancingofchoice”inthe
US market at the moment.
However,lookingforwarditisunlikely
thatmanyprojectswillcontinuetofinance
on a PAB-only basis. It is more likely that
they will, like Virginia’s I-95 High Occu-
pancy Toll (HOT) lanes P3 last year, turn
to a mixture of PABs and Transportation
InfrastructureFinanceandInnovationAct
(TIFIA)loans.Theselong-term,lowinterest
governmentloanshaveuntilrecentlybeen
restricted by an annual limit of just $122
million per year and to cover a maximum
of one-third of total project costs.
This all changed last summer when
President Barack Obama signed into law
the Moving Ahead for Progress in the 21st
Century Act (MAP 21). MAP 21 included
measures to increase both the level of
TIFIA loans available and the proportion
of a project that they could fund. For 2013
there are $750 million of TIFIA loans avail-
able, and next year there will be $1 billion
available. These loans will now be able to
finance 49 percent of project costs.
“There will be projects going forward
that have most of their financing coming
from TIFIA,” says Allen & Overy partner
Kent Rowey, whose firm advised both the
VirginiaDepartmentofTransportationon
theRoute460CorridorImprovementsand
the banks on the Luis Munoz deal.
His firm is also working on what could
potentially be another of 2013’s major
transport deals, the $1 billion-plus New
York Goethals Bridge Replacement. Allen
& Overy is representing Port Authority of
New York and New Jersey on the project,
and Rowey says he expects a large amount
of financing for the scheme to come via
TIFIA.
“Goethalsisanavailabilitypaymentdeal,
and will probably be highly leveraged at [a
debt:equity ratio of] around 90:10,” says
Rowey.
“It remains to be seen whether the
remainder of the finance will be through
PABs or a bank consortium.”
Tough for the banks
Ifthereisbankdebt,itisunlikelytoplayasig-
nificant role. Both Rowey and Miller agree
that with the long-term nature of TIFIA
loans–whichcanextendupto40years-and
PABs,thebankmarketisunabletocompete
ontenor(exceptasbridgefinance),evenif
it can occasionally compete on price.
“If there’s an allocation for PABs and
TIFIA, you’re always going to take it, which
tends to crowd out the bank market,” says
Rowey.
It is not only the bank market that is
crowded out of investing in US transport,
says J.P. Morgan Asset Management infra-
structure debt portfolio manager Bob
Dewing.
“Ourdebtfunddoesn’thaveasingleUS
asset at the moment,” says Dewing.
“The risk-return characteristics of Euro-
pean assets are far more attractive than the
US.TIFIAisafantasticprogramme,butthey
lend at very low rates and commercial lend-
ers are never going to compete.”
Looking forwards, in addition to Goe-
thals there are a number of deals that have
applied for TIFIA loans that may close in
2013. These include:
• the$545millionI-77HOTLanesproject
in North Carolina
• the $611 million Mid-Currituck Bridge
in North Carolina
• the$960millionprojecttoconstructthe
Northwest Corridor in Georgia
Meanwhile, Florida in March issued
Requests for Qualification (RFQs) for its
Interstate-4 “Ultimate Project”, a 40-year
deal that will be the largest P3 in the state’s
history, topping the $1.5 billion P3 for the
I-595corridorimprovementprojectin2008.
TheremayalsobemovementonNewYork’s
$3.6 billion La Guardia Airport expansion
and Alaska’s $1 billion Knik Arm crossing,
althoughthesedealsaren’texpectedtoclose
this year.
Mixed feelings
While2013maywellbeasgood,ifnotbetter
intermsofdealsdone,thanlastyear,Rowey,
Miller and Dewing all have mixed feelings
about the state of US transport finance.
Miller describes the market as “on the
upswing”,whileDewingclaimsheisn’tthat
excited about the coming year, expecting
bureaucratic delays to hamper some key
projects.
Rowey says: “Every year we are seeing
more and more transactions coming to
market. Ohio [East End Crossing], Goe-
thals, and Luis Munoz are all big transac-
tions for 2013. This creates momentum
and shows P3 to be a viable method for
transportation projects and encourages
others to go the same route.
“The market is still nowhere near to its
full potential. The need for new roads and
bridges is in the multi-trillions in the US, so
three deals, while big in relative terms, is
only scratching the surface of what could
be done.” n
Miller: representing WVB