TRANSACTION ADVISORY SERVICES

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TRANSACTION ADVISORY SERVICES
PPP ADVISORY
Restoration 2006
New options for financing infrastructure
Alistair SAWERS, Head of Transport, US PPP
Advisory
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Overview

• Sources of Private Finance
• Debt Finance
• Depth of Taxable Market
• Taxable v Tax Exempt
• Equity
• Investor Market
• for Profit
• Conclusion

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Sources of Private Finance

• Public Finance (Muni) Market
• State/Municipal
• Not-for-Profits - Section 63-20, 501c3
• Private Activity Bonds
• Project Finance Market
• Project Finance Bank Loans (mainly non-US banks)
• Taxable Project Bonds
• Wrapped (credit insured) bonds or bank loans
• Equity Investors

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Debt Finance

• Many New Alternatives

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Market Depth
Americas
Global

• Chicago Skyway (1.8bn)
• Indiana Turnpike (3.8bn)
• Pocohontas Parkway (611m)
• RAV Express (600m)
• Sea to Sky Highway (400m)
• Aquarion (860m)

• French Toll Road Companies
• APRR (9bn)
• SANEF (5bn)
• ASF (10bn)
• Brisbane N-S Tunnel (1.5bn)
• Ionia Odios Motorway (1.8bn)
• Corinth Motorways (1.2bn)
• BARTS Hospital, UK (1.8bn)
• Allenby Connaught, UK (2.7bn)

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Issues
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Cheaper Taxable Debt?

• Mistake to compare simply the interest cost
• Where appropriate long concessions transfer tax
  ownership
• Accelerated or GO Zone Bonus Depreciation
• Allowable interest, development costs, OM Costs
• Terms offered are important
• Reserve and/or bonding requirements
• Lower Ratio targets
• Gearing maximums
• Rating specific to project and no influence from
  State rating
• Active funders
• Relationship with construction company/operator
• Independent engineer active funders
  agent/trustee
• Have support from Commercial Equity
• Funders can rely on active equity solving
  problems
• Equity investors involved in management of project

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Equity

• Key benefit to Partnership

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Infrastructure Investor Market

• Engineering companies
• Construction managers Aecom, Fluor, Granite,
  Kiewit, WGI, Zachry
• International Companies Skanska, Ferrovial,
  FCC, Dragados, Bouygues, Bilfinger, Balfour
  Beatty, Vinci
• Operators
• Global concession operators Cintra, Vivendi,
  Egis, Transurban, Abertis, Aquarion, OMI, US
  Filter
• Financial investors
• Private Equity Carlisle, GE Capital, Poseidon,
  Goldmans
• Global Infrastructure funds Macquarie, ABN,
  Deutsche Bank
• Money from Pension Funds and Insurers

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for Profit?

• US PPPs funded by 20-30 equity, 80-70 Debt
• Alignment of interests incentives
• Early construction completion
• Minimize whole-life cost of asset
• Design, manage and invest to maximize revenue
• Can negotiate with funders if have problems
• Can be incentivized to meet objectives through
  concession
• Equity is expensive, however
• Infrastructure investors are Patient equity
• Seeking Utility style constant returns of 12-15
  IRR rather than private equity style 20-22
• Equity can replace/mitigate bonding requirements

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Conclusion

• Risk Transfer v Cost of funds

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Risk Transfer v Cost of Funds

• Equity takes more risk at a price!
• Is that risk sharing value for money?
• Different debt markets price/view the same risk
  differently
• Choose best source of funds for your project
• Not just about headline cost but also
  restrictions imposed
• Affordability constraint - revenue sources are
  the same for all
• User fees/ Rents/ Tolls
• Availability Payment / Grants / Shadow Tolls
  from
• Gas Tax / Property Tax
• Other State Taxation
• Federal Grants
• Tax exemptions (on bonds or tax depreciation on
  asset)

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Broadland Flood Alleviation PFI

• The Project
• 250m 20 yr contract involves strengthening and
  erosion protection of gt 150 miles of flood banks
• Protects around 1,700 properties and 21,300ha of
  land much with National Park status
• Roles includes maintenance, emergency response,
  design, implementation monitoring
• Service contract incorporating profit share and
  risk transfer

• The Objectives
• Ensure coordinated region-wide approach
• Incentivize
• Improvements must
• Cost-effective
• Sustainable
• Meet environmental standards for a Park
• Not cause weaknesses elsewhere in the system

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Pevensey Bay Flood Defense PFI

• The Project
• 60m 25yr project to rebuild and maintain flood
  defenses
• 6 miles of shingle beach protecting 3000
  properties and 20 sq miles in Sussex, UK
• Funded by shareholder equity

• The Objectives
• Ensure no flooding occurs
• Incentivize innovation and investment
• Improvements
• Must be sufficient to protect against a once in
  400yr Storm surge
• Standards adjusted for global rise in sea level

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Sea to Sky Highway Rehabilitation

• The Project
• DBFO concession
• Covering 60 miles of Highway 99 from Horseshoe
  Bay to Whistler
• Capital improvements to approximately 2/3 of the
  road
• Long-term maintenance and rehabilitation element

• The Objectives
• Improve safety and reliability
• Accommodate traffic growth
• Catalyst provided by 2010 Olympics
• Improvements must
• Meet 2010 Olympics needs
• Meet long term demands
• Be affordable

Whistler
Cheakamus Canyon
Culliton Creek