The Future: What s in Store for the Next Generation?

Transcription

1 The Future: What s in Store for the Next Generation? 3 rd Annual Texas Transportation Forum Adam Nicolopoulos ADN Capital Ventures, Inc. April 20 22, 2008

2 The Future - Financial Innovation? Where and How? POSSIBLE STRUCTURES Non-for-profit enterprise Availability Payment Shadow Tolls Hybrid Revenue Structures Public/Private Sponsored Cos Leasing or Tax-Structures Pension Fund Structures When to stay away from the 100% revenue based structures DRIVERS (sample) POLITICS / POLICY Needs or Crisis AFFORDABILITY Law & Regulation Viability Technical Challenges Environmental Issues Land & Permits MARKET Risk Alignment 1

3 A typical PPP/concession cashflow analysis Sample Millions of Euros nominal (200) (400) (600) (800) year of concession Opex Senior debt interest & fees Dividends Equity subscribed Total Revenues Capex Senior debt repayment Tax Debt drawdown In structuring a project financing, sponsors will seek to optimize their capital structure and: Take lifecycle approach to costs Offer BEST VALUE for MONEY Maximize leverage / optimize capital structure Continuous review and monitoring for a project s performance Funders simply want to ensure repayment of their debt 2

4 Different models for funding infrastructure Public Finance Model PPP / Concession Management Rating AA-BBB Mostly BBB Debt 100% 70-90% Equity None or possibly development cost/investment 10-30% optional capital structure IRR/dividends None Target [10% 20%] Taxation None Limited tax holiday(s) Depreciation None Yes depends on asset base Cost of Debt 4.5% 5.5% 5.5% 7.5% Control of Tolls / User Fees State/Public Enterprise Private Sector / Joint 3

5 Governments and corporations have often different objectives in financing infrastructure projects Government objectives Social and political justification Third party funding Value for money Balanced transfer of risk Compliance with legislation POLITICS? Private sector Corporate objectives Debt financiers and investors objectives Economic justification Financeable project debt repayment Commercial contracts (O&M; Construction; Design) Manageable risk Attractive return appropriate equity IRR Manageable risk profile Revenue model Government support Defined regulation (risks) Competition Security arrangements 4

6 Governments and corporations have often different objectives in financing infrastructure projects Social and political justification Third party funding Government objectives Value for money Balanced transfer of risk Compliance with legislation Off balance sheet treatment Economic justification Private sector Corporate objectives Debt financiers and investors objectives Financeable project debt repayment Commercial contracts (O&M; Construction; Design) Manageable risk Attractive return appropriate equity IRR Manageable risk profile Revenue model Government support Defined regulation (risks) Competition and Win - Win Security arrangements that need to be reconciled to ensure the project s success 5

7 A typical PPP/concession cashflow structure Illustrative 800 What if Project B type? Millions of Euros nominal (200) year of concession (400) (600) (800) Opex Senior debt interest & fees Dividends Equity subscribed Total Revenues Capex Senior debt repayment Tax Debt drawdown In structuring a project financing, sponsors will seek to optimize their capital structure and: Take lifecycle approach to costs Offer BEST VALUE for MONEY Maximize leverage / optimize capital structure Continuous review and monitoring for a project s performance Funders simply want to ensure repayment of their debt 6

8 Financial & Commercial Innovation via Optimal Alignment of Risks Public Private Shared Structural/Comments Key Key Key Design Depends Joint effort / timing of design Construction No Fixed price contract facilitates cost overrun Operation No Penalties against substandard performance Maintenance No Maintenance reserve / Equity returns post-funding of maintenance service Land No DOT s job / Public sector Permits Yes Construction permits are the responsibility of the Contractor Key Revenue/ Traffic? Key risk - Depends Key finance driver / Project viability / thorough analysis of traffic and revenue risk Finance? Depends Project type / Capital structure / reserves / viability 7

9 Financial Support Alternatives Financial Support: Considerations: Government grant Government funding as loan Subsidy make whole Minimum revenue guarantees Financial guarantees No risk sharing Depends on performance by operator & manager Uncertainty (level of exposure) Unfavorable risk transfer? Requires complex arrangements and risk transfer CFAS LTD 8

10 Potential Funding Solution: Hybrid Revenue Mechanism => Financial Equilibrium Opex + Forecasted FAREBOX/ USER revenue + (1) Establish the operating cashflow shortfall & makewhole the funders Liquidity Debt service + Equity return? Costs = Revenues Financial contribution 1 debt service reserve (DSR) + DSR amount? Hybrid revenue mechanism alternative hybrid farebox & availability payment + DSR replenishment Intra-year cash flow shortfall is covered by the DSR 9

11 Project X - Case Study: Revenues and expenses breakdown 100,000 90,000 80,000 70,000 ( 000's) 60,000 50,000 40,000 30,000 20,000 10, Blue Financial line O&M contribution + Debt + RoE + tax Ucka tunnel revenues Mirna bridge revenues Other income Solid Blue subsidy FC revenue adjustment O&M, LCC and t ax Green Debt + Gold service user + revenues O&M, LCC and tax 10

12 Slide 11 JL3 This came in as a picture - no embedded excel - OKd by author John Lipman, 5/24/2006

13 Greenfield Project Stages Phases Development Construction Ramp-up Operation Project s performance & costs Primary financing Equity 20% - 40% Debt / Bond 60% - 80% Refinancing Equity 10% 15% Debt / bond 85% 90% or Hand back to government Risk to investor Years / term of concession 11

14 Is this where we want to be? (1) (1) Georgia Department of Transportation 12

15 ACCEPT THE LIMITATIONS & CHALLENGES OF TODAY S TRANSPORT MODES OR START BUILDING TOMORROW S TRANSPORT SYSTEM 13

16 THE END A leader takes people where they want to go. A great leader takes people where they don't necessarily want to go, but ought to be. ROSALYNN CARTER Change is the law of life. And those who look only to the past or present are certain to miss the future JOHN F. KENNEDY 14