Public Private Partnerships

Transcription

1 Public Private Partnerships Dennis J. Enright Principal

2 The PPP Decision 2 P3 Issues

3 It s Greek to Me!! 3 Monetization Value for Money Project Finance Mezzanine Debt Weighted Average Cost of Capital Equity Return Asset Lease Partnership Franchise Agreemnt Availability Payments Design Build Risk Transfers Greenfield Social Infrastructure Design Build Operate Design Build Operate Finance Brownfield Public Dividend

4 Welcome to the Land of PPP 4

5 A Brief History of P3 in the US 5 Pre 2006 Post 2006 Post 2008 Post 2012 Primary Objective P3 as a way to achieve private sector efficiencies to public projects P3 as a way to monetize governmental assets P3 as an alternative tool for project delivery P3 as a way to unload public responsibility Funding 100% Public Funding 100% Private, high leverage 85% debt Private with TIFIA, equity in the 10-20% range Can be all Private with 35% equity Concession Fees Small Concession Fees Large Upfront Fee for 75 year deals Less emphasis Large to pay off debt, small net to public Risk Transfer Limited Risk Transfer, closer to Operating Contracts All major risks transferred to private sector, including revenue risk Birth of "Availability Payment" model which leaves revenue risk in public sector High risk transfer with a "revenue path" approach

6 Why consider PPP? 6 In a world of large infrastructure needs and tight governmental budgets, PPP s offer a tool to decision makers that may allow for the: Capture of asset value Transfer of risk Reduction in public debt load Assure future private efficiencies in asset performance

7 Trendy P3 Sectors 7 Transportation Toll Roads/Bridges Parking Water/Sewer Monetization Water Supply Energy Public Facility Solar Energy Saving Devices Social Infrastructure Court Houses Schools

8 Starbucks Roast Spectrum 8

9 PPP Intensity Spectrum 9 PPP Light PPP Medium PPP Full Asset Lease Availability Payments Project Finance Contract Operations Public Deal Design Bid Build Lease/Leaseback Design Build Design Build Operate Finance

10 Types of PPP Deals 10 Full Risk Transfer Concession Availability Payments Asset Monetization Greenfield Brownfield Operating Contracts DBOM with public funding DBFOM Sectors Transportation, water, waste water, social infrastructure, sold waste, health care, redevelopment, sports arenas, parking

11 Key Definitions 11 Public Private Partnership an agreement between the public asset owner and the private partner to transfer some or all of the responsibilities related to the asset from the public sector to the private sector Concession Agreement a long term agreement to run the asset over time (often 40+ years) transferring risks and responsibilities, much like a triple net lease. Usually results in an upfront payment to the asset owner. Procurement the process required under state law when undertaking a PPP Project WACC- Weighted Average Cost of Capital after leverage of debt and investment of equity Greenfield to be built project Brownfield existing asset Monetization financing against the projected revenue stream from the asset

12 Risk Transfers 12 Construction Cost/Time Operation Demand Rates Collection Environmental Future Cost of capital

13 Fundamental Concepts 13 Objectives Analysis An often overlooked part of the PPP decision is to conduct a thorough objectives analysis by the public entity. It is critical that there is an understanding of the desired result on all levels before embarking upon a disappointing journey. Pre bid private sector modeling Negotiating Strategy Value for Money Analysis Risk Transfer Responsibility Transfer

14 Loss of Control Issues 14 Implementation Problems Loss of Tax Exempt Finance in Future Protection from competitive projects Public Policy Impositions New Ramps, Roads, Pipes, etc. Chapter 11

15 Negotiating Points 15 Rate growth and rate caps Ownership of growth Ownership of receivables/payables Take back provisions Return on Equity Risk Sharing Profit sharing

16 PPP Capital Stack 16 Senior Debt Equity Sub Debt Grants

17 Likely Partners 17 The partner is likely to be different depending upon the nature of the asset System Operators Contractors Redevelopers Investment Funds Other Governmental Agencies

18 The Weighted Average Cost of Capital 18 Leverage 100% 90% 80% 70% 60% Debt Cost 7.00% 7.00% 7.00% 7.00% Equity Cost 12.00% 12.00% 12.00% 12.00% WACC 7.50% 8.00% 8.50% 9.00%

19 Asset Valuation 19 Key is understanding cash flows Need good operating expense data Need realistic rate forecasting Need good capital expense plan Who gets growth revenues? Need to consider full capital recovery within concession period or public payment at end Need to consider future demographic factors Need to consider future technology factors

20 When PPP is the best option 20 True Risk Transfer Ratepayer Protection Employee Protection Value for Money Analysis Dynamic Management Required