P3 Financing Stan Ladner, Butler Snow LLP Josh Evans, Bostonia Partners LLC

Transcription

1 P3 Financing Stan Ladner, Butler Snow LLP Josh Evans, Bostonia Partners LLC

2 P3 Financing Options Capital Markets Debt (Bank debt, subordinate debt) Private Activity Bonds (PABs) Governmental Tax-Exempt Bonds Private equity Federal financing programs (TIFIA, RRIF, WIFIA) Federal grant programs State Infrastructure Banks (SIBs) Public contributions

3 Capital Markets Debt Senior Bank Debt, Taxable Project Bonds Useful for projects that are not eligible for tax-exempt financing Most P3 projects utilize some element of capital markets debt Shorter tenors Subordinate Bank Debt Project Examples I-4 Ultimate, Long Beach Courthouse, UC Merced, U.S. 36 Managed Lanes

4 Private Activity Bonds Eligible for certain types of assets Requirements Exempt Facility Bond under Section 142 of the Code Volume cap allocation Subject to Alternative Minimum Tax (AMT) Project Examples I-95 HOT Lanes, Purple Line Light Rail, Pennsylvania Rapid Bridge Replacement Project

5 Governmental Tax-Exempt Bonds Under certain structures, projects can use governmental, tax-exempt bonds Requirements Governmental ownership and issuer No volume cap allocation Not subject to AMT Project Examples Allentown Water/Sewer, Harrisburg Parking

6 Federal Financing Programs Transportation Infrastructure Finance and Innovation Act (TIFIA) Administered through the Federal Highway Administration (FHWA) Direct loans, loan guarantees, and standby lines of credit Funding levels ($275M (2016, 2017), $285M (2018), $300M (2019, 2020) Eligible Projects - Highway, transit, passenger rail, certain freight facilities, certain port facilities, surface transportation facilities at airports, and rural infrastructure projects Requirements limited to 33% of project costs (49% under certain circumstances); two investment grade ratings; dedicated repayment source; interest rate equal to the SLGS rate plus one basis point Project Examples Denver Union Station, Purple Line

7 Federal Financing Programs Railroad Rehabilitation & Improvement Financing (RRIF) Administered through the Federal Railroad Administration (FRA) Direct loans and loan guarantees to finance development of railroad infrastructure Eligible Projects - intermodal or rail equipment or facilities, including track, components of track, bridges, yards, buildings and shops Direct loans can fund up to 100% of a railroad project Project Examples Denver Union Station, Amtrak Water Infrastructure Finance and Innovation Act (WIFIA)

8 State Infrastructure Bank (SIB) Revolving infrastructure investment funds for surface transportation that are established and administered by states. Eligible Projects - Title 23 highway construction projects, Title 49 transit capital projects, and Title 49 (subtitle V) railroad projects.

9 Public Contributions Upfront capital contribution Milestone payments Tax credits

10 Capital Stack & Cost of Capital Sponsor Equity Preferred Equity Mezzanine Debt Junior Debt Sponsor Equity Investment Grade Debt Senior Debt

11 Debt Investors Low risk tolerance Fixed returns Demands collateral security 1 st priority of payment Focus on Loan-to-Cost and Debt Service Coverage Least expensive form of capital

12 Equity Investors Higher risk tolerance Variable returns Unsecured Last priority of payment Focus on Internal Rate of Return and Return on Equity Most expensive form of capital

13 Risk & Repayment Order FIRST REPAYMENT ORDER LAST SENIOR DEBT JUNIOR DEBT MEZZ DEBT PREFD EQUITY SPONSOR EQUITY LOW RISK OF INVESTMENT HIGH

14 Risk vs Return Private Sector Transaction Public Sector Transaction Public-Private Risk Sharing Expected Rate of Return Spread Tax- Exempt Debt Taxable Debt Tax Equity Project Equity 100% Recourse to Government Risk to Investor

15 Efficient Capital Structure Maximize the financing term Minimize the interest rate / cost of capital Minimize the DSCR requirement

16 Tax Exempt vs Taxable Debt Tax Exempt Public Sector Transaction Retail investor driven investment product Requires traditional credit/revenue streams Generally must obtain a published credit rating Fundamentals allow for 100% leverage and/or public entity can contribute cash equity Public ownership is preferred/necessary Debt Capacity may be an issue Public Offering costs of issuance Taxable Debt Private Sector Transaction Multiple institutional investor types/classes to access Accommodates a diverse credit/revenue streams A published credit rating not required Maximum leverage is credit/structure driven Private ownership is typical Private Placement/Loan costs of issuance Municipal vs. Corporate Taxable Markets

17 Project Risks / Mitigants RISK Completion Risk Operating Risk Demand Risk Force Majeure Risk Political Risk Refinancing Risk Liquidity Risk Interest Rate Risk MITIGATION Net Worth / LOC / P&P Bonds Long Term Contracts / Covenants Lease Agreements / Strong User Fees Casualty Insurance Historical Track Record Make Whole Premium Standard Documentation Hedges / Rate Locks

18 Financing Hurdles Portfolio Related Issues Attractive Alternative Investments Inability to Analyze and Structure Projects Lack of Asset Class for Benchmarking Lack of Designated Pool of Capital Variable Appetite for Construction Risks Currency Constraints Ratings Hurdle

19 Financing Structure Example Project Company SPV

20 Private Placement Update Traditional USPP Market 2016 H1 ($mm) 2015 ($mm) 2014 ($mm) 2013 ($mm) Total Volume 28, , , , Agented Domestic 14, , , , Agented Cross- Border 11, , , , Canadian Issuers , , , Australia/NZ Issuers 2, , , , UK Issuers 4, , , , NAIC-1 9, , , , NAIC-2 18, , , , SOURCE: PPM DataField

21 P4 Project: Airport Hanger STRUCTURE - City airport authority leases land to Sponsor for 99 years - Sponsor designs, builds, operates, finances and maintains facility - Sponsor leases facility (airport hanger) to federal agency for 20 years - Bostonia structures 22yr debt financing (2+20) to fully fund project STATUS - Delay following dispute w/ sponsor and tenant re shell work vs. TI s - $25M additional TI s funded by existing debt holders / sponsor $5M equity