The P3 Capital Stack: Balancing Debt & Equity · Financing Debt/Equity (Gearing): 93:7 Minimum DSCR...

The P3 Capital Stack: Balancing Debt & Equity Intro Public-Private Partnership (P3) Finance CDFA WebCourse

June 20, 2018

http://www.ameren.com/

http://www.fishers.in.us/




Infrastructure Terms and Concepts

3

P3 Transaction Structures

Financial Structure

E

Payment Mechanism

D

Delivery Model

A

Availability Payment User Fee (Tolls)

Private Equity Bonds

Federal/State Financing

Facilities (TIFIA, WIFIA,

SIB)

Bank Debt Public Funds

Milestone Payment

Risk Allocation

B

Contractual Structure

C

Design-Bid-Build Design-Build Design-Build-

Operate-Maintain Design-Build-

Finance Design-Build-

Operate-Maintain

Full Concession/ Development

Rights

Consultancy Contracts

Service Contracts

Management Contracts

DBF Contracts DBFO Contracts Lease Full Concession/

Development Rights

Public Responsibility Private Responsibility

The P3 Capital Stack

4

Indicative P3 Commercial Structure The P3 Capital Stack

■ Paid before equity

■ Termination

■ Pre-completion security

■ Appropriations

Lenders

Special Purpose Vehicle

(Developer)

■ State/Federal tax

■ State Appropriation

■ Grant of right

■ Funding

Public Sector

Equity funding

Distributions Bond or loan proceeds

Debt Service

Asset &

Service

Payments

Progress

Payments

Asset

Service

Payments O&M services

Tolls

Service

■ Project revenue (tolls,

fares, fees…)

Users (if user fee project)

■ Revenue (after O&M and

debt service)

■ Financing

■ Tax

Equity

■ Cost overruns

■ Time/Delays

■ Design

■ Defects

DB Contractor

■ Cost overruns (shared)

■ Delivery of O&M

■ Availability/Performance

O&M Contractor

5

P3 Opportunities by Sector The P3 Capital Stack

Sectors

Airports

Roads

Parking

Crossings

Transit

Rail

Marine Ports

Transportation

Courthouses

Detention facilities

Office buildings

K-12 Schools

Higher Education

Laboratories

Healthcare

Sports

Social Infrastructure

Water

Wastewater

Street lighting

Broadband Communications

Utilities

New build infrastructure projects that are publicly owned and privately constructed,

financed, and potentially operated/maintained Greenfield

Existing infrastructure assets that are monetized by public authorities or equity sale

transactions in the secondary market

Brownfield

Asset Monetization

6

Funding versus Financing The P3 Capital Stack

■ Public money available to the project that is not intended to be

repaid or carry a cost (i.e. no interest or return on investment).

Typical sources include:

■ Construction period payments (milestone payments,

construction completion payments)

■ Operations period payments (availability payments, lease

payments, user fees (water rates, sewer rates))

■ Funding sources – federal funds, state funds, user fee

revenues, sales tax revenues, property taxes

Funding Financing

■ Money provided by private investors to pay for construction

costs, concession payments and other large project costs.

■ Capital is intended to be repaid and does carry a cost (i.e.

interest and return on investment).

■ Typical sources include:

‒ Debt (capital market bonds, bank loans, federal/state

financing facilities)

‒ Equity

8

The P3 Capital Stack – Debt Financing The P3 Capital Stack

Select Short-to-Medium Term Debt Financing Facilities

Select Long-Term Debt Financing Facilities

Taxable Bank Facility – Term Loan Taxable Bank Facility – Revolver Tax-Exempt Bank Facility

Mezzanine/Term Loan B Tax-Exempt Private Activity Bonds Taxable Private Placement

TIFIA / WIFIA Tax-Exempt Private Activity Bonds Taxable Private Placement

9

The P3 Capital Stack – Equity Investment The P3 Capital Stack

Private Equity

Fund life is typically 7-10 years

Target Brownfield assets

Infrastructure Funds

Fund life is typically 10-25 years or perpetual (open-ended)

Target Greenfield assets with construction risk and long-term operating concessions

Strategic Investors

Developers – Most returns on investment achieved at Financial Close, may have minority investment

Contractors – Typically less than 10% of equity (1%-4% of total capital stack)

Operators – Typically minority investor, provide long-term facilities maintenance/management

Concessionaires – investors who are typically involved in the full life-cycle of asset and own contractor and operator and take

majority equity position

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Construction Operations

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s Indicative Availability Payment Style P3 Transactions The P3 Capital Stack

Source: Publicly available information, InfraAmericas, P3 Bulletin, IJ Global

(1) *KBCM estimate or publicly available (all dates and $ size subject to change)

Typical Availability Payment P3 Payment Mechanism

Construction

Payments

• Appropriation backed

• Funds construction costs

• Repay short-term financing

• Construction risk

• No DSCR

Final

Acceptance

Payments

Availability

Payments

• Appropriation backed

• Repay medium and long-term financing

• Construction & ops risk

• 1.25x DSCR

Bank Revolving Facilities Bank Term Loans & Amortizing Facilities Private Placements Bonds

11

The P3 Capital Stack The P3 Capital Stack

Revenue P3 or Asset Monetization Availability Payment

Greenfield Social Infrastructure Projects

Taxable Private Placement, Equity

Greenfield Transportation Projects

Tax-Exempt Private Activity Bonds, TIFIA, Equity

Brownfield Transactions

Taxable Bank, Taxable Private Placement, Equity

Greenfield Social Infrastructure Projects

Taxable Private Placement, Equity

Greenfield Transportation Projects

Tax-Exempt Private Activity Bonds, TIFIA, Equity

60

75

40

25

Greenfield Browfield

Debt Equity

90

10

Greenfield

Debt Equity

% %

%

%

%

%

Tax-Exempt Availability Payment P3

13

Non-Profit, Tax-Exempt Availability Payment Structure The P3 Capital Stack

Tax-Exempt Borrower/Concessionaire: 501(c)(3), 63-20 Corporation, or Certificates of Participation

Financing Structure: Tax-Exempt Senior Bonds and Subordinated Bonds

Base Rent equals debt service on the Senior Bonds

Additional Rent repays maintenance expenditures and Subordinated Bonds; may be reduced for performance deductions

IRS Revenue Procedure 2017-13

Maintenance contract under a Qualified Management Contract that may not exceed 30 years

IRS Revenue Procedure 2016-44

Indicative Availability Payment Structure for Tax-Exempt Solution

Key Features

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

Capital Portion

Maintenance Portion

Concession Year

Base Rent:

Repays Senior Debt, not

subject to performance

deductions

Additional Rent:

Repays maintenance

expenditures and

Subordinated Debt,

subject to performance

deductions

Base Rent

Additional Rent

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Non-Profit, Tax-Exempt Availability Commercial Structure The P3 Capital Stack

■ Tax-Exempt Conduit

Issuer

■ In-state or out of state

■ Upfront and recurring fees

Conduit

Special Purpose Vehicle

(501c3 or 63-20)

■ State/Federal tax

■ State Appropriation

■ Grant of right

Public Sector

Loan proceeds

Base Rent and

Additional Rent

Asset &

Service

Base Rent

and

Add’l Rent

Progress

Payments

Asset

Additional

Rent O&M services

■ Cost overruns

■ Time/Delays

■ Design

■ Defects

DB Contractor/Developer

■ Add’l rent subject to

deductions

■ Cost overruns

■ Delivery of O&M

■ Availability/Performance

O&M Contractor/Developer

■ Same risks as senior debt

■ Add’l rent subject to

deductions

■ Held by developer or

operator

Subordinate Lenders

Add’l

Rent -

Debt

Service

Bond

proceeds

■ Paid before sub debt

■ Termination

■ Pre-completion security

■ Appropriations

Senior Lenders

Base

Rent -

Debt

Service

Bond

proceeds

Benefits: • Structure mimics equity P3

• 100% tax-exempt debt

• Substantial risk transfer

• Payment mechanism incentivizes

performance

Considerations: • While developer/operator holds

sub debt, they do not directly

control SPV

• Untested structure

• Volume debt commitments only

Sectors / Case Studies

16

Appendix B – P3 Case Studies

Transportation

Transportation Managed Lanes P3 Examples

Project Selected Case Study

I-4 Ultimate Project

Florida Department of Transportation (FDOT)

Project Status: Financial Close: 2008

Project Size: $2.3 billion

Delivery Model/Payment Mechanism: DBFOM

with Availability Payment

Winning Consortium: John Laing, Skanska,

Granite Construction, Lane Construction Corp

I-4 Ultimate Project

Florida Department of Transportation (FDOT)

Background

■ The I-4 Ultimate project is P3 concession agreement to design, build,

finance, operate and maintain 21 miles of road from west Kirkman Road in

Orange County to east of State Road 434 in Seminole County. The

contract has a 40-year term, including construction, which began in 2015

and is expected to be completed by 2021

Challenge

■ Florida needed a solution to heavy congestion in the region.

■ The project included large scale construction, under which traditional

procurement would have been procured with multiple contracts contributing

to a much longer procurement timeframe

Solution

■ The express lanes of I-4 will be operated with variable tolls which will be

adjusted to improve traffic flow throughout the corridor (FDOT will retain

the revenue and control the tolls)

■ Under the P3 legislation the entire USD $2.32 bn project can be procured

in one fixed price transaction. It will begin construction in 2015 and be

completed by 2021

Financing

■ Debt/Equity (Gearing): 93:7

■ Minimum DSCR 1.17x; Average DSCR 1.23x

■ Bank Debt $483 million; TIFIA $948 million; FDOT grant $688 million;

Equity $146 million

I-495 Capital Beltway

Virginia Department of Transportation (VA)




where private sector takes revenue risk

Winning Consortium: Transurban, Fluor, Lane

LBJ I-635

Texas Department of Transportation (TX)




where private sector takes revenue risk

Winning Consortium: Cintra, Meridiam, Dallas

Police and Fire Pension System , Ferrovial

Source: Publicly available information, InfraAmericas, P3 Bulletin, IJ Global, EMMA

17

Higher Education P3 Examples


University of California Merced

The Regents Of The University Of California

(CA)



Delivery Model/Payment Mechanism:

DBFOM

Duration: 39 Years

University of California Merced

The Regents Of The University Of California (CA)

Background

■ The Regents’ expansion represents the second phase of campus development

under the Long Range Development Plan to support projected enrollment

growth from 6,200 current students to 10,000 students by the year 2020

■ The Project will be located on approximately 219 acres, which includes the

existing 104- acre campus, and will involve up to 1.85 million square feet of

new facilities

Challenge

■ Rapid growth in student demand for admission to UC Merced outstrips the

campus’ limited physical capacity to accommodate that demand

Solution

■ Private sector expertise and innovation in design, management and financing

solutions may assist in completing the Project more quickly and efficiently

■ A partnership with a private sector partner may assist the Regents in managing

certain risks associated with the design, construction, financing, operation and

maintenance of its capital facilities

Financing


■ Private Placement $660 million; UC Merced grant $600 million; Equity $60

million

Ohio State University Energy Project

Ohio State University (OH)




Public-to-Private

Duration: 50 Years

Wayne State University Student

Residential Facilities

Wayne State University (MI)


Project Size: $308 million


DBFOM

Duration: 40 Years


Higher Education


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Social Infrastructure P3 Examples


Nassau Veterans Memorial Coliseum

Nassau County (NY)

Project Status: Preferred Proposer Selected


Delivery Model/Payment Mechanism: lease

Nassau Veterans Memorial Coliseum

Nassau County (NY)

Background

■ Nassau County announced its intention to scale

down the Nassau Veterans Memorial Coliseum. On

March 12, 2013, the County formally issued an

RFP, seeking a private company to reinvent the

Uniondale complex. The plan is to downsize the

arena from its current 16,000-seat capacity to the

vicinity of 10,000 seats.

Challenge

■ Aging of infrastructure

Solution

■ The deal includes better sponsorships, high profile

professional sports games and other revenue

opportunities

Financing

■ Multiple-phase project with debt and equity

Long Beach Court House

California Administrative Office of the Courts (CA)

Project Status: Financial Close: December 2010


Delivery Model/Payment Mechanism: Availability Payment

Howard County Courthouse

Howard County, Maryland

Project Status: Procurement


Delivery Model/Payment Mechanism: Availability Payment


Municipal Facilities – Buildings/Sports facilities


19


Utilities – Water and Wastewater

Water and Waste Water P3 Examples


Bayonne Water & Wastewater Concession

Bayonne Municipal Utilities Authority (NJ)



Delivery Model/Payment Mechanism: Public-to-

Private

Bayonne Water & Wastewater Concession

Bayonne Municipal Utilities Authority (NJ)

Background

■ KKR and United Water have formed a joint venture, Bayonne Water Joint

Venture LLC, to maintain and operate a 40-year water and wastewater

concession from the City of Bayonne, New Jersey.

Challenge

■ Bayonne’s failing credit problem.

■ Increasing rates to keep systems running.

■ Old meter systems

Solution

■ Eliminates Bayonne’s contingent liability for debt on the BMUA and a

large waterside redevelopment project that’s on the BMUA’s books.

■ Brings in coinvestor United Water under a 40-year contract with KKR to

upgrade, operate and maintain the capital‐starved system and cure

inefficiencies.

■ Brings rate‐payer stability to a troubled public utility

Financing


■ Private Placement $110 million; Equity $62 million

Rialto Water System P3

Rialto Utility Authority (CA)



Delivery Model/Payment Mechanism: Public-to-

Private

Carlsbad Seawater Desalination Plant

San Diego County Water Authority (CA)



Delivery Model/Payment Mechanism: Water

Purchase Agreement


20

Infrastructure Technology P3 Examples


MBTA Automated Fare Collection P3

Massachusetts Bay Transportation Authority

(MA)

Project Status: Financial Close: March 2018




Duration: 13 Years

MBTA Automated Fare Collection P3

Massachusetts Bay Transportation Authority (MA)

Background

■ The MBTA is seeking private partners to design, finance,

operate and maintain an automated, account-based open fare

system. The system is intended to replace the MBTA’s current

fare collections system, and enable customers to pay fares by

tapping contactless bank cards, mobile phones and fare cards

Challenge

■ The MBTA’s current fare collections system is limited in its

ability to support a robust set of fare policies for public

transportation

Solution

■ The automated system replaces the MBTA’s current fare

collections system to provide for an integrated, reliable and

convenient fare payment and collection system

Financing


■ Bank facility $226 million; Equity $27 million

Washington DC Street Light Modernization

Washington DC Office of Public-Private

Partnerships (DC)

Project Status: Shortlisted Proponents




Duration: N/A

Pennsylvania Fiber-Optic Broadband

Network

Pennsylvania Turnpike Commission

Project Status: Shortlisted Proponents



Duration: 30 Years


Infrastructure Technology


21


Questions?

22

Thomas Mulvihill, KeyBanc Capital Markets – Contact Information The P3 Capital Stack

Tom Mulvihill is a Managing Director and Group Head of KeyBanc Capital Market’s Infrastructure and Public-Private

Partnerships (P3) Business. He brings more than 20 years of U.S. Capital Markets experience from both public and

project finance. Tom’s experience includes strategic and financial advisory services, transaction structuring,

procurement and execution for clients in the transportation, social infrastructure and utility sectors.

Prior to joining Key, Tom was a Managing Director with KPMG Corporate Finance in their Infrastructure Advisory

practice focusing on Public-Private Partnerships. He served clients such as New York City (Economic Development

Corporation; Office of Management and Budget; and Department of Environmental Protection); Dormitory Authority of

the State of New York; Nassau County, NY; Massachusetts Bay Transportation Authority; Amtrak; Massachusetts

Department of Transportation (DOT); Pennsylvania DOT; Virginia DOT; Florida DOT; Puerto Rico Public-Private

Partnerships Authority; Purdue University; Long Island University; University of Massachusetts Building Authority; and

Yonkers Public Schools.

Prior to joining KPMG, Tom spent more than 15 years in the financial guaranty insurance industry for companies such as

XL Capital Assurance (XLCA) a “start-up” company where he helped establish and lead their U.S. Infrastructure and P3

Business. Tom served as a member of the Public Finance Team including the Credit Committee. He also worked at

Ambac Assurance where he led their Sports Finance Business and was a senior member of the Public Finance Team.

While in the financial guaranty industry, Tom served clients such as: Cintra/Ferrovial; Macquarie; Babcock & Brown;

John Laing; Los Angeles Dodgers; New England Patriots; St. Louis Cardinals; Denver Broncos; Georgia State

University; University of Arizona, University of Maryland – University Park, Slippery Rock University among others.

Tom earned his Bachelors in Business Administration and Masters in Business Administration from Pace University. He

is a Finra-registered representative with his Series 7 (General Securities Representative), 24 (General Securities

Principal) and 63 (Uniform Securities Agent – State Law) licenses.

Thomas Mulvihill Group Head, Infrastructure

New York, NY

212.284.0553 office

917.375.4445 mobile

[email protected]

The P3 Capital Stack: Balancing Debt & Equity · Financing Debt/Equity (Gearing): 93:7 Minimum DSCR...

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Transcript of The P3 Capital Stack: Balancing Debt & Equity · Financing Debt/Equity (Gearing): 93:7 Minimum DSCR...