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Georgia Set to Speed Up First P3

BRADENTON, Fla. — The Georgia Department of Transportation plans to offer its first public-private partnership concession earlier than planned next year with two metro Atlanta interstate highway projects estimated to cost more than $2 billion.

The roll-out of the state’s new P3 division and acceleration of the first procurement comes as the bond market begins to thaw for project finance deals.

Many of those transactions, including P3s, slowed to a crawl or were halted for nearly two years as investors sought safety in higher-rated credits.

But now there appears to be pent-up demand to move P3 deals forward, according to Earl Mahfuz, who is Georgia’s P3 program director and DOT assistant treasurer.

Mahfuz made the observation about increasing demand following an industry forum his division held last week to explain in detail the state’s new P3 program and the systemic approach, or blueprint, is plans to use on a priority list of projects.

Going into the forum, Georgia had intended to release its first P3 procurement by next June.

But after meeting with more than 250 representatives from 126 organizations, including national, international, and local firms, Mahfuz said some forum participants urged the state to accelerate its program.

“The most important feedback was they liked the systematic approach to implementing the managed lanes throughout the metro area as opposed to it being done randomly,” Mahfuz said.

The feedback also prompted the state to start its first P3 procurement on Feb. 26 when it plans to release a request for qualifications from concessionaires interested in bidding on the metro Atlanta projects.

“We accelerated at least this project,” Mahfuz said. “I think there’s a lot of pent-up demand for moving up some of the projects in Georgia. We’re trying to be conservative with this first project out.”

Those projects will entail bundling two separate contracts designed to offer congestion relief in and out of metro Atlanta as well as to provide commuter options by using variable tolls and limited access on 15.17 of new mile lanes on Interstate 75 and 11 new lanes on I-575, a project called the Northwest Corridor, and 9.48 new lane miles on I-285 west and 6.57 miles on I-20 west, a project called the West Wall.

After qualified firms are short-listed, the state will seek bid proposals for designing, building, financing, and operating the Northwest Corridor, which is estimated to cost $1.045 billion in 2008 dollars.

A related but separate contract will include a pre-development agreement for advancing the West Wall project, which is estimated to cost $1.16 billion and also will require work on federal environmental permitting.

While prospective concessionaires will be expected to provide a detailed plan of finance, bond financing most likely will play a role in many of Georgia’s P3 deals.

State officials have said that they may consider private-activity bonds; grant anticipation revenue vehicles or Garvee bonds; traditional toll revenue bonds; and credit assistance from the federal Transportation Infrastructure Finance and Innovation Act program.

The TIFIA program provides low-interest loans and other lines of credit for transportation projects, and is often used in conjunction with PABs.

The state has selected a team of P3 consultants, which includes HNTB as technical adviser, Nossaman LLP as legal adviser, and RBC Capital Markets as financial adviser.

The good news is that Georgia’s P3 program is emerging as the bond market is becoming more favorable for project financing, Mahfuz and a P3 expert said.

In fact, the Texas Private Activity Bond Surface Transportation Corp. this week was expected to price the first major P3 transportation deal in some time.

The conduit issuer planned to sell $400 million of tax-exempt PABs allocated by the U.S. Department of Transportation last year as part of a $15 billion authorization under the Safe, Accountable, Flexible, Efficient Transportation Equity Act: a Legacy for Users.

The Texas offering is to partially finance a $2 billion P3 tolled project called the North Tarrant Express.

In the Southeast, the last major P3 transaction in the bond market was the Capital Beltway Funding Corp.’s sale of $589 million of bonds, which priced June 4, 2008, to help finance high-occupancy toll lanes on Interstate 495 in Virginia. Of the bond sale, $400 million was a PAB allocation from the U.S. DOT. Those bonds were sold in four series and received ratings in the A and double-A categories.

Earlier this year, Florida’s DOT came to terms on two major P3 procurements — the $1.8 billion I-595 project and the $1 billion Port of Miami Tunnel project. But both were forced to rely on bank syndicates for financing because of continued disruptions in the credit markets, according to experts who worked on both transactions.

Both projects had received PAB allocations from the U.S. DOT.

However, there are indications that more P3s will rely on bond financing going forward.

Stephen Howard at Barclays Capital said bond market conditions are improving and the trend is positive at this point. “We feel that the market is stabilizing and opening back up for these types of transactions,” Howard said.

In the last several months, a number of deals have sold with A and triple-B ratings, and project financings in the triple-B category are beginning to emerge, said Howard, who added that project financings, including P3s, attempt to maximize the use of tax exempt debt because it is cheaper than equity financing.

“We believe the market is there,” Howard said. “We think that triple-B rated project financings in the $500 million range can get done in today’s market.”

Howard, who has worked on all kinds of P3s over 25 years, said he attended Georgia’s industry forum last week and was impressed with the program and projects the state unveiled.

“Basically, we’re seeing a lot of states like Georgia developing P3 efforts on a more programmatic basis, which is a very good thing for the market,” Howard said. “It’s very critical to advancing the market and we think it will result in a lot more transactions being developed.”

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