BRADENTON, Fla. - The Spain-based developer that won a contract to build the Florida Department of Transportation's first public-private partnership said banks oversubscribed to become part of the historic deal, an accomplishment itself in a U.S. industry typically relying on bond financing.
The DOT last Tuesday closed on the $1.8 billion concession contract to build the Interstate 595 project in Broward County with ACS Infrastructure Development Inc. as the main sponsor and equity partner.
Under a 35-year contract, the concessionaire will design, build, finance, operate, and maintain the 10.5-mile-long project. The DOT will pay for the project through annual availability payments, the first P3 in the U.S. to use this method.
Initially, the ACS-led consortium planned to use private-activity bonds for part of the financing. However, disruption in the credit markets would have made it difficult - if not impossible - to sell the nearly $800 million of debt the firm needed to raise to finance the deal.
So ACS turned to the European banking community. Along with 12 banks providing $780 million in 10-year loans, ACS financed the transaction with a $680 million Transportation Infrastructure Finance and Innovation Act loan, and $210 million of equity from the consortium.
"The bank debt has been allocated among 12 banks in an oversubscribed club deal and the entire process lasted three months in a challenging financial environment," ACS chief operating officer Juan Santamaria said Friday. "This shows ACS' strength in the current market and its ability to deliver financial backing during financial downturns."
According to the DOT's financial advisers, the bank financing is just one facet of the concession contract that may open doors for more projects to move forward.
P3 transactions for transportation are more frequent in Europe, Canada, and Australia, where they rely on bank financing. But in the U.S.'s fledgling P3 sector, much of the financing has come from the credit markets and the use of private-activity bonds.
"While doing this transaction, there was no market for private-activity bonds to go forward with the financing. Fortunately, we saw that early on and were able to change course and look at a bank financing," said Anne Rabin, a managing director at Jeffrey Parker & Associates, the DOT's financial adviser.
Another factor that could help renew interest in the bond market is the recently passed federal stimulus bill, which repeals for two years the alternative minimum tax attached to private-activity bonds.
"I'm hopeful that stripping out the AMT will help the private-activity bond market," Rabin said. "I think the capital markets or the bond market generally have to recover more to allow for that."
Although there were problems in the financial markets, the I-595 transaction closed on time partly because the DOT monitored conditions and established mechanisms in its request for proposals to share the risk of base rate and fluctuating credit spreads between the time bids were submitted and closing of the transaction, said Tuyen Mai, a director at Jeffrey Parker who served as lead staff member on the P3 project.
In return for sharing risk, DOT reserved the right to provide input on the financing. Mai said this approach was developed in the first half of 2008, prior to bid submission, when it became increasingly clear that spread locks were not commercially available and that there might be a need to switch from bond structures to bank loans, depending on market events.
Upon closing of the concession contract, the DOT absorbed 75% of the risk through an increase in the availability payments to $65.5 million from $64 million to account for the increased cost of financing. By anticipating that need, Florida avoided open-ended renegotiation, an approach that likely will be duplicated in future deals, Mai said.
