CHICAGO — The newly-established Chicago Infrastructure Trust has lined up pro bono advisory help from Public Financial Management Inc. and legal assistance from Kirkland Ellis LLP as it gears up to assess its first project financing later this year.
Mayor Rahm Emanuel unveiled plans for the first-of-its-kind local government trust earlier this year to create an alternative financing vehicle to leverage private investment for special projects with defined revenue streams. The administration contends it's needed to offset dwindling state and federal funds and preserve its strained bonding capacity for more routine infrastructure work and projects.
The board's first financing, dubbed Retrofit Chicago, will seek $200 million for energy upgrades to facilities owned by the city and its sister agencies. The savings, estimated at $20 million annually, would be used to repay private investors.
Scott Wonover, deputy director for financial policy in the city's finance office, said officials were hoping to bring a tranche of initial projects before the board by the end of the year. "That's our goal," he said.
The city expects to divide the various projects into tranches with the initial ones focusing on city fleet management facilities and schools and later ones including water management facilities, additional city and school facilities, and then ones for other sister agencies, Chicago's chief financial officer Lois Scott said at the first meeting in August.
Acacia Financial Group Inc. is advising the city.
PFM's role as an advisor is temporary, said board chairman James Bell, a retired Boeing Corp. executive. After an executive director is hired the trust will reassess its advisory needs and expects to hire individual firms to provide guidance on individual project financings, he said.
PFM, the top-ranked financial advisory firm in the nation, acquired Scott's advisory firm Scott Balice Strategies last year after Scott took the job as the city's CFO.
Trust board member David Hoffman said he had some initial concerns over the firm's independence given its ties to Scott and whether it would feel comfortable in potentially butting heads with the city.
"It was definitely a question I had," Hoffman said. "We want to make sure that the advice we get is independent." He said after making inquiries about the firm and discussions with advisors, he feels comfortable in the firm's ability to assess financing proposals independently.
"I think it is a very good boost for us…that we are going to be able to rely on them for independent advice," said Hoffman, a former city inspector general who is now a partner at Sidley & Austin LLP.
PFM managing director Tom Morsch, a veteran public-private partnership specialist who was hired by Scott in 2009, said the firm looked forward to participating in work that is "new and innovative" and said the firm would have no problem offering an assessment critical of a city proposal.
While its work is being offered for free, that work will represent a notch on its belt in the competitive field for P3 advisory work.
The trust has also lined up free help from the executive search firm Spencer Stuart as it seeks an executive director. Kirkland & Ellis is providing help on a number of legal matters including the trust's application to the Internal Revenue Service for its 501(c)(3) status. Mayer Brown LLP partner David Narefsky had assisted the city in crafting the trust ordinance and initially provided legal advice to the trust on its bylaws.
The trust has also been portrayed as a means to raise capital without handing over operation of assets to private investors.
Asset privatization is a toxic notion in Chicago due to lingering resentment over the unpopular $1.15 billion parking-meter system lease to private investors in 2009. The trust is also seen as attractive to pension funds, union-friendly investors, and community reinvestment act funds, and as a way to transfer project risks off taxpayer rolls and on to investors.
Chicago has nonbinding agreements from Citibank NA, Citi Infrastructure Investors, Macquarie Infrastructure and Real Assets Inc., JPMorgan Asset Management Infrastructure Group and Ullico to eye investing up to $1.7 billion in trust projects.
PFM was the only financial advisory firm that offered its pro bono assistance, said trust board member Diana Ferguson.
