CHICAGO – The newly expanded Transportation Infrastructure Finance and Innovation Act program and the ability to tap the tax-exempt market through private activity bonds are two of the most powerful tools available to governments eyeing public-private transportation projects, said panelists here at The Bond Buyer’s annual transportation and P3 conference.
For states, the financing tools can provide badly needed dollars to offset declines in traditional transportation funding. For yield-hungry investors, the P3 transportation space over the past year has generated some of the best returns in the tax-exempt market, participants said.
“TIFIA and PABs are some of the most important tools that we have available to us in the U.S. market in terms of financing transportation projects, and in particular P3s,” said Ray DiPrinzio, senior vice president and team leader, infrastructure project finance, Sumitomo Mitsui Banking Corp. “This is probably one of the best points in times in terms of utilizing P3s and project finance for infrastructure projects.”
With states facing rising capital needs, financing models increasingly need to rely on tools like the federal TIFIA program as well as tax-exempt PABs, private equity, tolls, and traditional state dollars, issuers said.
“We have $100 billion funding gap over the next 20 years – there isn’t enough tax revenue in the world to fill that gap,” David Tyeryar, deputy secretary of the Virginia Office of Transportation. “A significant portion [of our funding] is from TIFIA and PABs, and it’s extremely significant to us,” he said. “There’s no other way to do it in today’s economic times unless you put a package together with everything,” including PABs, TIFIA, private equity, and state funds, he said.
Federal lawmakers in July passed a new two-year transportation bill, Moving Ahead for Progress in the 21st Century, or MAP-21, which boosts the TIFIA program from $122 million per year to $750 million in 2013 and $1 billion in 2015.
It also increased to 49% from 33% the percentage of total development costs a TIFIA loan could cover –- though the federal transportation department hopes to continue to maintain a 33% threshold on most projects, said Duane Callender, director, TIFIA credit program, at the U.S. Department of Transportation.
“It’s been a pretty significant year for TIFIA in terms of projects and we see that heating up with the expanded program,” Callender said.
To accommodate growing demand, the division plans to triple its staff size over the next year, he added.
Meanwhile, the P3 sector is giving tax-exempt investors some of their best returns in the current market, panelists said.
“Traditionally toll roads and transportation projects have all been financed in the tax-exempt market, and that’s where the investor base is,” Edward Fanter, director BMO Capital Markets. Several recent high-profile P3 projects that hit the tax-exempt market were “multiple times oversubscribed,” said Fanter. “Even in the triple-B land, the market is starved for projects,”
The market has been good to issuers during the last year, but that could change as spreads tighten, giving investors more buying opportunities, said Mary Francoeur, managing director, project finance and utilities-Americas, Assured Guaranty Corp. said.
“In the past year it’s been a great market if you’ve been out to borrow through private activity bonds,” Francoeur said. “There’s very strong investor demand for this type of paper because there’s not a lot of yield in the municipal market at the triple-B level. [But] as spreads widen and there are other opportunities out there, there will be a lot of questions that you’re going to have to answer that have not been asked over the last year, because investors will be wanting more information with respect to these projects.”
As a financial guarantor, Francoeur said Assured is focused on the long-term risks and credit fundamentals of a project. “There have been a lot of projects that haven’t worked out over last 20 years,” she said. “Memories are short, and there are a lot of projects in the pipeline right now, but they don’t always perform as expected.”