P3s Expand Beyond Transportation

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Public-private partnerships are spreading beyond the transportation sector in the U.S. as government spending on infrastructure declines, analysts and market participants said.

Jackie Cromwell, program manager for new business development and communications at the Virginia Office of Public-Private Partnerships, said that her office will be using P3s to install solar panels on state buildings and is considering using them for student housing in universities and for expanding broadband internet service in some communities.

"For some time now, the investment community has been saying P3s will grow," said Bill Cramer, communications director for International Bridge, Tunnel and Turnpike Association. "That makes absolute sense, since P3s allow for major infrastructure projects to be built much quicker."

Cromwell and Cramer were commenting on P3s after a report Wednesday from Moody's Investors Service, which said the partnerships with private investors will spread to other sectors besides transportation as well as continue to thrive in the transportation sector.

Worldwide, the amount of money in unlisted infrastructure debt funds grew to about $23 billion in January 2015 from about $2 billion in January 2010, Moody's vice president John Medina and 11 other Moody's analysts said in their report, "Public-Private Partnerships: Frequently Asked Questions."

Unlisted infrastructure debt funds are backed completely by private investors and are thus not publicly traded. Institutional investors are providing a growing source for financing P3s.

"The private sector, state and federal government and the people/businesses/customers all realize benefits more quickly," Cramer said in an email. "Providing greater mobility has always been and continues to be the goal of the tolling industry. Tolling is on the rise in part because state and federal governments aren't providing the necessary funding, so the private sector is filling a void. Properly constructed P3s are truly a win, win, win."

The Moody's report also said that "marginal default rates for the discrete P3/private finance initiative sector were higher in the first few years following financial close, akin to the construction period, and declined notably thereafter.

"When they occur," the analysts continued, "P3 rating downgrades are largely driven by refinancing risk, tax-related risks and weakening counterparty credit quality, with lower than forecasted revenue performance also noted as a credit risk."

Standard & Poor's released a report, "How S&P Treats Public-Private Partnerships in U.S. State and Local Government Debt Analysis," on Sept. 17, that covered some of the same topics as the Moody's report.

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