PAB deal will fund P3 for managed lane project in Texas

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One of the largest public-private transportation projects in Texas will raise $690.2 million from the sale of private activity revenue bonds Tuesday.

Proceeds will finance a 6.7-mile section of the North Tarrant Express that will add four managed lanes to a congested section of Interstate 35 north of downtown Fort Worth.


The NTE consists of 16.9 miles of managed lanes on two highways in Tarrant County, part of the booming Dallas-Fort Worth metroplex. The section to be financed with this week's sale is the third part of an expansion of I-35W.

The deal comes a year after early completion of a $1.6 billion section of the project that extended the managed lanes on the interstate to more than 10 miles.

Issued through the Texas Private Activity Bond Surface Transportation Corp., the senior-lien revenue bonds carry the lowest investment-grade ratings of Baa3 from Moody’s Investors Service and BBB-minus from Fitch Ratings. Outlooks are stable.

“The ratings continue to be supported by the projected high demand and revenue generating potential of the managed toll lanes given the significant and growing traffic congestion along the corridor coupled with supportive economic indicators within the service area that should continue to spur traffic growth in the region,” Moody’s analyst John Medina wrote.

A consortium known as North Tarrant Express Mobility Partners Segment 3 is building the project under a concession from the Texas Department of Transportation. The consortium is led by the Spanish infrastructure giant Cintra, which has a 53.7% stake in the project. The engineering and construction firm Meridiam has 17.5% interest. Dutch investment firm APG’s share is 28.8%.

Ferrovial Agroman U.S. Corp. and its subsidiary Webber will design and the project, as they have three other segments of NTE valued at more than $2.5 billion.

Toll collection and enforcement will be managed by the North Texas Tollway Authority, the largest toll road operator in the region.

The bond will be priced by book runner Bank of America Merrill Lynch & Co., led by managing director Mitchell Gold and senior vice president Sandra Brinkert. Barclays Capital Inc. is co-senior manager with director Steve Howard and managing director Robert Hillman leading the team.

NTE Mobility Partners finance directors Joseba Echave and Santiago Rodilla are overseeing the transaction for the consortium.

The bonds are structured to begin principal repayment in 2047 with final maturity in 2058, according to an investor presentation.

Another financing tool is a $531 million Transportation Infrastructure Finance and Innovation Act Loan from the federal government, which Moody’s rates Baa3.

Financing under TIFIA requires that cash flow now being collected from Segments 3A/3B be held in a lock-up for the first five years of operations. That means that excess cash flow over the next five years will be retained during the entire four-year construction of the Segment 3C expansion project.

“The lock-up of these funds incentivizes equity to support the project during construction if needed, either through the infusion of additional equity or through the cash flow waterfall before it reaches the lock-up account,” Medina said. “In addition, the large scheduled release of these accumulated funds is scheduled to occur in 2023, a few months after the Segment 3C expansion project is forecast to open. This will provide a significant amount of liquidity to the Equity Providers to fund any project needs at that time.”

Although the new 2019 senior PABs increase the project's overall leverage, the debt is offset by the increase in cash equity that will accumulate and act as a cushion over the next five years as well as increase the likelihood that the TIFIA loan will be prepaid early, Medina said.

“Any excess funds must be used to prepay the TIFIA loan,” Medina said. “While adding the new senior PABs increases the total debt amount now, by also adding the new Segment 3C revenues there is a forced deleveraging that would not have otherwise occurred. The increased leverage also reduces the length of the concession tail from eight years to three years, which reduces flexibility at the end of the concession.”

Debt service coverage ratios average 1.6 times from 2024 to 2029, said Fitch analyst Scott Monroe.

“The corridor has a solid economic profile and a history of heavy congestion on segments 3A and 3B,” Monroe said. “Segments 3A and 3B have a limited operating and ramp-up history, but performance to date has been very strong, and nearby projects with longer histories provide useful proxy data as it relates to operational performance and ramp-up.”

With the first two phases of the I-35W corridor complete and operating, the new managed lanes connect with the NTE TEXpress toll lanes along Interstate 820 that loops the Fort Worth suburbs and Airport Freeway managed lanes through the mid-cities, which opened in 2014.

Over the last decade, TxDOT and other agencies have spent more than $5.3 billion on highway infrastructure improvements in the I-35 corridor that runs from Laredo to the Oklahoma border in Texas, ultimately stretching to Duluth, Minnesota.

“The investments have worked, resulting in dramatic increases in truck and other traffic mobility, fueling regional gross domestic product and employment growth,” a TxDOT report says.

South of the Dallas-Fort Worth region, I-35 splits into eastern and western segments. The eastern segment passes through Dallas, with the western section going through Fort Worth. In the city of Denton, north of Dallas and Fort Worth, the two segments merge into one again.

In Fort Worth and Tarrant County, I-35W intersects three other interstates and other freeways that connect to Dallas-Fort Worth Airport and Alliance Airport, an industrial airport in northern Tarrant and southern Denton counties. The airport is part of a major inland port known as AllianceTexas that links up with freight rail lines and intermodal transportation.

The 26,000-acre AllianceTexas development in northeast Fort Worth serves more than 500 companies and is less than half built out, according to developer Hillwood.

More than 156,000 vehicles use I-35W per day, according to TxDOT. Traffic is expected to rise to 315,000 vehicles daily by 2045.

Analysts see the use of tolled lanes through heavily trafficked corridors as less risky than projects in remote areas designed to divert traffic from urban areas, such as State Highway 130 near Austin. A section of SH 130 developed by a similar consortium, including Cintra, declared bankruptcy after revenues failed to meet projections.

Revenues on North Tarrant Express are not expected to fall short of expectations, analysts said.

“Additional debt may be issued for several purposes, including project completion, debt refinancing, sponsor distributions, project improvements, and debt replacement,” Medina noted. “Unique to this project is the ability for the sponsors to issue additional debt for dividend distributions, which is a credit weakness. The new debt for distributions can be used if 50% of the new proceeds are used to pay down the outstanding TIFIA loan and an independent engineer confirms that a minimum 1.3 times debt service coverage ratio for all debt will be achieved in every year of the remaining life of the bonds.”

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Public-private partnership TIFIA Private activity bonds Transportation industry North Texas Tollway Authority Texas
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