CHICAGO — The Chicago Infrastructure Trust formally launched a search for private market interest in providing up to $100 million of financing for energy-efficiency upgrades to city facilities and schools.
The trust, in conjunction with the city and the Chicago Public Schools, posted a request for qualifications this week seeking statements of interest and qualifications from potential investors by a March 6 deadline. The RFQ is seeking responses from any parties, including investors, energy savings consultants, and retrofit contractors interested in providing financing for projects planned under the umbrella of Retrofit Chicago.
The city hopes to finance more than $200 million of projects in a series of transactions beginning this year with a tranche of up to $100 million and then on an as-needed basis. The goal is to achieve 20% in energy savings through reduced utility and maintenance costs.
If a financing comes to fruition as officials hope, it would mark the first undertaking by the trust, created last year by Chicago Mayor Rahm Emanuel with City Council support to tap private investment in the funding of infrastructure.
The primary purpose of the RFQ is to solicit information from potential investors on their qualifications and to obtain input on financing strategies and preferred investor terms. The city and trust would then use the results to establish a short list of possible financial partners for the first tranche and update terms based on input from potential investors. That would lead to a request for proposals from investors.
The city hopes to close on a financing for the first tranche over the summer. The city, trust board and CPS board must approve the final deal.
Retrofit One projects include upgrades to lighting, windows, heating and air conditioning units, and steam boilers. The RFQ portrays the financing as a unique business opportunity and touts the projects as being for an essential public purpose.
“These long-established governmental units have demonstrated an ability to budget in a timely manner and fulfill their financial obligations,” the document reads.
Operating savings alone would go to repay investors. The city and CPS informs potential investors that they have measured and verified potential savings. The RFQ raises several issues without imposing a final word on some potential terms.
It outlines how Chicago and its sister agencies “may wish” to share in the anticipated savings over the term of the agreement, and may also consider transactions in which a portion of the savings is used to create a reserve or provide additional debt coverage for the financial protection of the financial partners.
With repayment coming directly from budgeted operating savings achieved by city departments and CPS, there is annual budget appropriation risk. In the event of default, the city, trust or school district are not on the hook to cover payments and no underlying assets are pledged.
Investor risk “is minimized through diversification” with three entities: CPS, the city’s water management, and fleet-facility management departments providing repayment from their respective budgets.
The repayment stream of savings would flow through a special-purpose entity created by the trust to repay investors. The city entities would continue to own, operate and maintain the assets and the financing and actual work would be completed by separate entities.
Investors will also have the ability to invest in all or separate tranches that will have different maturities and diverse underlying assets. The RFQ outlines the proposed projects at various facilities, the estimated savings and repayment terms.
The cost of school improvements in Retrofit One totals $14 million with annual savings estimated at $3 million and repayment terms between 2 to 5 years. Water management facilities would see $4.5 million in annual savings. Projects at other facilities managed by the fleet and facility department would total $37 million, generate $3.3 million in annual savings, and be repaid over 9 to 12 years.
The city, trust and advisors will evaluate responses based on investors’ financial resources, including a minimum capital requirement of $10 million of assets under management; overall risk-adjusted cost of capital; and experience in financing public improvements. “The trust anticipates that qualifying financial partner(s) offering the lowest risk-adjusted cost of capital will be selected to invest in the Retrofit Chicago project,” the RFQ reads.
Chicago has nonbinding agreements from Citibank NA, Citi Infrastructure Investors, Macquarie Infrastructure and Real Assets Inc., JPMorgan Asset Management Infrastructure Group and Ullico to consider investing up to $1.7 billion.
The city is working with Acacia Financial Group Inc. as its advisor and Public Financial Management Inc. is advising the trust on a pro-bono basis.
The goal of the fund is to fund special, larger or pooled projects with defined revenue streams while preserving bonding capacity for traditional infrastructure.
It hopes to draw interest from banks, pension funds, union-friendly investors and community reinvestment act funds.