Officials involved in the redevelopment of Interstate 635/LBJ Freeway in North Dallas appear at the opening of the $2.7 billion project Sept. 10. Left to right are State Representative Jason Villalba, Ferrovial chairman Rafael del Pino, Texas Transportation Commissioner Bruce Bugg, Dallas Mayor pro-tem Monica R. Alonzo, and Federal Highway Administration administrator Gregory Nadeau.

DALLAS - After completing its largest U.S. project three months ahead of schedule, private tollway developer Cintra is awaiting Colorado's decision on a similar challenge, the $1.8 billion redevelopment of Interstate 70 in Denver.

Rebuilding 12 miles of the heavily traveled I-70 freeway through a densely populated section of the Mile High City and its suburbs will be the most expensive single highway project in Colorado's history.

"We have the opportunity with this project to bring major improvements to this interstate and replace the aging I-70 East viaduct -- the very last of the 30 worst bridges in the state not yet addressed," said project director Tony DeVito of the Colorado Department of Transportation.

Cintra's recent completion of the similarly complex $2.7 billion LBJ Freeway-Interstate 635 redevelopment in Dallas could work in its favor as it competes with three other teams for the Colorado project. The 13-mile LBJ project, Cintra's largest U.S. public-private partnership, opened Sept. 10, three months ahead of schedule and under budget.

"Being able to achieve the substantial completion ahead of time and under budget, that already counts as success," Cintra finance director Carlos Gonzalez told The Bond Buyer after the Sept. 10 opening. "Financing this project was very complex."

The LBJ project featured Cintra's first use of private activity bonds; a federal loan under the Transportation Infrastructure Finance and Innovation Act; private equity; and the first highway investment by the Dallas Fire and Police Pension.

The LBJ project also coincided with the similarly financed $2.5 billion North Tarrant Express project that feeds traffic to Dallas-Fort Worth International Airport. Both projects came together after the worst financial downturn since the Great Depression.

"It was a very challenging time," Gonzalez said. "We were pretty much in the financial crisis. We didn't even know if it was possible to issue PABs."

Leading the NTE Mobility Partners team, Cintra completed the 13-mile North Tarrant Express in four years. The project, which opened in October, included new service roads, reconstruction of existing main lanes and the addition of two toll express lanes in each direction. The main lanes are toll-free.

Under its contract with the state, NTE Mobility Partners is entitled to receive money generated by the toll express lanes for 52 years.

The LBJ Freeway project followed a similar template, replacing a section of the loop that was built in 1969. Making the project more difficult was the heavy traffic that had to continue while the rebuild was in progress. The LBJ Freeway is the most heavily travelled roadway in Texas.

The $615 million of private activity bonds for LBJ were issued through the Texas Transportation Commission in 2010. To qualify for a TIFIA loan, both the NTE and the LBJ projects needed at least one credit rating each. Both landed BBB-minus ratings from Standard & Poor's.

For Colorado, the I-70 East project would follow in the path of another recent P3, the redevelopment of U.S. 36, the Boulder Turnpike linking Denver and Boulder.

Originally a toll road, U.S. 36 was converted to a free highway in 1968. The return of tolls for some lanes generated controversy once the $450 million Phase 1 redevelopment got underway. Phase 2 of US 36 is expected to open early next year.

For the Colorado Department of Transportation, the U.S. 36 corridor led to creation of its High Performance Transportation Enterprise. The HPTE will administer the upcoming I-70 bids.

Revenues of the HPTE are derived from user fees and the issuance of revenue bonds. The HPTE can borrow funds from the Colorado Transportation Commission, but revenues collected by the enterprise may be used only for the project for which they were collected or for a project that is linked with that project.

CDOT expects to award the project a year from now, with commercial close by the end of 2016.

The Plenary Group that built and managed the U.S. 36 project is competing for the I-70 project as 50% partner in a team calling itself 5280 Connectors.

Cintra's team is called I-70 Mile High Partners and includes its parent Ferrovial Agroman U.S. Corp. and the construction giant Bechtel.

"In all of our projects, we have a majority stake," Gonzalez said. "That's our philosophy - control of our concessions. Many players see this as a benefit because we are a worldwide recognized operator."

Kiewit/Meridiam Partners, another contender, includes Meridiam North America, which helped finance Cintra's LBJ Express.

The fourth qualifier, Front Range Mobility Group, includes Hochtief Solutions North America, the international firm ACS Infrastructure Development Inc., Aecom Capital and John Laing Investments, which is already partnering in the Regional Transportation District's Eagle P3 commuter rail line between downtown Denver and Denver International Airport.

While toll critics often point to the length of concessions that can last as long as half a century, NTCOG's Morris said there are benefits to the lengthy contracts.

Knowing that they will be required to maintain the road for 40 or 50 years gives the operators an incentive to make maintenance more efficient. For example, new paving technologies allow replacement of the surface of a highway without excavating as deeply as in the past.

In granting a concession, "you have to have someone who has a diversified revenue stream," Morris said. "You want people who have done this before, and you want innovation in the project. Everyone focuses on the finance, but the real story on LBJ is the technology, from construction techniques to pavement design."

For Cintra and its competitors, the I-70 project is a prized target at a time when public support for private highway concessions appears to be waning.

In Texas, a Cintra pure toll project on the eastern edge of Austin has run into financial trouble, with its rating from Moody's Investors Service falling to speculative grade Caa3.

The greenfield State Highway 130 project stands in contrast to the Dallas and Fort Worth projects in which hybrid tollway-freeways were built on existing highways.

To ease the financial bind, Cintra renegotiated loan terms with its senior lenders and is now negotiating its TIFIA loan in advance of the first payment due in 2017.

"Due to ongoing negotiations, we are unable to comment on that," Gonzalez said. "We are in negotiations with TIFIA and other lenders," he said.

"Toll roads should not be built in rural areas," says Michael Morris, director of transportation for the North Texas Council of Governments. "They should really be built in the major urban areas."

While Austin and San Antonio are major urban areas, the SH 130 that connects them does not yet traverse areas of high population. Nonetheless, tolling will remain a necessary component of highway construction, even if Texas voters approve additional funds for non-tolled freeways in November, Morris said.

"We're still going to have to do the mega projects with some kind of tool," Morris said. "At the rate the legislature and Congress is going, we're going have to come up with about 40 to 50% of the revenue we would need to get out of the toll road business."

Despite a heavy dose of anti-toll rhetoric in the 2015 Texas Legislature, lawmakers did not enact any specific restrictions on tolling. With voter approval, they simply provided more funding for non-tolled projects.

Still, the introduction of numerous bills in the 2015 session that would have banned tolling do reflect the tenor of the times, according to Standard & Poor's.

"The 2014 midterm elections brought new headwinds to the nascent market, delaying or, in some cases, derailing P3s that sponsors were investing so-called 'spade money' into with expectations that the deals would soon close," Standard & Poor's credit analyst Trevor D'Olier-Lees wrote in a Sept. 9 report.

Texas and Colorado are among 33 states that have authorized P3s, according to S&P. Others, such as New York, North Carolina, and Pennsylvania, are developing new P3 programs.

Faltering projects in Virginia, Indiana and elsewhere might have created additional headwinds for P3 projects in states that have not yet adopted the model, according to S&P.

"In our view, a more intrinsic barrier could be that despite a free market orientation in the U.S., governments don't have an evolved culture of public-sector agencies handing over these functions to the private sector," S&P analyst John Sugden wrote in a separate report Sept. 17. "Whether this is because of political accountability, engrained views of the role of government, or other reasons is uncertain; however, we believe that at least in the near term, support for these projects will be mixed."

Among the toll road developers and their partners, key officials expect the demand for P3 projects to continue.

"The lack of a sustained and predictable funding mechanism at the state and national levels will continue to thwart future infrastructure projects," said Jane Garvey, chair of Cintra's partner Meridiam North America and former head of the Federal Aviation Administration. "Public-private partnerships are viable, real-world solutions that exist today to help us achieve our vision for the future."

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