DALLAS – Financing of a $1.2 billion redevelopment of Interstate 70 in Denver through a public-private partnership is underway this week with a $116.9 million private activity bond deal.
After Monday's pricing, The Colorado Department of Transportation’s Bridge Enterprise Fund plans to close on the transaction by the end of the week.
Despite recent concerns about whether private activity bonds would survive Congressional tax legislation, the PABs are not part of a rush to market, according to key officials.
“We've been on the path to reach financial close in this time frame for Central 70 for well over a year,” said Rebecca White, spokeswoman for the Colorado Department of Transportation.
The PABs are issued in the name of the Colorado Bridge Enterprise, which is a business owned by CDOT, as is the Colorado High-Performance Transportation Enterprise.
The two CDOT units, created to develop P3 projects, awarded the project known as “Central 70” to the construction-engineering consortium Kiewit Meridiam Partners in August.
Based on the financial strength of the development team, the PAB deal and a $416 million federal loan under the Transportation Infrastructure Finance and Innovation Act earned a preliminary A-minus rating from S&P Global Ratings.
"This is the first P3 private activity bond of this type that has a rating in the A category rather than BBB," said Andrew Mendelson, director and co-head of municipal transportation finance at RBC Capital Markets, book-runner and co-senior manager on the deal with Barclays.
The structure includes semi-annual serial bonds and term bonds with a semi-annual sinking fund payment. With final maturity in 2051, the bonds are callable in 2027.
On 2051 maturities with a 4% coupon, the yield came to 3.76%, or 118 basis points over the 30-year Municipal Market Data yield curve. The true interest cost was 3.65%.
“Pricing went very well," Mendelson said. "Up and down the curve we saw solid demand. It was a successful day for Colorado and Kiewit Meridiam Partners.
If the Bridge Enterprise decides to refund the bonds in 10 years, the chances that they will remain tax-exempt look better under reconciliation of U.S. House and Senate versions of the tax-reform bill.
The preservation of PABs was hailed as a victory for the municipal bond market after an extensive lobbying campaign.
"This is an enormous win for the development finance industry," said Toby Rittner, chief executive of the Council of Development Finance Agencies. "Private activity bonds are the lifeblood of development finance in the U.S., and the preservation of their tax-exempt status will save cities and states untold millions of dollars."
The Colorado Bridge Enterprise is financed through an annual bridge safety surcharge ranging from $13 to $32 per vehicle imposed on vehicle registration based on vehicle weight.
“Revenues from the bridge safety surcharge fee are estimated to generate approximately $100 million in annual funding,” said David Spector, director of the Colorado High Performance Transportation Enterprise. “Revenues are not subject to an annual appropriation process.”
The Bridge Enterprise issued $200 million of bonds in 2010 that were rated Aa3 by Moody’s Investors Service and AA by S&P.
“BE has committed up to 50% of its available revenues, after required debt service on the Series 2010A bonds to the project during the operational period following substantial completion,” Spector said.
Colorado law allows HPTE to impose tolls and other fees that support revenue bonds and to enter into agreements with private partners on highway projects.
KMP was one of four teams of builders and engineering firms bidding for the Central 70 contract. The others were 5280 Contractors, Front Range Mobility Group and Mile High Partners.
KMP was chosen in part for its timetable for the project and plans to minimize disruptions to the neighborhoods, said CDOT chief executive Shailen Bhatt.
“Their construction approach shaves a full construction season off CDOT's construction schedule, and their commitment to hire at least 20% of their workforce from the community is backed up with a strong recruitment and training program," Bhatt said.
With a 60% stake in KMP, Meridiam will guarantee its equity contribution for the project through its Meridiam Infrastructure Fund II, whose investors include John Hancock and CalSTRS.
Meridiam has $5.7 billion of assets under management, representing about $60 billion in overall project value, according to John Dionisio, senior investment director for KMP. Among the P3 projects awarded to Meridiam are New York’s $3.9 billion LaGuardia Airport Terminal replacement, the $2.3 billion Purple Line rail project in Maryland and the $3 billion North Tarrant Express freeway development in the Dallas-Fort Worth area.
“Meridiam pioneered a long-term fund approach signifying its commitment to be a long-term partner with the public sector from project inception through operations, better aligning public and private sector interests,” Dionisio said.
Colorado-based Kiewit has been building projects in the state for nearly 80 years and has 1,400 employees in the state, according to James Geer, vice president of the company.
“Kiewit has led in excess of $2.5 billion in roadway projects in Colorado over the past 15 years,” Geer said.
Kiewit’s recent projects include the $409 million redevelopment of Denver’s Union Station rail terminal, the $1.2 billion redevelopment of Interstate 25 in Denver known as the T-Rex, and the $1.1 billion Dallas-Fort Worth Connector interchange project near Dallas-Fort Worth International Airport.
“The Central 70 project has many similarities to T-Rex,” Geer noted.
The construction team will reconstruct and widen a 10-mile stretch of I-70 north of downtown and add one new Express Lane in each direction between Interstate 25 and Chambers Road in Aurora. The crews will remove the aging 53-year-old viaduct, lower the interstate between Brighton and Colorado boulevards and place a four-acre park over a portion of the lowered interstate between Clayton and Columbine streets. Construction will begin in 2018 and take approximately four years to complete.
“During the construction period, the developer will receive milestone payments, including a substantial completion payment,” Dionisio said.
Construction of the park over I-70 is a companion project to the bond-funded $1.1 billion redevelopment of the National Western Complex that serves as home to Denver’s annual rodeo and stock show. Denver is in an eminent domain disputes with some nearby property owners in the Elyria Swansea neighborhood as it seeks to add 110 acres to the complex. The added acreage will create an eventual 250-acre campus.
Denver has committed nearly $669 million to the National Western redevelopment, with most of the funding from extensions of hotel and car rental taxes that voters approved in November 2015. The tourism taxes will pay for $476 million in bonds for the project.
The I-70 overpass park is modeled on dozens of similar spaces around the nation, including Klyde Warren Park in downtown Dallas and a series of parks built over SR530 outside of Seattle.
The concept of building a park over I-70 was originally presented to the public in 2012-2013 along with the introduction of the lowered highway alternative. Over the last several years, CDOT has been working with local residents, the City and County of Denver, and Denver Public Schools on a public process to design the public space on the park.
Advocates of the park envision an area for sports games, outdoor movies, concerts and farmers markets. About 150 trees will be planted in addition to open lawns, play areas and a splash park. One part of the park will be a shared-use area with Swansea Elementary School but open to community use during all non-school hours and days.