Toll road operator Transurban has struck a deal to sell half of its U.S. express lane assets in a bid to boost other transportation investments, which could spur more bond issuance and public-private partnerships for Washington, D.C., regional highway projects.
Transurban announced Wednesday that three foreign pension fund investors would acquire a 50% interest in toll roads the Australian company operates in Northern Virginia for $2.1 billion to help position it for further growth opportunities in the Washington, D.C. region. Deal participants and ratings agencies say it is a short-term credit positive for the toll road consortium.
Emeka Moneme, Transurban’s vice president strategy for corporate strategy and innovation, said the deal with AustralianSuper, UniSuper and the Canada Pension Plan Investment Board would help it pursue new North American initiatives. The partners will have exclusive development rights to invest alongside Transurban on future growth opportunities in Virginia, Maryland and Washington D.C., as well as enhancements to existing concession agreements, according to Moneme.
"You are talking about three of the most sophisticated infrastracture investors globally and they are making a long-term bet on this region being robust," Moneme said of the Washington D.C. area. "It's good for investors and it is good for the region."
Transurban, which has a 75-year concession agreement with Virginia to operate 50 miles of express lanes,
Transurban is among the firms bidding to spearhead a toll lane expansion project in Maryland as part of a planned public-private partnership. Moneme said he expects to find out in the next month whether it will be part of the Maryland DOT P3.
Moneme said Transurban and its three new partners are committed to financing the Maryland express lane project as well as other transportation initiatives in the region that may arise with PABS as well as Transportation Infrastructure Finance and Innovation Act loans should the incoming Biden administration expand caps on the programs. He said Transurban is close to the current cap allowed for PAB issuance.
The company has combined outstanding debt on U.S. assets of $2.1 billion made up of $1 billion from senior bonds and $1.1 billion from TIFIA loans, according to Transurban CFO Michael Discenza.
“We expect that all the really helpful, creative financing public financing tools will be available including PABS and the TIFIA loan,” Moneme said. “As we’re looking toward recovery nationwide, I think both of those financing tools have a really strong part to play in driving infrastructure investment.”
The moves come as more global investors have taken stronger interest in taxable municipal bonds since that portion of the market has blown up since late fall of 2019 and have made up
Transurban is rated BBB-plus by S&P Global Ratings, A-minus by Fitch Ratings and Baa1 by Moody’s Investors Service.
S&P credit analyst Richard Timbs said the sale will result in “a short-term strengthening” for Transurban's credit conditions. He said bonds are expected to finance future projects on existing roads, which are more conducive to bonding than new development that may be better suited to bank financing.
"The impact on bondholders longer term will depend on how they finance other investment opportunities," Timbs said. “Transurban has identified a significant pipeline of short- and medium-term investment opportunities in North America and Australia and is positioning its balance sheet to provide funding for growth."
Robert Poole, director of transportation policy at the Reason Foundation, said the deal helps bolster Transurban’s bid to expand further into the Washington D.C. market and will likely result in increased private activity bonds supplemented by a federal TIFIA loan should it be selected for the P3. Poole also said adding partners with vast experience supporting large-scale infrastructure projects makes strategic sense for Transurban as it pursues an added footprint around the nation’s capital.
“The D.C area's express lanes are becoming mature, proven assets despite temporary traffic declines, and sharing ownership with three public pension funds with long time horizons makes sense,” Poole said. “Transurban now has additional capital to invest in other projects, such as the Maryland express lanes it is bidding on, as well as other toll project opportunities that are likely to emerge in the post-pandemic period.”
Poole added the sale is also a positive for Transurban’s bondholders invested in Virginia projects.
“The Virginia projects now have additional long-term investors, which should provide for stable long-term governance of the assets,” Poole said.
