WASHINGTON — Transurban, a Melbourne, Australia-based toll road operator, and the Virginia Department of Transportation yesterday agreed in principle to a concession deal in which Transurban will pay about $525 million in exchange for taking over the Pocahontas Parkway for 99 years, including operations, maintenance, and collection of toll revenue.
Under the proposal, Transurban would pay off the roughly $400 million of bonds issued by the Pocahontas Parkway Association, a nonprofit entity created to issue and repay the tax-exempt bonds that financed the construction of the 8.8-mile toll road in Richmond, which opened in 2002. Transurban would also repay an $18 million loan to the state infrastructure bank and about $20 million loaned from the state.
A portion of the bonds could be immediately repaid; however, other portions of the debt have call protection, officials with DEPFA Bank, which is part of the Transurban team, said in a brief interview. The first opportunity to repay this call-protected debt would be in 2008. They were unable to say exactly how much could be paid off when the deal is closed and how much of the debt would be paid at the call date.
Analysts said they plan to carefully observe the transaction.
“We will closely monitor the situation, with a focus on agreements to defease the [parkway association’s] senior-lien debt,” Standard & Poor’s credit analyst Matthew Hobby said in a release.
Under the proposal, VDOT will continue to own the road and retain significant oversight and approval rights over Transurban’s ongoing management of the parkway, the state transportation agency said in a press release. VDOT and Transurban plan to finalize the agreement in the next several weeks, with a financial close expected in early June.
The plan also calls for Transurban to build a 1.6-mile, four-lane road providing parkway motorists with direct access to the Richmond International Airport. Construction of the road is contingent on Transurban getting assistance under the U.S. Department of Transportation’s Transportation Infrastructure Finance and Innovation Act program.
Also known as TIFIA, the program offers direct loans, loan guarantees, and lines of credit — instead of traditional grants — for as much as 33% of the cost of transportation projects that cost at least $50 million. The program was designed, in part, to raise the credit quality of large transportation projects that would have had marginal creditworthiness at best without TIFIA assistance. The projects would in turn be able to achieve an investment-grade credit rating and obtain bond financing.
“This is a good business agreement for the commonwealth because Transurban will pay off all existing loans on the Pocahontas Parkway, and it will bring the Airport Connector closer to reality,” acting VDOT Commissioner Gregory A. Whirley said in a release. “Through this arrangement, we are bringing additional private sector resources to Virginia’s transportation program.”
Announcement of the agreement comes after the parkway association, VDOT, and Transurban entered into a memorandum of understanding in June for a possible transfer of the association’s rights and obligations under a comprehensive agreement signed in 1998, with the expectation that all outstanding obligations would be defeased.
