WASHINGTON -
Transurban (USA), an American affiliate of the company, and DEPFA Bank have signed off on a confidential memorandum of understanding with VDOT and the Pocahontas Parkway Association, which was created eight years ago to fund the 8.8-mile toll road, according to Transurban and the parkway association.
The MOU "provides for the exclusive investigation of the feasibility of acquiring [the parkway association's] rights and obligations in relation to the parkway and in the event of a favorable outcome of such investigation, the negotiation of an agreement to transfer the [association's] rights and obligations to Transurban and DEPFA," the company said in a June 17 release. "Transurban has commenced due diligence on the project and will keep the market informed of any developments within the constraints imposed by a confidentiality agreement it has entered into."
A recent release issued by the Parkway Association said: "It is contemplated that any final agreement would be completed by the end of 2005 and would involve the defeasing of all outstanding bond obligations of" the association.
The association has issued about $400 million in tax-exempt toll revenue bonds for the project since 1998. The state infrastructure bank also provided an $18 million loan and $9 million in federal funding was provided for roadway design, according to the Federal Highway Administration.
"We expect that all outstanding obligations of the association would be paid off," said VDOT chief financial officer Barbara Reese, who could not comment beyond the contents of the release.
The Pocahontas Parkway Association is a non-profit corporation that was created by the state in August 1997 for financing and operation of the Pocahontas Parkway, which was fully opened to traffic in September 2002.
Under federal tax law, a state-created non-profit can issue tax-exempt debt to finance projects that serve the public, such as a mass transit system. The technique, known as "63-20" for the federal tax code rule, has become increasingly popular with localities for funding transportation projects, hospitals, and charter schools.
While IRS Revenue Ruling 63-20 has been in existence for 37 years, its use as a financing mechanism for transportation projects has taken off only in recent years. The Pocahontas Parkway was only the second transportation project nationwide to be financed through this concept. The first was the 16-mile toll road known as the Southern Connector that links Interstates 85 and 385 in Greenville, S.C., which also was financed in 1998, according to the federal highway agency.
The Pocahontas Parkway was also the first construction project built under Virginia's Public Private Transportation Act of 1995. That state law allows the VDOT to contract with private firms to build roads.
The parkway is a four-lane toll road located southeast of Richmond, which crosses the James River and provides access to Richmond International Airport.
The toll road's debt is rated BBB-minus with a negative outlook by Fitch Ratings.
The rating is based on a "$30-plus million" reserve that the toll road has, said Fitch analyst Cherian George, in a brief interview Friday.
The reserve "provides considerable stability while traffic ramps up and development takes its natural course," he said.
Standard & Poor's maintains a BB rating on the toll road's debt with a stable outlook; Moody's Investors Service rates the debt Ba3 with a negative outlook.
