Cintra, Meridiam close on $2bn North Tarrant project

Joe Aiello, senior investment director at Meridiam, said the project’s financing achieves ‘a series of major milestones’. It is the first privately financed US toll road to receive funding this year and the first project to involve a pension fund as a direct investor.

The $2 billion North Tarrant Express project in Texas is set to move ahead after a consortium of private investors, including Spanish toll road developer Cintra and European infrastructure fund Meridiam, raised the money necessary to finance the project.

“There’s a series of major milestones we achieved with this financial close,” Joe Aiello, senior investment director at Meridiam, told InfrastructureInvestor.

The 13.3 mile road will be the first privately-financed toll road to complete funding this year, according to a statement from Cintra. And, at $2 billion, it will eclipse the $1.68 billion I-595 corridor improvement project in Florida as the largest public-private partnership in the highway sector to close this year in the US.

Joe Aiello

The project is also significant for its involvement of a pension fund in its financial structure. Besides Cintra and Meridiam, their investor group, known as NTE Mobility Partners, also includes the Dallas Police and Fire Pension System, which will contribute 10 percent of NTE’s $427 million of equity in the project. “It is the first US pension fund to invest directly in the construction and maintenance of a major infrastructure project,” said Robert Hinkle, a spokesperson for NTE.

Canadian pension plans, such as the Ontario Municipal Employees Retirement System, have been investing directly in infrastructure projects for years, but American pensions have tended to invest in infrastructure indirectly, via private infrastructure funds that would invest on their behalf.

The remaining NTE equity will come from Cintra, 56.7 percent, and Meridiam, 33.3 percent.

Taxpayers will also help finance the project: the State of Texas will contribute a grant of $573 million from its gas tax revenues and the federal government will contribute a $650 million loan from its infrastructure lending programme known as TIFIA. A $400 million bond financing rounds out the project’s capital structure.

The bond financing was another major milestone for the project, said Aiello. The bonds being issued, private activity bonds (PABs), or municipal securities whose proceeds can be used to finance privately backed projects, will be the first PABs to be used to finance a public-private partnership deal this year. Investors in the I-595 project had planned a similar bond offering last year but had to switch to bond financing because the financial crisis eroded banks’ underwriting capacity and effectively shut down the bond financing market.

The bond offering is also unique because it was the first “fully unwrapped” PAB offering, Aiello said. In the past, it was common for monoline insurers, companies which guarantee the repayment of bonds’ principal and interest in return for a fee, to “wrap”, or guarantee public debt offerings such as this. However, in the wake of the financial crisis, monoline insurers’ ability to wrap bonds has significantly eroded and the value of their insurance policies has come into question.

Markets reacted positively to the issue. The bond offering was oversubscribed 2.4 times.

Cintra and Meridiam hired JPMorgan to manage the bond offering, Aiello said. Jane Garvey, the head of Meridiam’s North American business, is an alumnus of JPMorgan’s Infrastructure Advisory Group.

The project involves upgrading two segments of the North Tarrant Express road in the Dallas-Fort Worth area – one of the most congested transportation corridors in the US, according to Cintra. The two segments, measuring 6.4 miles and 6.9 miles, respectively, together form the first phase of a larger, $5 billion 36-mile improvement project for the North Tarrant Express corridor.

“There are roughly 300,000 cars a day that travel within that corridor, so that’s how many people we’re impacting,” Hinkle said.

Hinkle said construction is scheduled to begin in the fourth quarter of next year and be complete in 2015. At that time, NTE will manage and maintain the road for a period of 52 years under a concession agreement. The agreement gives NTE the opportunity to receive revenue from the project and recoup their investment, even though Texas will continue to own the road as well as set and collect its tolls.

All together, Meridiam’s €600 million infrastructure fund now has 16 projects in the portfolio, Aiello said. That includes three in North America – the Port of Miami Tunnel, North Tarrant and the $2.7 billion “New LBJ”project. That project, also located in Texas, is expected to reach financial close in early 2010, Aiello added.

Cintra is also a partner in the New LBJ project. The toll road developer, part of Spanish infrastructure developer Ferrovial, manages 24 toll roads worldwide: seven in Spain, five in Chile, three in Portugal, three in the US, two in Greece, two in Ireland, one in Poland and one in Canada.