From hype to hope

It seems like there have been more false starts in the US P3 market than in the history of the Olympic Games. But is it now genuinely up and running?

How many times has the US public-private partnership (P3) market been flagged up as the ‘next big thing’? So many times, it seems, that to do so again is to risk mockery. The need for US P3s has become an ‘old chestnut’, a topic that’s been talked to death – a theoretical argument with a pleasing logic that nonetheless shows no sign of becoming reality. So it’s with trepidation that I say (or perhaps whisper) the following: US P3s have arrived. 

Before doubt overwhelms me and I feel compelled to delete that last sentence, let’s at least consider what asset class professionals are telling us about why they have confidence that the tipping point for the US market is approaching. 

They advise taking a look at the weight being thrown behind TIFIA (Transportation Infrastructure Finance and Innovation Act), the US Department of Transportation’s project loan programme. The recently enacted surface transportation bill (MAP 21) increased capital for the TIFIA credit assistance programme to $1.7 billion over two years – compared with $120 million for full-year 2012. With each dollar of federal funding expected to provide $10 in TIFIA funding, this translates to $17 billion of TIFIA loans – which, combined with additional transport infrastructure finance this is expected to leverage – could amount to some $50 billion of financing in total.   
Coupled with this, they say, TIFIA now boasts a bigger team, making the dispersal of the money more efficient. In debt-constrained times, this is a big helping hand. 

Observe also, they say, the expanding breadth of the market. No longer are P3s the exclusive preserve of a handful of trailblazing states. While the likes of Texas and Puerto Rico make many of the headlines, a quick glance through Infrastructure Investor’s news archive hints at P3s beginning to take root in Florida, Ohio, Virginia, California, Indiana and Arizona to name just a selection. You don’t have to go too far back in the archive to find deals being done – or at least in the pipeline – in these states. This is important because once a few deals are completed successfully in a given sector, the ‘credibility test’ is passed and many more will likely follow. 

Furthermore, it’s not just the breadth but also the depth of the market that is becoming a talking point. To date, the US P3 market has been largely synonymous with demand risk, especially given the predominance of toll road transactions. But when Meridiam Infrastructure achieved financial close on the breakthrough Long Beach Courthouse P3 in Los Angeles in December 2010, attention began to turn for the first time to social infrastructure. Subsequent developments in the social field have included Yonkers in New York state examining a P3 for its ageing school system and Louisiana mulling P3s for a couple of hospitals. 

Importantly, domestic US players are coming to the table. As well the lending boost provided by TIFIA, those familiar with the market say resident developers such as Kiewit and Walsh Group are becoming increasingly active. This is important, since the influence of European organisations – especially as lenders and developers – has been pervasive. The withdrawal of Europeans – beset by problems in their home markets – could have been highly detrimental. The reality is giving more cause for optimism.

Of course, it’s possible that those who see a P3 oasis on the desert’s horizon may be thirstily gazing at nothing other than the latest mirage. And, for those with a global remit, the current deal paralysis in Europe and still-embryonic nature of the Asian PPP market may tempt them into reading too much into the merest hint of progress. But there genuinely seems to be a vibe about the US P3 market now that’s been lacking before – a real sense that, for all the disappointment and frustration, it’s finally beginning to deliver in a meaningful way. 

*Watch out for the October 2012 issue of Infrastructure Investor, which includes extensive coverage of the US infrastructure market, including a roundtable discussion in New York with leading asset professionals