When a Maryland judge ruled that the private counterparts to the Purple Line project were legally allowed to walk away from their PPP with the state in September 2020, it seemed like the proposed light rail system would never see the light of day. Cost overruns and legal issues have slowed construction to a stand-still, despite the concession originally being awarded in March 2016.
However, a year and a half after the judge’s ruling, it seems that both public and private parties have found a way to move forward. Earlier this month, the Meridiam-led Purple Line Transit Partners (PLTP) consortium reached an agreement with the Maryland Transit Administration and the Maryland Department of Transportation to revitalise the project with a new $2.7 billion financial close and a new contractor to boot.
According to a “modified” agreement announced in January by MDOT and the Maryland Transit Authority, PLTP will remain the state’s counterparty for the project and will be comprised of Meridiam and Star America. Fluor Corporation, originally holding 15 percent equity in PLTP, exited the consortium in mid-2020, with Meridiam now owning 82 percent equity and Star America 18 percent.
The new cost of the project? A cool $9.28 billion, according to MDOT, with the original total cost slated to be $5.6 billion. That’s including a $3.4 billion design and build cost, which has increased from $2 billion. This reflects “post-pandemic” increases in “rising material costs across the industry, material shortages due to supply-chain challenges, a smaller labour force, increases in the insurance market and other factors”, MDOT stated in January.
Full steam ahead
One of the main changes to the PPP is in the financing agreement. PLTP initially procured a loan from the federal department of transportation via the Transportation Infrastructure Finance and Innovation Act for $874.6 million in June 2016. However, Infrastructure Investor understands that the consortium dissolved before it could properly cash in on the loan.
Under its new agreement via the DOT’s Build America Bureau, the developer reapplied for the loan, this time at a sum of $1.76 billion. The loan will provide up to a third of the project’s $5.9 billion eligible costs, the DOT said in a statement.
Infrastructure Investor understands that this sum includes most development and construction costs, as well as capitalised interest on money excluding TIFIA credit assistance, but does not include the near $2 billion needed for operations and maintenance.
According to Jane Garvey, chair of Meridiam’s supervisory board, the additional costs can be chalked up to a myriad of factors: “Replacing a design-build contractor with a new one midway through construction inherently adds cost, including an extended schedule, apportioning risks associated with assuming a partially completed project and other factors. We also faced a national economic environment of inflation in construction costs.”
Said additional costs, alongside public turmoil, have given ratings agencies reason for caution. Fitch rated the project’s approximately $100 million of 2022A private activity revenue bonds and $543.5 million of 2022B PABs, as well as $1.8 billion in in federal loans associated with the project, with a BBB. The PLTP consortium has also injected $293 million of equity as part of the new financing package.
“From a rating standpoint, we want to be a little bit more conservative, recognising that one contractor is coming in and taking over another contractor’s work,” said Jeffery Lack, Fitch’s primary rating analyst for the Purple Line project. “The project is now 50 percent complete, approximately, so there’s a little bit less risk there from the construction side.”
‘Not as originally planned’
Fluor was also initially part of the consortium chosen for operations and maintenance of the Purple Line. Following the firm’s exit, the other two companies involved in the consortium –Alternate Concepts Inc and CAF – have upped their equity, with Alternate Concepts holding 51 percent and CAF holding 49 percent, respectively.
Upon Fluor’s exit in May 2020, it said that “the lack of resolution on the impacts of third-party lawsuits, delayed right-of-way acquisition, and changes to regulations and third-party agreements made the joint venture’s continued participation unsustainable”.
On the new configuration of the group, Meridiam’s Garvey told Infrastructure Investor: “In the end, it came down to relationships founded on trust. Our team’s goal was to always operate in the same fashion.”
Fluor did not respond to requests for further comment.
For Star America chief investment officer Mark Melson, “the Purple Line actually shows the resiliency of the PPP structure. We continued to work with the state, we continued to have a good relationship with the state, and the proof is in the pudding and that we’ve now reached a second financial close and the project is going to continue. No question the project had serious issues. Those issues were resolved in a way that worked for all the parties and the project will be completed and we will have an operating railroad, which we will operate for several decades into the future, and it’ll be a benefit to the citizens of the state of Maryland”.
Those “several decades”, to be precise, will see PLTP operate the concession until 2056. And said “benefit to the citizens” will see the entire project begin operations at once, rather than the previously planned phased opening.
So despite the Purple Line’s travails, Star America chief executive Christophe Petit is bullish on the future of PPPs: “Some [PPPs in the US] have not gone as originally planned, but all of them ultimately got delivered. We’ve done it in multiple states. We’ve done them in Texas, we’ve done them in Ohio, we’ve done them, obviously, in Maryland, we’ve done them in Michigan. And every time the experience was different.”
With the Purple Line on track to be delivered under this new agreement, it is anticipated that the 16.2-mile, 21-station, east-west light rail transit line will be up and running by 2026 – over four years behind schedule.