Presidio Parkway bonds ‘clearly achievable’ in current market

The financing plan for the PPP calls for $150m of private activity bonds which the underwriters believe can easily be sold, according to a financing plan for the project. Barclays, Merrill Lynch and Scotia Capital have been preliminarily identified as the underwriters for the issue.

The plan was submitted earlier this month by Golden Link Partners, the Meridiam- and Hochtief-backed joint venture that won the bidding to deliver what is the state’s first public-private partnership (PPP) under a 2009 law allowing such projects.

Golden Link Partners said delivery of the project – a 1.5 mile segment of a larger reconstruction of the southern access road to San Francisco’s Golden Gate Bridge – would cost $358.6 million. That includes the construction costs of the segment, operations and maintenance during construction, and other fees.

The $358.6 million would be financed through three primary sources: bonds ($150 million), a federal loan ($150 million) and an equity contribution from Meridiam and Hochtief ($45 million).

Golden Link Partners said the bond issue will be carried out through the US Department of Transportation’s Private Activity Bonds (PABs) program. The program allows municipal issuers to float bonds whose proceeds will go toward privately-backed projects, as opposed to public works.

The California Municipal Finance Authority would act as Golden Link’s conduit issuer, Golden Link said. The bond issue would be secured by a $173.4 million payment Golden Link would receive from the California Department of Transportation once construction is completed.

Golden Link said its “core lenders” believe such a bond sale would be “clearly achievable in the current market”. The bonds would be underwritten by Barclays Capital, Merrill Lynch, Pierce Fenner & Smith and Scotia Capital, according to the financing plan.

The underwriters said in a letter the bonds would have a 2015 maturity and a 2.25 percent credit spread over the AAA MMD interest rate benchmark. 

In the US, bond issues for PPPs are still quite a rare occurrence. Late last year, Meridiam completed a $400 million PAB issue for another PPP, the North Tarrant Express project in Texas. But long-term, Congress has capped PAB issuance at $15 billion.

In Canada, bond issues for PPPs have been growing quickly in size and number. In July, SNC Lavalin and Innisfree floated $764.1 million of senior secured bonds for the McGill University Health Centre – the largest offering yet of PPP debt in that market.

The federal loan portion of Presidio’s financing would come from TIFIA, the Department of Transportation’s infrastructure lending programme named after the 1998 Transportation Infrastructure Finance and Innovation Act. The Presidio PPP was one of four projects cleared to apply for the low-cost loan out of 39 letters of interest the TIFIA office received earlier this year.

A 35-year TIFIA loan currently costs 4.05 percent, according to the TIFIA website. Golden Link Partners assumed in their proposal they will pay 4.5 percent on their TIFIA loan, which will take several months for application and approval.

The equity portion would be funded by Meridiam and Hochtief on a 50-50 basis.

Commercial close, or agreement on all the main terms of the project’s contract, is expected by the end of the year. Financial close, when the $358.6 million project will be funded, is targeted for August 2011, according to the financial plan.

Scotia Capital is also advising Golden Link Partners on the Presidio PPP.