All in it together

Category: North American transport

Winner: North Tarrant Express Segments 3A and 3B

Nominated by: Taylor-DeJongh (financial adviser to TIFIA)

Other participants included:
Cintra Infraestructuras (sponsor); Meridiam Infrastructure (sponsor); Dallas Police and Fire Pension System (sponsor); APG (sponsor); Citibank (financial adviser to sponsors); KPMG (financial adviser to authority); TIFIA (lender); JP Morgan Securities (mandated lead arranger); Merrill Lynch (mandated lead arranger); Pierce Fenner & Smith (mandated lead arranger); Barclays Capital (mandated lead arranger); Estrada Hinojosa & Company (mandated lead arranger); Gibson, Dunn & Crutcher (legal adviser to sponsors); Latham & Watkins (legal adviser to lenders); Nossaman (legal adviser to authority); Hawkins Delafield & Wood (legal adviser to TIFIA); Jacobs (technical adviser to authority); AECOM (technical adviser to sponsors); Hatch Mott Macdonald (technical adviser to lenders); CDM Smith (traffic & revenue adviser); SAM Construction Services (independent engineer)

Date of transaction: 19th September 2013

Size of transaction: $805m

In the US, much collective brainpower has been directed at the thorny issue of how to get the public and private sectors working together optimally to deliver the nation’s infrastructure. In the case of the North Tarrant Express project in Texas, participants feel they may have cracked the code.

“Interdependence” is the word used in the deal’s submission by Taylor-DeJongh, which acted as a financial adviser. Specifically, this refers to a “dual delivery” method by which responsibility for the construction of Segments 3A and 3B of the Expressway was split between the private concessionaire, NTEMP3, and the public sponsor, Texas Department of Transportation (TxDOT).

Taylor-DeJongh pointed to the “uniqueness of the project” arising from this interdependence, with both segments needing to be completed to ensure the project’s success. “In addition, the dual delivery method stipulates a more creative project structuring solution and the careful balancing of risk allocation between the two key counterparties, matched by an appropriate mix of public and private funds.”

The firm added: “The dual delivery method allows for the most efficient delivery of each segment, while still allowing the concessionaire to get the maximum benefits of the toll revenues on both segments to support repayment of the project’s debt.”

The funding also showed the public and private sectors in harmony. From the public side came TxDOT-issued Private Activity Bonds (PABs) – with below market interest rates due to their tax-exempt status – and a TIFIA (Transportation Infrastructure Finance and Innovation Act) loan. TIFIA is a government initiative offering low interest rates with flexible long-term repayment profiles to eligible projects.

Taylor-DeJongh said this public financing made the “substantial private contribution possible” from Cintra, Meridiam Infrastructure, Dallas Police and Fire Pension System and APG. The Dallas pension was the first ever US pension fund to invest directly in an infrastructure project – and this deal was its third (the first two having also been Texas toll road projects alongside Cintra and Meridiam).

The project will involve the reconstruction of general lanes and the addition of managed toll lanes to double the capacity of I-35W north of Fort Worth, Texas. The proposed improvements to IH 35W consist of the reconstruction of general purpose lanes; the construction of barrier-separated, managed toll/high occupancy vehicle (HOV) and transit lanes; the construction of managed lane ramps; improvements to several interchanges; and the constriction of frontage roads and cross-street intersections.

The project will reconstruct more than 12 miles of freeway and add managed/transit lanes on I-35W in Tarrant County immediately north of downtown Fort Worth.

The managed lanes will be tolled using a state-of-the-art Electronic Toll Collection System (ETCS) that utilises dynamic pricing to set variable toll rates, according to demand, so that the average speed on the managed lanes is maintained at or above a contractually mandated minimum speed of 50 miles per hour.

In the words of the submission: “By utilising a creative project structuring solution and innovative financial instruments, the transaction sets an excellent example of yet another way that states, private developers, and the federal government are all working together in developing innovative approaches to deliver transportation infrastructure in the United States.”

The notion of “interdependence” struck a chord with the judges. If the US is finally to realise its undoubted potential as a PPP market, more ways will have to be found to get the public and private sectors cooperating optimally – as this particular transaction clearly exemplified.

What the judges said:

“A lot of new concepts and new investors. Impressive.”

“It’s different and it’s complex. My only question is whether it’s replicable – and thus has a wider relevance for the market – or whether it’s a one-off that happens to fit the circumstances.”

Honourable mention:

Luis Munoz Marin International Airport concession (nominated by RBC Capital Markets)