Category: North American social infrastructure
Winner: Ontario Driver Examination Services
Nominated by: Bank of Montreal (mandated co-lead arranger, administrative agent) and Toronto-Dominion Bank (mandated co-lead arranger, account bank)
Other participants included:
Plenary Group (developer, equity sponsor)
Date of transaction: 27th June 2013
Size of transaction: Approximately $122m ($105m senior debt, $17m equity)
You might think that, in an established infrastructure market like Canada, there would be few ‘firsts’ left to achieve in the public-private partnership (PPP) space. If so, you’d be wrong.
In June last year, Bank of Montreal, Toronto-Dominion Bank and Plenary Group closed the first PPP project under Infrastructure Ontario’s Alternative Financing and Procurement (AFP) framework that involves the provision of services and market demand risk.
The modestly sized deal involved the financing of driver examination service delivery across the province of Ontario, together with the upgrade and maintenance of information technology systems at all DriveTest centres to provide more efficient and secure services.
A Plenary-led sponsor group committed $75 million upfront and approximately $14.5 million in annual concession payments to the Ontario Ministry of Transport (MTO) in return for being entitled to driver examination revenues (from which it pays operating costs to international service company Serco and capital payments to debt and equity).
In so doing, the Ontario Drivers deal is likely to set a benchmark for future services deals in the PPP space in Canada. It also offered a different risk-sharing model from the standard availability payment-based approach, as well as witnessing the emergence of a longer-tenor (ten-year) bank product – rarely seen in the five years that had passed since the global financial crisis.
The origins of the deal go back to 2003 when Serco struck a deal with MTO to provide a wide range of driver examination services including application processing and the delivery of vision, knowledge and road testing across all license categories. The firm took responsibility for overseeing approximately 575,000 knowledge tests and 675,000 road tests on an annual basis at 95 testing centres across Ontario.
Under the new 10-year contract agreed with Plenary, Serco's role will expand to include upgrading and enhancing information technology solutions to improve processing, scheduling and the delivery of services to drivers. The contract sees Serco enter a ten-year partnership with estimated revenues to Serco of approximately C$500m over the contract term.
According to a press release from Serco, Plenary Group’s “significant” financial commitments guaranteed the consortium’s service delivery performance for the concession term. The new structure of direct customer financing replaced Serco’s previous use of cash resources and debt facilities to finance the partnership.
The numerous merits of the Long Beach Courthouse PPP in California demanded an honourable mention from the judging panel in this category. Nonetheless, as an availability-based project, it was felt that this was a more straightforward credit.
What the judges said:
“Innovative, pushes the boundaries.”
“It’s a traditional PPP but with the banks taking service and demand risk. I like that, it shows dynamism and open-mindedness.”
Honourable mentions in this category:
Governor George Deukmejian Courthouse / Long Beach Courthouse (nominated by Deutsche Bank)