US lends $386m to first toll road in North Carolina history

The loan to the $1.2bn Triangle Expressway project is being extended under the government’s TIFIA credit programme. The remaining financing will include $271m of toll revenue bonds and $343m of ‘Build America Bonds’ authorised by the economic stimulus bill.

The first toll road project in the history North Carolina is on its way toward financial close after the US Department of Transportation approved a $386 million loan for the Triangle Expressway in the state’s populous Raleigh-Durham-Chapel Hill region.

The 18.8-mile roadway, part of a larger, yet-to-be completed beltway around Raleigh, will receive the loan under the department’s Transportation Infrastructure Finance and Innovation Act (TIFIA) credit programme for such projects.

The project has a total cost of $1.2 billion, which makes it the largest transportation project in the in the state’s history by a factor of more than two, according to David Joyner, executive director of the North Carolina Turnpike Authority (NCTA).

You can't finance or build these roads anymore with revenue from the gas tax

David Joyner

The NCTA will meet the remainder of that price tag by issuing $614 million in bonds and collecting about $200 million in toll revenues from an existing 2.8-mile stretch of the expressway, Joyner said. But, unlike with previous bond issuances for transportation projects, which were municipal bonds backed by revenues from the state’s gas tax, the Triangle Expressway bonds will be backed by the completed project’s toll revenues.

“You can’t finance or build these roads anymore with revenue from the gas tax and that’s what we’ve been using in North Carolina. What this road represents is a departure from that approach,” Joyner said.

The project will also make use of so-called “Build America Bonds” authorised by the American Reinvestment and Recovery Act. That legislation, signed into law in February, allows state and local governments to issue bonds to build large capital projects such as the Triangle Expressway and receive a federal subsidy for up to 35 percent of their interest cost for the bonds. Joyner said $343 million of the $614 million in revenue-backed bonds will be Build America Bonds, which are an attractive alternative over municipal bonds.

“You [the issuer] pay a high premium from your yield, but are able to get the government to give you back 35% of your interest payment,” he explained. “So the net effective yield is better with Build America Bonds than it would be with a municipal tax-free bond.”

The bonds were offered to retail investors Monday and will be offered to institutional investors Tuesday. Joyner said the retail offering went “great” and he hopes to reach financial close for the project in about two weeks. Bank of America Merrill Lynch is lead underwriter on the offering.

Triangle Expressway: tightening the beltway around Raleigh
Source: NCTA

No private investors are directly participating in the project’s financing, although the state has enabled the NCTA to pursue public-private partnerships (PPPs) for transportation projects. In April, the NCTA signed its first PPP with a group of engineering and construction firms led by Spain’s ACS.

The group, called the Currituck Development Group, will perform financial analyses to determine the overall financial feasibility of a PPP for the construction of the 7 mile Mid-Currituck bridge linking the state’s outer banks on the Atlantic with the mainland.

Joyner said the NCTA did not pursue a PPP arrangement for the Triangle Expressway because, after already spending four years and one month developing the project, it wanted to act quickly to get construction underway.

“Negotiations for PPPs take a long time and moreover we had what we thought was a pretty good plan for finance,” Joyner said.