Financing Public-Private Partnerships for Infrastructure, Transportation, Energy and Redevelopment Projects

Transcription

1 Presenting a live 90-minute webinar with interactive Q&A Financing Public-Private Partnerships for Infrastructure, Transportation, Energy and Redevelopment Projects Structuring Traditional and Alternative Financing and Allocating Risk to Protect Return on Investment TUESDAY, JANUARY 14, pm Eastern 12pm Central 11am Mountain 10am Pacific Today s faculty features: Reginald A. Long, Partner, Love and Long, Philadelphia Steve T. Park, Attorney, Ballard Spahr, Philadelphia The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions ed to registrants for additional information. If you have any questions, please contact Customer Service at ext. 10.

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5 Financing Public Private Partnerships for: Infrastructure, Energy and Redevelopment Projects Reginald Long Love and Long LLP

6 Introduction Public Private Partnerships (P3s) Defined; Traditional Bank Financing in P3s; Utilization of Mezzanine Financing in P3s; Equity Financing; Bonds, Grants and Government Loans; MAP-21 and TIFIA; Allocation of Risk; Recent Regulatory and Legal Developments with P3s; and Questions 6

7 What is a P3? A P3 involves a contract between a public sector authority and a private party, in which the private party provides a public service or project and the private party generally assumes substantial financial, technical and operational risk associated with the project. 7

8 Mutual Benefits and Obligations of a P3 In a P3 the Public Entity may provide: Land Public Funds Lower Cost Financing Private Entity may provide: Design/Development/Technical/Operational Expertise Preferred Public Use Private Financing Assumption of Risk 8 The P3 Results in Economic Development and Growth which benefits the Public and Private Sectors

9 Traditional Bank Financing of P3 A P3 has certain advantage in obtaining traditional bank financing including: Lower Risk (Lower LTV when land is included as equity); Higher Comfort Level with Public Sector involvement in transaction; Recognition of long term benefits resulting from the economic development A P3 may run into challenges involved in traditional bank financing including: 9 Land may not be zoned for highest and best use; Assemblage and Environmental Issues with the land Complexity resulting from the structure and contractual components between the public and private parties as they relate to the activities of the SPV.

10 10 Bartlett Distribution Center, Newark, New Jersey

11 Mezzanine Financing Subordinated to senior debt; Often shorter maturity; Used a gap filler between senior debt and equity; May have equity conversion feature; Treated as quasi debt and equity. 11

12 12 WHGA Schomburg Place Limited Partnership, Harlem, New York

13 13 Newark Screens, Newark, New Jersey

14 14 Food Depot Supermarket, Newark, New Jersey

15 Public Financing in P3s Government Loans TIF Federal/State Grants 15

16 Tax Increment Financing Tax Increment Financing (TIF) model permits local public entities to obtain access to significant and long term source of funds; Based upon either property tax or sales tax; Generally, special TIF districts are established at State level; TIF does not require a redevelopment agency 16

17 How The TIF Model Works Base Year - Once a project area was designated and a redevelopment plan was adopted, a base year was established for the project area. This frozen base year represented the property tax base prior to any redevelopment activity. Tax Increment - Any subsequent increases in assessed value above the base year are identified as tax increment revenue. Debt Public agency incurs debt (normally bond issuance) which is guaranteed by the private developer; 17

18 How the TIF Model Works The public agency collects tax increment revenue up to the amount of debt incurred. The public agency needs to incur debt in order to collect tax increment revenue. The TIF model is often used to fund a public use component of a private development. 18

19 19 Mall of America, Bloomington, Minnesota

20 20 Mall of America Transit Center

21 Federal and State Grants for P3 State and Federal Grants are available for a wide range of P3s; Often found in energy sector; More common in transportation and infrastructure projects. 21

22 Federal Grants and Loans in Transportation MAP 21 TIFIA TIGER Grants Transportation Investments Generating Economic Recovery PNSR Grants Projects of National and Regional Significance TIFIA Loan Program 22

23 MAP-21 - TIFIA Purpose to provide Federal credit assistance to surface transportation projects including: Transit Highways Freight Intercity passenger rail Program Products Secured Loans direct Federal loans to project sponsors (49%) Loan Guaranties full faith and credit of Federal Government to private investors Lines of Credit (33%) Combination of Federal loans and grants cannot exceed 80% 23

24 MAP-21 - TIFIA Repayment of Federal Assistance Provisions related to rural projects Investment grade rating Non-subordination Limited buy-downs Funding redistribution 24

25 Financing Public-Private Partnerships for Infrastructure, Transportation, Energy and Redevelopment Projects Steve T. Park, Esq. Ballard Spahr LLP

26 Introduction to P3s Public-private partnerships (P3s) are an innovative method of funding, delivering and procurement for infrastructure projects. P3s are used for a variety of infrastructure asset types. A contractual agreement between a public agency and a private entity to achieve all, one or a combination of the following: Monetize an existing infrastructure asset. Design, construct, finance, and/or operate and maintain an infrastructure project. Transfer risks such as revenue, operations, environmental, labor, construction to the entity best able to retain and manage them. 26

27 Types of P3 Projects Greenfield Projects Toll Roads (Port of Miami Tunnel, I-95 HOT Lanes) Transit Projects (Denver Union Station, FasTracks) Social Infrastructure (Long Beach Courthouse, Alberta Schools) Brownfield Projects Asset monetization (Allentown Water, OSU Parking) Lease of existing assets (Indiana Toll Road, Chicago Skyway) 27

28 Reasons for Greenfield P3s Design-Build Savings reduced construction costs Operations and Maintenance Savings reduced O&M costs Private Sector Financing longer-term debt and wide array of financing tools; access to private capital Accelerates project delivery Asset is still owned by public agency, which retains tight control on toll rate setting, O&M standards etc. Long-Term Risk Allocation and Transfers Long-Term lease provides tax benefits to private partner that can flow through as savings to public agency. 28

29 Reasons for Brownfield P3s Operations and Maintenance Savings reduced O&M costs Asset is still owned by public agency, which retains tight control on toll rate setting, O&M standards etc. Long-Term Risk Allocation and Transfers Fiscal reasons - budget tension, underfunded pensions Policy reasons 29

30 Major Risk Allocation Issues Procurement Issues: best value analysis vs. lowest cost Delay Events Compensation Events Force Majeure Events Defaults and Remedies Termination 30

31 Construction Related Issues O&M of asset during construction Control of design/construction Early works Delay events Acquisition of Project ROW, utility relocation Permits and approvals Substantial completion/segment completion Liquidated damages 31

32 User Fees/Tolling Limits/caps on user fees/tolls/fares - Statutory - Political Toll enforcement Suspension of tolls (emergencies) Allocation of revenue risk 32

33 O&M Related Issues Ongoing Capital Expenditures Procedures relating to maintenance Public Entity's right to oversee work Access and inspection rights Noncompliance points Handback 33

34 Legal & Regulatory Impact Reginald Long Love and Long LLP

35 Legal and Regulatory Impact State Enabling Legislation Federal legislation Model Rules for P3s 35

36 State Enabling Legislation As States continue to experience: budgetary constraints; deteriorating infrastructure; and Urban sprawl States will continue to enact enabling legislation for P3s. 36

37 State Enabling Legislation Key Elements of State Enabling Legislation Unsolicited Proposal Rules Prior Legislative Approval of Contracts Mixing of Public and Private Funds 37

38 State Enabling Legislation Structure and Importance of P3 Enabling Legislation Enabling legislation is critical prerequisite to private investment Provides policy stability and reduces uncertainty regarding investment returns Indicates public commitment to the P3 process Can reduce transactional cost Can encourage innovation through unsolicited proposals 38

39 Model P3 Rules International call for Model P3 Rules UNCITRAL adopted model provisions for privately financed infrastructure projects EBRD adopted core principals for P3s No Model Rules for P3s 39

40 Model P3 Rules Obstacles to Model Rules Political realities of each sovereignty; Projects fill specific needs; P3 laws tend to facilitate specific needs and culture of each country;. 40

41 Federal Rules Federal P3 Laws tend to be concentrated in Transportation Transportation Infrastructure Finance and Innovation Act National Highway System Designation Act 41

42 Federal Grants and Loans in Transportation MAP 21 TIFIA TIGER Grants Transportation Investments Generating Economic Recovery PNSR Grants Projects of National and Regional Significance [if funded in 2014] TIFIA Loan Program 42

43 Recent Legal and Regulatory Developments Steve T. Park, Esq. Ballard Spahr LLP

44 Recent Legal and Regulatory Developments MAP-21 Standardized P3 Contracts - Not later than 18 months after MAP-21, DOT was tasked with developing standard P3 model contracts Best Practices - DOT is also required to publish best practices on how public entities can work with the private sector Technical Assistance - authorizes DOT to provide technical assistance regarding P3s including assistance in analyzing whether the use of P3 would provide value compared to traditional public delivery models 44

45 Recent Legal and Regulatory Developments Trends in State P3 Laws Usage of different procurement methods Wide array of project delivery methods Legislative review of projects Allowing for different types of projects 45