Better Roads Digital Magazine
Issue link: http://read.dmtmag.com/i/440996
Better Roads December 2014 23 sessed on a case-by-case-basis. Implementation would be up to the state or local level agency responsible for the asset. Better Roads has examined the lengthy P3 guide and has pulled out some of the key points and topics to provide a snapshot of what you need to know. For the full document, go to fhwa.dot.gov/ipd/pdfs/p3/model_p3_core_toll_concessions.pdf for a downloadable PDF. Guide objectives Based on public and stakeholder input from the listening ses- sion, FHWA noted it has determined that "a set of prescriptive, standardized contracts for use in P3 transactions would not be acceptable or desirable to all State DOTs and other public agencies in the United States that are interested in using P3 for highway projects. The objective…[is] that [the] guide will as- sist in educating public agencies and stakeholders on key issues in highway projects procured as P3 transactions, the trade-offs, and ways to provide investment. Using the knowledge base of highway projects previously undertaken as P3 transactions, this guide attempts to educate agencies and stakeholders that may be only beginning to approach P3 transactions, while still providing relevant information to more sophisticated and experienced state and local transportation agencies." The guide's overall objectives include the following: • Increase state and local agency understanding of standard P3 market terms and possible contract structures, includ- ing the rationale behind such terms and structures. • Enhance state and local agency understanding of market/ investor perspectives, goals, and objectives. • Present and analyze current legal and regulatory dynamics relative to highway projects procured as P3 transactions. • Present and analyze current tools and mechanisms used in Concession Agreements for P3 transactions. • Incorporate international best practices, where relevant. • Encourage discussions with state and local agencies and stakeholders (via Webinar discussions to be conducted following the publication of this guide). Guide summary chapter-by-chapter The guide gives a specifi c analysis for state and local trans- portation agency personnel on the following topics related to highway projects procured as P3 transactions, focusing on toll road concessions: Chapter 1: Focuses on the following: • Tolling Regulation. • Benefi t-Sharing. • Supervening Events. • Change in Law. • Changes in Equity Interests. • Defaults, Early Termination, and Compensation. • Handback. Chapter 2: Tolling Regulation – Topics discussed include toll collection, user classifi cation, toll rate setting, toll collection system and administration, enforcement of collections, man- agement of demand risk and use of revenue funds. Chapter 3: Benefi t-Sharing – Topics discussed include the setting of revenue-sharing triggers fi nancial modeling and structuring of triggers within the P3 model, treatment of P3 Terms to Know • Concession is a long term lease of public facilities to a private party (concessionaire) – Greenfield and Brownfield facilities. • A Special Purpose Vehicle (SPV) is a legal entity created to fulfill narrow, specified tasks – isolates the financial risks from the parent com- pany or companies. • Leveraging is the degree to which an investor or business is using borrowed money (debt). If a project is leveraged at 70/30, 70 percent debt and 30 equity. • Debt is a bond or loan, with an obligation to pay interest and principal at a later date –obligation has payment priority over equity – includes Pri- vate Activity Bonds (PABs) and Transportation Infrastructure and Finance Act (TIFIA) loans. • Equity defines ownership interest in a corpora- tion – requires a higher internal rate of return than debt holders as equity interest is riskier. It can be lost in certain instances. • The Internal Rate of Return is the percentage return on investment – weighted average cost of capital (WACC) of project vs. return on equity • Greenfield – new facility. • Brownfield – existing facility. • Hybrid – extension or expansion of existing facility. • Availability Payments – payments made by the public sector sponsor based on particular mile- stones or facility performance standards. • Shadow Tolls – payments to the Concessionaire or private sector partner based on volume of traf- fic on a facility. Source: Federal Highway Administration Office of Innovative Program Delivery Program Development Team (fhwa.dot.gov/ipd/pdfs/p3/ intro_p3.pdf) HighwayContractor