Executive Summary of Innovative Project Finance: Exploring the Options Frederick Werner Project Finance Manager FHWA Office of Innovative Program Delivery.
Post on 16-Dec-2015
215 Views
Preview:
Transcript
Executive Summary of Innovative Project Finance:
Exploring the Options
Frederick Werner Project Finance Manager
FHWA Office of Innovative Program Delivery
2
Outline
• Introduction Section• Why Innovative Finance?• Debt Financing• Private Financing• Credit Assistance• Project Finance Case Study• OIPD Resources
4
Welcome
Thank you for the opportunity to speak to you today!
Today’s presentation provides a general introduction to innovative project finance alternatives
Some of these alternatives are widely used; others are relatively new
The Federal Highway Administration (FHWA) is available to assist you, both at the Division Office and Office of Innovative Program Delivery (OIPD)
OIPD conducts webinars, provides direct technical assistance, and hosts guidance materials on its website, www.fhwa.dot.gov/ipd
5
Objectives
Define key finance terms Identify benefits associated with innovative project
finance Introduce specific innovative finance techniques
and programs to supplement traditional methods Identify resources for future technical assistance Provide Case Study to illustrate use of multiple
innovative project finance techniques
7
Why is it necessary?
Limited Federal funds to support capital investment
Little likelihood of change in foreseeable future Under traditional (pay-as-you-go) delivery
methods, large and/or critical projects can languish for years, if not decades
Adverse safety, mobility, and trade outcomes
8
What IS Innovative Finance?
• A supplement to traditional financing methods• Targeted use of credit at favorable terms• Identification and implementation of new
revenue streams to repay debt service• Partnership with private sector, leveraging its
financial and technical resources• One or more of the above
9
What Innovative Finance Is NOT!
• A replacement for traditional financing methods• Silver bullet: the answer to all project financing
challenges• Easy solution• No cost solution• And remember… credit must be repaid!
10
Benefits of Innovative Finance
• Accelerates project delivery• Provides states and localities with additional
options• Leverages Federal grant funds and credit• Leverages private sector equity and expertise
12
Traditional Municipal (Munis) Bonds
Definition: Government bonds issued by State and local entities to finance the capital cost of public facilities
Benefits: • Interest paid on Munis in U.S. is currently exempt from Federal
taxes, and in some cases exempt from State taxes in State issued
• Therefore, interest rates are typically lower than the rates on taxable bonds, resulting in relatively low financing costs
Munis vs. Commercial Paper:• The private sector can also access the capital markets by issuing
commercial debt, which is generally taxable for Federal income tax purposes
• Since privately issued commercial paper is often considered riskier than govt. debt, it carries higher interest rates than Munis
13
Grant Anticipation Revenue Vehicles
Definition: Bonds, generally tax-exempt, sold by States and backed by and repaid with specific Federal-aid funds
Purpose: Issued to provide new funding to an eligible project or to refinance existing bonds
Key Provisions:• No Federal guarantee of repayment; any pledges or obligations
must come from State legislation and/or executive authority
• Local match is required with every debt service repayment
Advantages: Acceleration of construction; low interest rates for new money bonds and re-financings; leveraging of Federal funds
Challenges: Cost of interest; loss of future flexibility Administration: FHWA establishes rules on GARVEEs; States
issue the debt and establish the terms of the bonds
14
GARVEEs by State (as of 2012)
CT
MA
GARVEE EnablingLegislation
Issued GARVEEBonds
Considering GARVEEEnabling Legislation
VI
Northern Mariana Islands
Guam
American Samoa
AK
RI
ND VT
HI
DE
NH
SD WY
ID
ME
UT
NE NV
MT
IA
NM
NJ
KS
OR
WV
MD
MN
AR
IN CO
WI
OK
LA
VA
AZ
KY
MI
MS AL
IL
MO
NY
TN
OH
SC GA
NC
PA
FL
TX
CA
WA
DC
PR
GARVEE Enabling Legislation for sub-State level entities
16
Public-Private Partnerships (P3s)
Definition: Contractual agreements between a public agency and private entity
Purpose: To allow for greater private participation in project finance and delivery
Advantages: Accelerates Projects• Provide opportunities for risk sharing; optimal allocation to
entity best able to manage and mitigate a particular risk
• Value can occur from lower costs, time savings, innovation
• Opens opportunity for private equity investment
Challenges: Public acceptance, enabling legislation, organizational capacity, and high cost of capital
17
Private Activity Bonds (PABs)
Definition: Allows private sector to issue tax-exempt bonds for certain categories of projects advanced with private investment
Key Provisions: Does not provide revenue or borrowing authority, only grants tax-exempt status
Legislation and Current Status:
• In 2005, Congress created a special class of PABs to be allocated by U.S. DOT (some modes had prior experience with State-directed PABs)
• $15 billion made available under SAFETEA-LU
• Unallocated funds still available under MAP-21
19
TIFIA Federal Credit
Definition: Provides $17 billion in secured (direct) loans, loan guarantees, and lines of credit to projects of national or regional significance in FYs 13/14
Purpose: Encourages new revenue streams and private investment
Eligibility: Sponsors include private firms, special authorities, and State and local governments; specific provision for int’l bridges and tunnels
Benefits: Low interest rates and flexible terms Applications accepted on a rolling basis
20
State Infrastructure Banks (SIBs)
Definition: Revolving funds using Federal transportation dollars to provide credit assistance for local transportation projects
Eligibility: Only Title 23 and Title 49 projects; MAP-21 does not provide for new capitalization of Federal-aid funds to SIBs, however existing SIBs may continue to operate
Key Provisions: State takes Federal-aid funds and provides the local match, thus “capitalizing” the SIB
Administration: State administers and operates the SIB; Federal government provides oversight
Portfolio:
• At least 32 States have created SIBs since 1995, about 10 of which are currently active; over $7 billion to 600+ projects
21
Section 129 Loans
Definition: Loan program to use Federal-aid funds for tolling projects and projects generating other types of revenue
Key Provisions:• Loans are issued by a State DOT to a project owner using FHWA formula
grants
• Eligible projects are those covered under Section 129 of Title 23 (i.e. roads, bridges, tunnels, and ferries)
• Loan may be up to the amount of the 80% Federal share
• Loans can be subordinate to other debt
• Projects require a dedicated revenue source for repayment
• Repaid loans are to be used for grants or loans or other forms of credit assistance to Title 23 projects
• Administration: State administers and operates the loan program; Federal government provides oversight
22
Capital Beltway Project
New 14-mile segment constructed in median of existing roadway 80-year Design, Build, Finance, Operate, Maintain contract Two new HOT lanes in each direction with variable tolls; HOV3 free Replacement of over $260 million of aging infrastructure Financial close in December 2007 for $1.9 billion VDOT will retain ownership of facility
23
Capital Beltway Project Financing
SourceAmount ($000s)
PABs 589,000
TIFIA 588,922
VDOT Contribution 408,895
Equity 348,695
Interest Income During Construction
70,793
Total Sources 2,006,305
Uses Amount ($000s)
Construction, Oversight & Other Administrative Costs
1,508,477
Development Costs 65,936
Net Financing Costs 152,798
Ramp up Reserve 30,000
Revenue Stabilization Reserve 50,000
Capex Reserve 19,000
Debt Service Reserve 58,900
Project Enhancement Fund 15,000
Contingency 106,193
Total Uses 2,006,304
25
OIPD Role
Professional Capacity Building Research Awareness Direct Federal Credit Support (TIFIA) Stewardship Technical Assistance to help evaluate the appropriateness
of innovative finance tools for a given project Capture and disseminate lessons learned and best
practices Research and Policy/Legislative Development
26
OIPD Resources
OIPD Website: www.fhwa.dot.gov/ipd OIPD Project Finance Website: http://
www.fhwa.dot.gov/ipd/finance/index.htm OIPD Project Finance Fact Sheet: http://
www.fhwa.dot.gov/ipd/fact_sheets/finance_introduction.htm OIPD Academy StaffNet Website (internal to U.S. DOT):
http://staffnet.fhwa.dot.gov/ipd/academy.htm OIPD P3 Website: www.fhwa.dot.gov/ipd/p3/ AASHTO Center for Excellence in Project Finance:
www.transportation-finance.org
top related