HRTAC Technical Advisory Committee Presentation July 14, 2015 4350 North Fairfax Drive 300 S. Orange Avenue Suite 580 Suite 1170 Arlington, VA 22203 Orlando, FL 32801 407-648-2208 703-741-0175 703-516-0283 fax 407-648-1323 fax
Table of Contents I. HRTAC Financial Plan Scope & Schedule II. Toll Road Financing Attributes & Examples III. Financial Data, Assumptions, and Questions
Financial Plan Scope & Schedule
Scope of Services • Review of data for projects proposed to be funded by HRTAC including reasonably expected project costs and schedules • Review of project traffic and revenue projections, as applicable, and subcontract additional forecasting as needed • Develop multi-year financing model for capacity associated with HB2313 and HRTAC projects which can accommodate various scenarios and “what if” analysis • Prepare financing scenarios including debt vs. pay-as-you-go financing and analysis of various financial alternatives and debt structures • Develop financing alternatives for financially constrained scenarios. Potential scenarios may include: a. Pushing projects further into the future b. Additional state/federal funding needed to build on reasonable schedule, if applicable c. Additional tax revenue needed to build on reasonable schedule, if applicable d. Tolling needed to build on reasonable schedule e. Some reasonable combination of the above 4
Scope of Services Continued • Analyze potential impacts of regional projects along with acquisition of established projects • Analysis of legal and credit issues with respect to bonding of HB2313 revenues and financing of HRTAC projects • Provide financial plan options and recommendation regarding an optimal long range plan of finance based upon the project mix and timing determined by HRTAC • Develop reports and presentation materials as requested • Attend all HRTAC financial working group meetings and calls as necessary • Provide other financial advisory services, as requested by HRTAC 5
Traffic & Revenue Forecasting Approach • Project Initiation – Agreement on key assumptions, including: • Capacity improvements: HRTAC projects and rest of network • Toll rates: HRTAC projects and rest of network; maximum revenue or reduced tolls? • Data Collection – Including the collection and review of prior T&R work on HRTAC projects • Model Development if new T&R is required – Definition of the potential in-scope traffic demand – Estimation of the proportion of in-scope traffic that will use the toll facilities – Conversion of the daily model outputs into annual forecasts • Traffic & Revenue Forecasts 6
Proposed Schedule • Project Initiation • Weeks 1-2 • Data Collection & Review • Weeks 1-3 • HB2313 Capacity Model & Alternatives • Weeks 2-4 • Discussion & Finalization of HB2313 Leveraging • Weeks 4-6 • Traffic & Revenue Model Development • Weeks 2-6 • Generation of Traffic & Revenue Forecasts • Weeks 6-8 • Traffic and Revenue Memo and Presentation • Week 9 • Comprehensive Financial Planning Model • Weeks 7-10 • Discussion & Finalization of Financial Plan • Weeks 9-10 • Financial Plan Memo and Presentation • Weeks 10-11 Completion by Sept 7 th based upon this schedule. 7
Attributes of the Study • Objectivity – Neither PFM nor SDG “has a dog in this hunt”! – We will study the projects, revenue parameters, and schedule all as determined by HRTAC – Financial plan goal is to deliver the projects as quickly and effectively as possible within reasonable financial market constraints • Transparency – All key assumptions will be discussed and thoroughly documented – We will ask tough and probing questions designed to get the decisions and feedback needed for a consensus strategic financial plan • Flexibility – Our financial model will be able to test different assumptions throughout development of the financial plan – Looking to the future, the financial plan can be modified as circumstances dictate 8
Strategic Finance Plan Components • PFM’s recommended approach involves careful consideration of all the issues and alternatives related to infrastructure development. • Alternative modeling process allows capital, revenue, and operating inputs to impact financing requirements within stated program policy constraints. Revenue Forecast Capital Planning Debt Management Financial Policies •Debt mgmt policy •Annual revenue forecast •Borrowing needs •Annual project capital determined at CIP expenditures •Pay go vs. bond •Annual O & M Budget program level financing •Timing & amount of •Potential Revenue •Bond sizing structured revenues & matching •Inter-program loans Enhancements for total CIP program funds •Debt service coverage •Sensitivity analysis •Financing Costs •Total program targets allocated to projects on requirements & impact pr-rata basis on borrowing needs •Target capital reserve 9
Toll Road Finance Attributes & Examples
Elements of Credit • Construction & Operating Issues • Socio-Economic Need ‒ Construction and O&M Cost Risks ‒ Safety ‒ Lump Sum/Fixed Price Contracts ‒ Environment ‒ Financial Strength/Performance of ‒ Economic Development ‒ Construction Team • Economically Justified • Risk Management Plan ‒ Efficient Transportation ‒ Environmental Mitigation ‒ Generates Revenue ‒ Construction Completion ‒ Connecting Key Business/Tourism/Trade Regions ‒ Force Majeure/Builder’s Risk ‒ Toll Collection Risks, especially with ORT • Revenue Study • Public Support & Public Interest ‒ Economic Forecast ‒ State and Local Political Support ‒ Demand Forecast ‒ Federal Agencies ‒ Independent and Credible ‒ Public Equity/Funding for EIS, Design and ‒ Bond Offering Disclosure Engineering 11
Project Revenue Bonds • Security Sources • Issuance Timing ‒ ‒ Net Operating Revenues Interim Construction Financing ‒ ‒ State and Local Taxes Use Public Equity First ‒ ‒ Value Capture Bond Best Credit First • Bond Lien Structure • Credit Enhancement ‒ Senior & Subordinate Debt ‒ Federal Programs - TIFIA ‒ Diversification of Product ‒ Special Tax Supplemental Pledge ‒ Short-Term/Long-Term Mix ‒ Bond Insurance/Letter of Credit • Security Requirements • Private Sector Enhancements ‒ Capitalized Interest ‒ Deferred Compensation ‒ Coverage Ratios ‒ Vendor Concessions/Parking ‒ Reserve Funds ‒ Private Equity 12
Typical Toll Start-up Debt Structure • Financing is costly and inefficient for start-up toll facilities with project toll revenues as the only leverage for bonds and loans. • The most difficult period for toll facilities are the beginning “ramp-up” stages Debt structure often incorporates: Pledged Revenues vs. Net Debt Service 40,000 • Capitalized Interest 35,000 • Capital Appreciation Bonds 30,000 • Senior and Subordinate Lien Debt Structure 25,000 • Ascending Debt Service 20,000 • R&R and O&M Reserve 15,000 Funding After Debt Service 10,000 • Extensive Construction 5,000 Insurance 0 • Weak Credit Ratings 8 0 2 4 6 8 0 2 4 6 8 0 2 4 6 8 0 9 0 0 0 0 0 1 1 1 1 1 2 2 2 2 2 3 9 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 -5,000 . . . . . . . . . . . . . . . . . Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y . . . . . . . . . . . . . . . . . F F F F F F F F F F F F F F F F F • High Cost of Capital Toll Revenues Net Revenue Pledge Net Debt Service 13
Toll Road Finance Enhancements – Supplementing Start-Up Toll Revenues • Most new “greenfield” toll roads do not pay for 100% of capital, O&M, and R&R costs solely from project toll revenues. Three proven enhancements are: ‾ Supplemental Non-Toll Revenues from a stable source ‾ Subordinate Loans ‾ O&M Support • In order to counter the normal deficits during ramp-up stages, a start-up toll facility can incorporate other non-toll revenue sources to provide “front-end” revenues to improve creditworthiness. • “Front-end” revenue can also serve to: ‾ Reduce construction costs financed with debt – applying existing sources to pay-go construction requirements ‾ Increase bonding and loan capacity – adding existing revenue sources to the projected revenue stream increases debt service coverage ‾ Reduce requirement for accrual of interest and capitalized interest – applying existing revenues to pay debt service while construction occurs reduces capitalized interest and the need to utilize costly capital appreciation bonds 14
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