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 THURSDAY, JANUARY 5, 2017 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: David A. Rogers, Member, Frost Brown Todd , Columbus, Ohio Patrick Woodside, Member, Frost Brown Todd , Cincinnati The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
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FINANCING PUBLIC-PRIVATE PARTNERSHIPS FOR INFRASTRUCTURE, TRANSPORTATION, ENERGY AND REDEVELOPMENT PROJECTS P3 FINANCING MODELS AND OTHER WAYS TO THINK ABOUT P3 David Rogers, Esq. Patrick Woodside, Esq. Rob Mecklenborg, Esq. FBT Project Finance Advisors LLC Frost Brown Todd LLC Frost Brown Todd LLC & Frost Brown Todd LLC January 5, 2017 Strafford Webinar
WHY A PUBLIC- PRIVATE PARTNERSHIP? It is non-traditional methods of funding and It is also a contractual agreement between a procurement for infrastructure and other municipal public agency and a private partner to achieve all, projects: one or a combination of the following: • P3s are used throughout the world for a variety of • Monetization of an existing infrastructure asset or infrastructure asset classes. expansion. • Increased “value for money” possible because of • Design, construct, finance, and/or operate and maintain increased efficiency, including with respect to O & M, for an infrastructure project. life of asset, and you can transfer most risk to the private partner. • Transfer risks--such as revenue, operations, permitting, capital maintenance, construction — to the partner best • Value for money is considered over the useful life of the able to retain and manage them. project. Examples of Revenue Sectors Generating Assets Examples of Social Assets • • Parking systems • Schools Transportation • Water and Sewer • Toll roads and bridges • Courthouses • • Water and sewer systems • Roads Energy • Public Facilities • Airports • Transit • Ports • Other public assets that do not generate sufficient revenues to be • Solid waste facilities self-supporting 6 • Student housing
DBFOM and Variations Thereon DESIGN BUILD FINANCE OPERATE MAINTAIN 7
P3 SPECTRUM More Public Responsibility More Private Responsibility P3 Options New Build Private Design Design Build Design Build Design Build Facilities Contract Build Operate Finance Finance Fee Services Maintain Operate Maintain Concession Existing O & M Long Term Facilities Concession Lease Concession Goal – Find more money and financing options through greater private sector participation in the delivery and financing of public projects. 8
How Does a P3 Work? No two P3s are identical. P3s are tailored to meet the public agency’s financial, policy and • operational goals. • A P3 is NOT an outright sale of a public asset. The public agency maintains ownership of the asset (for state law purposes) and sets operational, maintenance and safety standards. Two Broad Categories Asset Monetization Availability Payment The infrastructure asset’s revenues are The public agency pays the private partner pre- monetized by the private partner – See Ohio State established rent- like “availability payments” that Parking example. are based upon the availability of the assets to the public – See Portsmouth Bypass example. The public agency receives an upfront payment, annuities, and/or a revenue sharing arrangement. Creates budget certainty for the public agency over the life of the contract. The private partner operates and maintains the asset and assume most business, financial and The private partner designs, builds (or capital risks. rehabilitates), finances, operates and maintains the asset, based on strict delivery and performance Often structured as a long- term “revenue requirements. concession” and/or lease. The public agency’s payments may be reduced for underperformance or there may be bonuses for exceptional performance. 9
Potential Benefits Introduction of new capital sources Creation of new investment opportunities Potential improvements in governance, transparency, and accounting standards (because of new contract language) Incentives to adopt new technologies Improved lifecycle facility management, with cost savings 10
Who are the Parties in a P3? Public Agency Private Partner • A variety of public agencies have used P3s for the • Depending on the nature of the P3 project, prospective development or monetization of infrastructure assets. private partners can be sole companies or a consortium of firms that each represents a specific • The public agency is supported by a team of financial, expertise. legal and technical advisors. • Prospective private partners will assemble a team of advisors, consultants, lenders and equity sources. • Pursuit costs are significant – final bidders may request stipends for more complex projects. Potential Private Partners Include Infrastructure Equity Funds Developers and Operators Construction/Engineering Firms • Attracted to the stable cash • Experienced with similar asset • Attracted to the possibility of flows of a public infrastructure classes generating incremental value by asset optimizing construction/ • Usually contribute equity rehabilitation phases • Can be a stand-alone fund, or part of a larger investing entity • Potential equity participation • Invests capital 11
The Need for a Champion Transactions can be complex (money is not easy to find). As a “partnership” the right partners must be found, vetted and become part of the team. The governmental partner has a continuing role – a P3 is not an outright sale of assets – so it needs internal expertise, and probably outside advisors. The old way of using traditional public finance is an entrenched industry [It’s “always” worked – except when it hasn’t. See Flint Water Crises.] As a result, every successful P3 has a public CHAMPION. That takes knowledge, marketing and perservance. 12
Bank Financing v. Bonds • Governmental tax-exempt bonds may not be available at lower rates -- There may be a federal tax problem. -- The differential in interest rates (taxable to tax-exempt) may not be much. • If the asset is privately owned or leased, and where a private non-501(c)(3) company has equity and/or depreciates the asset, tax- exempt debt can only be used if it’s a permitted exempt facility bond under IRC Section 142 • For transportation projects the most commonly known exempt facility bond is the so-called Transportation PAB – a private activity bond authorized under IRC Sections 142(a)(15) and 142(m) – authorizing up to $15 billion nationwide of PABs for “qualified” highway or surface freight transfer facilities 13
Other Private Activity Bonds Under IRC Section 142(a), some better known bonds of this type are: 1. Airports* 2. Docks and wharves* 3. Mass commuting facilities* 4. Facilities for the furnishing of water 5. Sewage facilities 6. Solid waste disposal facilities 7. Qualified residential projects [low and moderate income rental] ___________________________________________________________________________________ ______________________ *(1), (2) and (3) must be owned by a governmental unit. 14
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