Presenting a live 90-minute webinar with interactive Q&A Financing Public-Private Partnerships for Infrastructure Assets Mitigating Legal Risks and Anticipating Tax Consequences of PPP Deals WEDNES DAY, JUNE 6, 2012 1pm East ern | 12pm Cent ral | 11am Mount ain | 10am Pacific Today’s faculty features: Linda E. Carlisle, Part ner, White & Case , Washingt on, D.C. Joel H. Moser, Part ner, Kaye Scholer , New Y ork 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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Public-Private Partnerships in the United States: Key Legal Issues and Risk Allocation Framework Joel H. Moser, Esq. Partner Kaye Scholer LLP 425 Park Avenue New York, NY 10022-3598 United States joel.moser@kayescholer.com +1 (212) 836-8425
Federalism Framework • 50 States • State Constitutions • State Legal Systems 6 60729384
Local and Regional Government • Dillon’s Rule • Home Rule Powers • Regulatory Oversight 7 60729384
The Authority • Creatures of Statute • Off-balance Sheet • Quasi-Government 8 60729384
US P3 Transactions • State and State Departments • Local and Regional Governments • Agencies and Authorities 9 60729384
Concession Structures • Real Toll • Shadow Toll • Availability Payment 10 60729384
Demand Risk vs. Government Payment Government Payment Yes No Yes Shadow Toll Real Toll Demand Risk No Availability Payment 11 60729384
Appropriation Risk • Constitutional Limits on Debt • Prop 13/TABOR • Payment Obligations Beyond a Year 12 60729384
Appropriation Credit • Rating Agency View • PPP Market Acceptance • Tools for P3 Transactions 13 60729384
Security Interest • Lien • Lease/Leaseback • Threat of Service Termination 14 60729384
Essentiality • Factual Essentiality • Practical Essentiality • Statements of Essentiality 15 60729384
Non-Substitution • Enforceability • Non-Competition • “Practical Compulsion” 16 60729384
Budget Covenant • Department of Government • Commitment • Default v. ENA 17 60729384
Moral Obligation • Public Commitment • Detrimental Reliance • Market Access 18 60729384
Impoundment Procedures • Reserve Fund • Aid Trap • Practical Compulsion 19 60729384
Service Contract • Subject to Appropriation • Continue to Provide Service • Enforceability by Courts 20 60729384
Risk Framework • Political Risk • Sovereign Risk • Legal Risk • “Risk of Politics” 21 60729384
Overview of Risk Allocation • Traffic risk v. availability payment • Construction • Operation • Permits • Environmental • Force majeure 22 60729384
Traffic Risk v. Availability Payment • Traffic risk – Forecasting – Competition – Toll setting • Availability payment – Reverse auction – Performance deductions – Authority credit – Acceptance/progress payments 23 60729384
Construction • Delays – Milestones – Long stop date – IE drawdown certificate – Liquidated damages – Security – Limitation of liability • Funded equity return 24 60729384
Operation • Performance deductions • Pass-through of concession agreement obligations • Limitation of liability 25 60729384
Permits • Right of way • Authority v. contractor responsibility 26 60729384
Environmental • Cleanup obligation • Delays • CERCLA liability • Authority v. contractor responsibility 27 60729384
Force Majeure • Excuse from obligations • Insurance • Change in law • Termination 28 60729384
Public-Private Partnerships for Infrastructure Assets -- Strafford Publications Teleconference Concession Tax Considerations June 6, 2012 Linda E. Carlisle White & Case LLP 202.626.3666 lcarlisle@whitecase.com
Overview Federal Income Tax Treatment of Brownfield Projects I. Federal Income Tax Treatment of Greenfield Projects II. Conclusions III. WHITE & CASE LLP June 6, 2012 30 Strafford Publications – Financing Public-Private Partnerships for Infrastructure Assets
I. Federal Income Tax Treatment of Brownfield Projects A. Typical Investment Structure. U.S. Shareholders Non-U.S. Shareholders U.S. Corp. U.S. Corp. Holding U.S. LLC treated as a partnership. Company Concession and Lease Agreement State or Local Gov’t U.S. LLC treated as a disregarded Concessionaire entity. WHITE & CASE LLP June 6, 2012 31 Strafford Publications – Financing Public-Private Partnerships for Infrastructure Assets
I. Federal Income Tax Treatment of Brownfield Projects (cont’d) B. Rights Granted by the State or Local Government under the Concession and Lease Agreement. 1. Real property and real property improvements that constitute a public infrastructure asset (the “Facility”) are leased to the Concessionaire for a term of years that exceeds the estimated remaining economic life of the improvements (typically between 50 and 99 years). 2. The Concessionaire is conveyed, transferred, or assigned: a. Any personal property that the state or local government owns that it uses in the operation of the Facility; and b. Contracts to which the state or local government is a party that relate to the operation of the Facility. 3. The Concessionaire is granted the right to operate the Facility and collect fees for the use of the Facility. WHITE & CASE LLP June 6, 2012 32 Strafford Publications – Financing Public-Private Partnerships for Infrastructure Assets
I. Federal Income Tax Treatment of Brownfield Projects (cont’d) C. Concessionaire’s Obligations Under the Concession and Lease Agreement. 1. Make an upfront payment to the state or local government. 2. Make additional payments to the state or local government during the term of the agreement if specified “windfall” revenues or refinancing gains are realized by the Concessionaire. 3. Pay all costs of operating, maintaining, and repairing the Facility, and return the Facility to the state or local government at the end of the agreement in the condition specified in the concession and lease agreement. 4. Bear all operational and financial risks relating to the Facility, including risks of casualty losses, during the term of the agreement. WHITE & CASE LLP June 6, 2012 33 Strafford Publications – Financing Public-Private Partnerships for Infrastructure Assets
I. Federal Income Tax Treatment of Brownfield Projects (cont’d) D. Typical Financing. 1. The Concessionaire will typically fund the upfront payment with equity capital and debt from third-party lenders. 2. Additional capital improvements to the Facility also may be eligible for tax- exempt private activity bond (“PAB”) financing from the state or local government. 3. Additional capital improvements to highway projects also may be eligible for federal loans or federal loan guarantees under the Transportation Infrastructure Finance and Innovation Act (“TIFIA”) program. WHITE & CASE LLP June 6, 2012 34 Strafford Publications – Financing Public-Private Partnerships for Infrastructure Assets
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