Sarpy County Wastewater Project Summary financial and commercial analysis January 2019
Underpinning financial and commercial structure Service users Payments A concession type structure appears to County Cities offer the most appropriate balance of lower transaction costs, risk pricing and Agency competition for subsequent phases’ P3 agreement Payments Capexand (potentially)O&M. Funding Debt and Equity P3 Developer HART/City Providers Debt Service and Equity Return Operating Payments Construction Progress Payments O&M Provider DB Contractor Traditional Delivery DBFOM P3 Agency pays contractor on a milestone basis for construction Agency pays pre-agreed monthly payment over the life of Payment phase the contract Separate contracts for design and construction with Agency P3 Developer delivers fixed price / date certain construction Design & Construction holding interface risk and holds interface risks Delivered by P3 developer, potentially through subcontract Agency performs itself or contracts out to 3 rd party O&M supported by guarantees Municipal debt Combination of public/private debt and private equity Financing Page 2
Summary - = A B C Est. required revenue Est. revenue from users Est. Agency contribution Profile A ‘required revenue’ profile was developed based on the capital and O&M assumptions provided by HDR. The projected $240 million in A capital costs in 2018$’s ($475 million in cash terms) was used to develop a financing structure using debt and equity. The annual required revenue profile was developed on a basis consistent with the required return under a DBFOM P3 commercial structure. Omaha+2%: Assumes a rate comparable to Omaha’s in 2015 B Avg.Monthly Bill (7,500 (~$50) and grows at of inflation (3%) plus 2%, which remains Gallons) 2015 2019 2024 below Omaha’s projected rate profile in the near future Sarpy (O+2%) $49.37 $60.01 $76.59 Omaha+ : Assumes a rate comparable to Omaha’s in 2015 (~$50) Omaha $50.28 $66.23 $85.54 and grows at inflation (3%) The project is financially viable in the medium to long term, but analysis suggests that revenue from rate payers will not C cover the required revenue for the first 7-8 years of Phase 1A. The cumulative shortfall is estimated to be between $12.5 million and $18.5 million, where the Agency is likely to be required to pay the P3 Developer more than is earned from system users. Page 3
A B Estimate of required vs user revenues For the user growth profile underpinning the analysis, increases in user rates of approximately 5% per year until the early 2040’s are required to create an economicallyviable system ($000) P1A Open P1B Open P2 Open P3 Open Capacity Met 100,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 - 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050 2052 2054 2056 2058 2060 2062 2064 2066 2068 2070 2072 2074 O&M (Fixed) O&M (Variable) Debt Service & Equity Return Required Revenue Projected Revenue (Omaha +) Projected Revenue (Omaha +2%) Page 4
C Estimated shortfall between required and user revenues Estimated shortfalls in revenue occur during the majority of Phase 1A, and thereafter in the years immediately following Phase 2 becoming operational ($000) P1A Open P1B Open P2 Open P3 Open Capacity Met 18,000 16,000 14,000 12,000 10,000 Omaha+2% case requires $18.5 million in total 8,000 support in the early years (approximately $2.3 million/year). 6,000 4,000 2,000 - Omaha+ Omaha+ 2% Page 5
C Estimated cash balances and impact of demand risk Estimated shortfalls in revenue translate into cash deficits during Phase 1A. The project becomes cumulative cash positive by the time Phase1B opens, and remainspositive thereafter providing user growth and rate increasesare as projected. ($000) P1A Open P1B Open P2 Open 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 - (20,000) (40,000) Omaha +2% Omaha +2% (10% Decrease) Page 6
A Other Considerations: SRF Funding’s Impact on Early Year Shortfalls The analysis below shows the potential to reduce estimated required revenue shortfalls by approximately $6m connected to the financing of Phase1A. The analysisassumesthat the loan is signed in [2021], and repaymentcommencesin [2024]. ($000) Total Shortfall P1A Open ~ $18.5 million over 8 years 4,500 ~ $12.5 million over 7 years 4,000 3,500 3,000 Notes: Analysis assumes SRF loan 2,500 signed in 2021 for Phase 1A with repayment commencing in 2024. 2,000 Financing of ROW and other costs 1,500 incurred prior to 2021 excluded from the analysis. 1,000 500 - Omaha + 2% (P1A SRF) Omaha + 2% Page 7
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