CDFA – BNY Mellon Development Finance Webcast Series: The Emerging P3 Financing Model The Broadcast will begin at 1:00pm (EDT). While you’re waiting, check out some upcoming CDFA events… CDFA: Advancing Development Finance Knowledge, Networks & Innovation www.cdfa.net
The Emerging P3 Financing Model Erin Tehan Legislative & Federal Affairs Coordinator Council of Development Finance Agencies Columbus, OH Are you a CDFA Member? Members receive exclusive access to thousands of resources in the CDFA Online Resource Database. Join today at www.cdfa.net to set ‐ up your unique login. CDFA: Advancing Development Finance Knowledge, Networks & Innovation www.cdfa.net
The Emerging P3 Financing Model Using your telephone will give you better audio quality. Submit your questions to the panelists here. Want to watch again? You will find a recording of this webcast, as well as all previous CDFA webcasts, in the Online Resource Database at www.cdfa.net. CDFA: Advancing Development Finance Knowledge, Networks & Innovation www.cdfa.net
The Emerging P3 Financing Model Speakers Christine Johnson , Moderator BNY Mellon David Rogers Frost Brown Todd LLC Emmett Kelly Frost Brown Todd LLC Tom Lanctot William Blair & Company CDFA: Advancing Development Finance Knowledge, Networks & Innovation www.cdfa.net
The Emerging P3 Financing Model Christine Johnson Product Manager BNY Mellon San Francisco, CA What are you reading these days? Your development finance toolbox isn’t complete without a set of CDFA reference guides. CDFA Members save 15% or more on every purchase. Order today at www.cdfa.net. CDFA: Advancing Development Finance Knowledge, Networks & Innovation www.cdfa.net
Global Corporate Trust April 17, 2012 Public Private Partnership Overview CDFA-BNY Mellon Webcast Presented by Christine Johnson Information Security Identification: Confidential
Public-Private Partnerships • Public-Private Partnerships (P3’s) describe the constellation of projects that are funded by the intersection of private and public capital. • Water/Sewer • Energy • Transportation • Housing • These types of projects are common in Europe, Australia, and many developing countries and can take various forms: • Sale of Existing Assets • Operating, Maintenance and Management Contracts • After many years of sporadic large P3 projects are finally gaining momentum in the US despite weakness in the economy. • Majority of states have enabling legislation 2 Information Security Identification: Confidential
US Government Incentives for P3s • Increased efforts have been made in the past decade to provide federal support for P3s. However there have been recent challenges with this support. • Transportation Infrastructure Finance and Innovation Act (TIFIA) Credit Support • Further exemptions from AMT for Private Activity Bonds (PABs) and expanded definition of Industrial Development Bonds (IDBs) written into the American Recovery and Reinvestment Act (ARRA). (NOT RENEWED – 2010) • Remains to be seen how financial regulatory reform will affect the financing mechanisms available for P3s. • However institutional investors are increasingly interested in investing in infrastructure. 3 Information Security Identification: Confidential
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The Emerging P3 Financing Model Tom Lanctot Principal William Blair & Company Chicago, IL Are you a CDFA Member? Members receive discounts to all CDFA events, including training courses and the National Summit. Join today at www.cdfa.net , and start saving. CDFA: Advancing Development Finance Knowledge, Networks & Innovation www.cdfa.net
The Emerging P3 Financing Model The Emerging P3 Financing Model Thomas E. Lanctot Partner and Group Head April 17, 2012 William Blair & Company 222 West Adams Street Chicago Illinois 60606 Chicago, Illinois 60606 312-364-8120 FAX: 312-236-0174 tlanctot@williamblair.co m
What is a Public Private Partnership? A contractual agreement between a public An innovative method of funding and agency and a private partner to achieve all, procurement for infrastructure projects: one or a combination of the following: • Often referred to as a “P3” or “PPP.” • Monetize an existing infrastructure asset. • P3s are used extensively throughout the world for a • Design, construct, finance, and/or operate and variety of infrastructure asset classes. maintain an infrastructure project. • Increased value for money due to increased efficiency • Transfer risks--such as revenue, operations, and risk transfer to the private partner. permitting, capital maintenance, construction—to the partner best able to retain and manage them. Examples of Revenue Sectors Generating Assets Examples of Social Assets T Transportation t ti • Parking systems P ki t • Schools S h l • Water and Sewer • Toll roads and bridges • Courthouses • Energy • Water and sewer systems • Roads • Public Facilities • Airports • Transit • • Ports • Other public assets that do not generate sufficient revenues to • Solid waste • Solid waste b be self-supporting lf ti 1
How Does a P3 Work? Because a P3 can be applied to a variety of projects to achieve diverse goals, no two 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 and • sets operational maintenance and safety standards sets operational, maintenance and safety standards. Two Broad Categories Asset Monetization Availability Payment The infrastructure asset’s future revenues are The public agency pays the private partner pre- monetized by the private partner. y p p established rent-like “availability payments” that y p y are based upon the availability of the assets to the The public agency receives an upfront payment, public. annuities, and/or a revenue sharing arrangement. Creates budget certainty for the public agency over The private partner enhances, operates and p p , p the life of the contract. the life of the contract. maintains the asset based on contracted terms, and assume most business, financial and capital risks. The private partner designs, builds (or rehabilitates), finances, operates and maintains the Often structured as a long-term “revenue asset, based on strict delivery and performance concession.” concession. requirements requirements. The public agency’s payments may be reduced for underperformance or bonuses for exceptional performance. 2
Advantages and Benefits of P3s Benefits of the P3 Approach: Private Sector Design-Build Operations Long-term Access to Long-term Financing: Savings: and Risk operational contract equity, longer- reduced Maintenance Allocation and expertise and provides tax term debt and construction Savings: Transfers that innovative benefits to wide array of wide array of costs and costs and reduced O&M reduced O&M allow the allow the technology technology private private financing tools faster project costs public agency partner that delivery to better can flow concentrate through as on its core savings to f functions ti public agency bli 3
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, • development or monetization of infrastructure assets. d l i i f i f prospective private partners can be sole companies or i i b l i 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 teams of • advisors, consultants, lenders and equity sources. Pursuit costs are significant. • 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 class generating incremental value by asset optimizing construction/ • Critical in project delivery and rehabilitation phases Can be a stand-alone fund, or Can be a stand alone fund, or ongoing operation ongoing operation • part of a larger investing entity • Potential equity participation • Usually contribute equity Provides capital • 4
A P3 Can Result in More Funds Today • Municipal bond investors rely on historical revenues to determine bonding capacity • Equity investors look for future returns based on projected growth • Debt + Equity = Greater Proceeds Debt + Equity Greater Proceeds Municipal Bond Leverage Revenue Concession P3 Net Revenues Net Revenues Debt Debt 1.25-2.00x Equity Coverage Investor Investor Past Today 40yrs 99yrs Past Today 40yrs 99yrs 5
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