EY Infrastructure Advisors, LLC PPP Structure Overview Public

Ernst & Young
Infrastructure Advisors, LLC
PPPs and Inland Rivers, Ports and
30 April 2014
Growing market for public private partnerships
US examples include:
Port of Miami Tunnel (closed)
I-595 Corridor Improvements and Express Lanes (closed)
RTD Denver P3 Eagle (closed)
Long Beach Courthouse (closed)
Goethals Bridge (closed)
Port of Baltimore Seagirt Marine Terminal (closed)
Numerous other toll projects and facilities
Considerable interest for transit as well as social infrastructure
(courthouses, schools, etc.)
Being applied to toll facilities with toll revenues accruing to the public
owner – e.g., I-595, Goethals, I-4
Many closed examples internationally (Canada, UK, etc.)
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PPP Example- Seagirt Marine Terminal
Public-Private Partnership between Maryland Port
Administration and Ports America Chesapeake
50-year concession signed in 2010
About $105 million of immediate improvements required
under concession, plus future maintenance
Shipping companies pay concessionaire for use of
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PPP Example- Port of Miami Tunnel
Public-Private Partnership between Florida Department of
Transportation (FDOT) and Miami Access Tunnel (MAT)
35-year concession agreement signed 2009
MAT bears construction risk
FDOT pays milestone payments to MAT during
construction, then availability payments
FDOT collects any tolls on tunnel
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Presentation title
Methods of project delivery
Design-Bid-Build (DBB)
Design-Build (DB)
Design-Build-Finance (DBF)
Design-Build-Operate-Maintain (DBOM)
Design-Build-Finance-Operate-Maintain (DBFOM)
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Project roles – Conventional project delivery
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public debt
Operator or government
Design-Build (DB)
Project roles – Alternative project delivery
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DB contractor
public debt
Operator or government
Equity investors
DB contractor
PPP – More than just financing
Who bears the risks of construction overruns, delays, operational
underperformance, revenue shortfalls, higher than expected lifecycle
costs, and/or unexpected or more frequent major maintenance?
A PPP can permit the public sector to adjust the timing of its
A project must be sufficiently defined and sufficiently large to attract
Public trust is compromised if the performance and cost assumptions
used to justify spending and dedicated taxes or other commitments
are not achieved.
Whether or not a PPP is ultimately warranted, considering a full range
of delivery options fosters communication among disciplines and can
lead to better outcomes and understanding of risks.
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Comparing public expenditure profiles
Year of expenditure
(real dollars)
Availability Payments
(Note: these are very general approximations and conventional chart assumes major maintenance expenditures are smoothed as
contributions to reserves)
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Understanding equity
Cannot borrow 100% of an expected revenue stream
Need a cushion or “coverage” – risk capital that absorbs financial
impact of poor performance
The coverage revenue is equity’s return – or risk
Simplified example for illustration purposes: 1.2x debt service coverage
Equity Return
Debt Service
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
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Understanding debt
The public sector does not face the same credit risk in a
PPP that equity and lenders face.
Low-cost debt can facilitate a PPP.
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Conduit issuers, tax exempt debt and private activity bonds all have
TIFIA is an important lender for US transportation PPPs, but has
limitations on repayment from federal funds.
WRDA and WIFIA could play a similar role to TIFIA, but any
limitations on the source of repayment will need to be considered.
Structuring a PPP
Defining the business model – how will the concessionaire earn
revenue and over what period?
Begin with the project’s specific characteristics and public goals
Seek efficiencies
Optimize risk allocation – construction risk, traffic or volume risk
Develop performance specifications
Be sure that the business model align interests: private partner should
maximize profit by meeting public goals
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Contact Information
Matthew Hobby
Senior Vice President
Ernst & Young Infrastructure Advisors, LLC
Tel. (212) 773-5615
[email protected]
Mike Parker
Senior Managing Director
Ernst & Young Infrastructure Advisors, LLC
Tel. (215) 448-3391
[email protected]
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