HRTAC Technical Advisory Committee Presentation July 14, 2015 4350 - - PowerPoint PPT Presentation

HRTAC Technical Advisory Committee Presentation

July 14, 2015

4350 North Fairfax Drive Suite 580 Arlington, VA 22203 703-741-0175 703-516-0283 fax 300 S. Orange Avenue Suite 1170 Orlando, FL 32801 407-648-2208 407-648-1323 fax

Table of Contents

I. HRTAC Financial Plan Scope & Schedule II. Toll Road Financing Attributes & Examples III. Financial Data, Assumptions, and Questions

Financial Plan Scope & Schedule

• Review of data for projects proposed to be funded by HRTAC including reasonably

expected project costs and schedules

• Review of project traffic and revenue projections, as applicable, and subcontract

additional forecasting as needed

• Develop multi-year financing model for capacity associated with HB2313 and

HRTAC projects which can accommodate various scenarios and “what if” analysis

• Prepare financing scenarios including debt vs. pay-as-you-go financing and

analysis of various financial alternatives and debt structures

• Develop financing alternatives for financially constrained scenarios. Potential

scenarios may include:

a. Pushing projects further into the future b. Additional state/federal funding needed to build on reasonable schedule, if applicable c. Additional tax revenue needed to build on reasonable schedule, if applicable d. Tolling needed to build on reasonable schedule e. Some reasonable combination of the above

Scope of Services

4

• Analyze potential impacts of regional projects along with acquisition of

established projects

• Analysis of legal and credit issues with respect to bonding of HB2313

revenues and financing of HRTAC projects

• Provide financial plan options and recommendation regarding an optimal

long range plan of finance based upon the project mix and timing determined by HRTAC

• Develop reports and presentation materials as requested
• Attend all HRTAC financial working group meetings and calls as

necessary

• Provide other financial advisory services, as requested by HRTAC

Scope of Services Continued

5

• Project Initiation

– Agreement on key assumptions, including:

• Capacity improvements: HRTAC projects and rest of network
• Toll rates: HRTAC projects and rest of network; maximum revenue or reduced tolls?
• Data Collection

– Including the collection and review of prior T&R work on HRTAC projects

• Model Development if new T&R is required

– Definition of the potential in-scope traffic demand – Estimation of the proportion of in-scope traffic that will use the toll facilities – Conversion of the daily model outputs into annual forecasts

• Traffic & Revenue Forecasts

Traffic & Revenue Forecasting Approach

6

• Project Initiation
• Data Collection & Review
• HB2313 Capacity Model & Alternatives
• Discussion & Finalization of HB2313 Leveraging
• Traffic & Revenue Model Development
• Generation of Traffic & Revenue Forecasts
• Traffic and Revenue Memo and Presentation
• Comprehensive Financial Planning Model
• Discussion & Finalization of Financial Plan
• Financial Plan Memo and Presentation

Completion by Sept 7th based upon this schedule.

• Weeks 1-2
• Weeks 1-3
• Weeks 2-4
• Weeks 4-6
• Weeks 2-6
• Weeks 6-8
• Week 9
• Weeks 7-10
• Weeks 9-10
• Weeks 10-11

Proposed Schedule

7

Attributes of the Study

8

• Objectivity

– Neither PFM nor SDG “has a dog in this hunt”! – We will study the projects, revenue parameters, and schedule all as determined by HRTAC – Financial plan goal is to deliver the projects as quickly and effectively as possible within reasonable financial market constraints

• Transparency

– All key assumptions will be discussed and thoroughly documented – We will ask tough and probing questions designed to get the decisions and feedback needed for a consensus strategic financial plan

• Flexibility

– Our financial model will be able to test different assumptions throughout development of the financial plan – Looking to the future, the financial plan can be modified as circumstances dictate

• PFM’s recommended approach involves careful consideration of all the issues and

alternatives related to infrastructure development.

• Alternative modeling process allows capital, revenue, and operating inputs to

impact financing requirements within stated program policy constraints.

Strategic Finance Plan Components

9

Revenue Forecast

• Annual revenue forecast
• Annual O & M Budget
• Potential Revenue

Enhancements

• Sensitivity analysis

Capital Planning Debt Management Financial Policies

• Annual project capital

expenditures

• Timing & amount of

revenues & matching funds

• Total program

requirements & impact

• n borrowing needs
• Debt mgmt policy
• Pay go vs. bond

financing

• Inter-program loans
• Debt service coverage

targets

• Target capital reserve
• Borrowing needs

determined at CIP program level

• Bond sizing structured

for total CIP program

• Financing Costs

allocated to projects on pr-rata basis

Toll Road Finance Attributes & Examples

• Socio-Economic Need

‒ Safety ‒ Environment ‒ Economic Development

• Economically Justified

‒ Efficient Transportation ‒ Generates Revenue ‒ Connecting Key Business/Tourism/Trade Regions

• Revenue Study

‒ Economic Forecast ‒ Demand Forecast ‒ Independent and Credible ‒ Bond Offering Disclosure

Elements of Credit

• Construction & Operating Issues

‒ Construction and O&M Cost Risks ‒ Lump Sum/Fixed Price Contracts ‒ Financial Strength/Performance of ‒ Construction Team

• Risk Management Plan

‒ Environmental Mitigation ‒ Construction Completion ‒ Force Majeure/Builder’s Risk ‒ Toll Collection Risks, especially with ORT

• Public Support & Public Interest

‒ State and Local Political Support ‒ Federal Agencies ‒ Public Equity/Funding for EIS, Design and Engineering 11

Project Revenue Bonds

• Security Sources

‒ Net Operating Revenues ‒ State and Local Taxes ‒ Value Capture

• Bond Lien Structure

‒ Senior & Subordinate Debt ‒ Diversification of Product ‒ Short-Term/Long-Term Mix

• Security Requirements

‒ Capitalized Interest ‒ Coverage Ratios ‒ Reserve Funds

• Issuance Timing

‒ Interim Construction Financing ‒ Use Public Equity First ‒ Bond Best Credit First

• Credit Enhancement

‒ Federal Programs - TIFIA ‒ Special Tax Supplemental Pledge ‒ Bond Insurance/Letter of Credit

• Private Sector Enhancements

‒ Deferred Compensation ‒ Vendor Concessions/Parking ‒ Private Equity 12

Pledged Revenues vs. Net Debt Service

• 5,000

5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 F . Y . 1 9 9 8 F . Y . 2 F . Y . 2 2 F . Y . 2 4 F . Y . 2 6 F . Y . 2 8 F . Y . 2 1 F . Y . 2 1 2 F . Y . 2 1 4 F . Y . 2 1 6 F . Y . 2 1 8 F . Y . 2 2 F . Y . 2 2 2 F . Y . 2 2 4 F . Y . 2 2 6 F . Y . 2 2 8 F . Y . 2 3 Toll Revenues Net Revenue Pledge Net Debt Service

Typical Toll Start-up Debt Structure

13

• Financing is costly and inefficient for start-up toll facilities with project toll

revenues as the only leverage for bonds and loans.

• The most difficult period for toll facilities are the beginning “ramp-up”

stages

Debt structure often incorporates:

• Capitalized Interest
• Capital Appreciation Bonds
• Senior and Subordinate Lien

Debt Structure

• Ascending Debt Service
• R&R and O&M Reserve

Funding After Debt Service

• Extensive Construction

Insurance

• Weak Credit Ratings
• High Cost of Capital

• Most new “greenfield” toll roads do not pay for 100% of capital, O&M, and R&R

costs solely from project toll revenues. Three proven enhancements are:

‾ Supplemental Non-Toll Revenues from a stable source ‾ Subordinate Loans ‾ O&M Support

• In order to counter the normal deficits during ramp-up stages, a start-up toll facility

can incorporate other non-toll revenue sources to provide “front-end” revenues to improve creditworthiness.

• “Front-end” revenue can also serve to:

‾ Reduce construction costs financed with debt – applying existing sources to pay-go construction requirements ‾ Increase bonding and loan capacity – adding existing revenue sources to the projected revenue stream increases debt service coverage ‾ Reduce requirement for accrual of interest and capitalized interest – applying existing revenues to pay debt service while construction occurs reduces capitalized interest and the need to utilize costly capital appreciation bonds

Toll Road Finance Enhancements – Supplementing Start-Up Toll Revenues

14

Toll Road Case Study – Triangle Expressway

15

• The NC Turnpike Authority’s Triangle Expressway Project used several

market acceptable financing enhancements including 1) supplemental state revenues; 2) a subordinate USDOT TIFIA loan, and 3) a NCDOT O&M guarantee.

State Appropriated Revenues Triangle Expressway Revenue Fund Toll Revenues Triangle Expressway Senior Lien Debt Service Fund* Triangle Expressway Subordinate Lien Debt Service Fund Triangle Expressway Subordinate Lien Debt Service Fund TIFIA Debt Service Fund Hedging Acquisition Account Operations and Maintenance Expense Fund Operating Reserve Fund Renewal and Replacement Fund NCDOT Reimbursement Payments TIFIA Debt Service Reserve Account General Reserve Fund State Appropriation Revenue Debt Service Surplus State Appropriated Revenues

• In order to counter market requirements for high debt service coverage

ratios, non-bond subordinate loans can be used to increase financing capacity by using the excess coverage.

• Three proven types of loans are:

‾ USDOT’s Transportation Infrastructure Finance & Innovation Act (TIFIA) ‾ State Loan programs such as State Infrastructure Banks ‾ Local Sources including Value Capture and Tax Increment

• In addition to increased financing capacity most loan programs, including

TIFIA, offer the following benefits:

‾ Subsidized interest rates much lower than market rates for BBB or unrated bonds ‾ Flexible repayment terms including potentially a cash sweep mechanism ‾ Do not have to be investment grade loans; only the senior debt must be investment grade (BBB- or higher)

Toll Road Finance Enhancements – Subordinate Loans

16

Toll Road Case Study – Chesapeake Transportation System

17

• Plan of finance incorporated the original

Chesapeake Expressway project along with the US 17/Dominion Boulevard project into a toll enterprise system, known as the Chesapeake Transportation System (“CTS”)

• The new Master Trust Indenture was

built on the foundation of the original 1999 Trust Indenture

• Senior Lien Bonds secured by all

Receipts consisting primarily of Net Toll Revenues

• Virginia Transportation Infrastructure

Bank loan (VTIB) secured by a subordinate pledge of Receipts. VTIB Loan has cash sweep on excess revenues after O&M, senior debt service, O&M Reserve and R&R Fund deposits are paid

• Loans remaining from the original

Chesapeake Expressway financing, the VDOT TFRA/City Contribution and Urban Allocation Replenishment, were moved to deeply subordinate repayment from available cash flow.

Monthly Toll Revenues Monthly O&M Complete Semi-Annual Interest Requirement on Senior Bonds Complete Annual Principal Requirement on Senior Bonds Senior Bonds Debt Service Reserve Fund Minimum Principal and Interest Payments on VTIB Bonds Operations Reserve Fund Renewal & Replacement Fund VTIB Debt Service Reserve Fund until balance is $10,000,000 100% (or 95% if General Reserve does not contain $10,000,000) to pay the VTIB Bonds After payment of VTIB Bonds, repayment of VDOT TFRA Loan (83%) After payment of VTIB Bonds, repayment of City Contribution (17%) After payment of VTIB Bonds, repayment of City of Chesapeake’s Urban Allocation Monies General Reserve Fund until balance is $10,000,000

• Bondholders and other creditors require that toll roads be well operated and

properly maintained for the term of the debt, including periodic capital renewal & replacement.

• Typically, O&M and R&R are high priority payments from project toll revenues,

especially O&M which is typically the 1st priority.

• A guarantee to pay O&M costs from a State DOT or other financially stable

entity can allow debt to be the 1st payment priority while still maintaining the

• perational integrity of the project.
• O&M guarantees have been used extensively in Florida as well as in many
• ther states.
• Crafting the priority of payments (a.k.a. the “flow of funds”) for a new toll road is

critical to the credit rating and debt structure. Balance must be achieved among project cash flow needs, debt covenants, subordinated indebtedness, and equity providers.

Toll Road Finance Enhancements – O&M Guarantee

18

Toll Road Case Study – LSIORB – Downtown Crossing

19

• The Louisville Southern Indiana Ohio River Bridges project is a nationally significant

reconstruction / construction of I65 and I265 between Kentucky and Indiana.

• System toll revenues will be split 50 / 50 and Kentucky will secure project toll revenue

bonds with its share.

• The State Road Fund will backstop Tolling O&M, General O&M, and M&R expenses.
• Construction will be funded by First Tier Bonds and Subordinated BANs proceeds.
• A TIFIA Loan is expected to take out the BANs and be issued as a third tier debt.

KPTIA Toll Revenues First Tier Bond DS and Reserve Subordinated Bond DS Tolling O&M Expenses and Reserve Deposit to KYTC Repayment Fund Pledged Revenues Third Tier Bond DS and Reserve (TIFIA loan expected) General Reserve Fund M&R Reserve Second Tier Bond DS and Reserve General O&M Expenses and Reserve

System Financing

20

• For regions that have multiple projects that are adjacent to or connect

to each other, a system financing concept merits considerations.

• System financing allows for project delivery acceleration with lower

costs due to the following benefits:

– Exploit accumulated residual cash from early constructed projects to finance subsequent projects – Exploit tolling history of early constructed projects to leverage an established credit for subsequent debt financings – Stand-alone toll financing, which is costly and time-consuming, is not the best strategy for smaller projects. – A combined system including urban and interstate express lanes can present itself as a better candidate for TIFIA loans. – Eliminate traffic diversion issue of competing facilities if financed individually

Regional System Financing Example – Central Florida Expressway Authority

21

• The CFX system is comprised of

109 centerline miles of expressways in Florida

‾ 741 Lane Miles ‾ 14 Mainline Toll Plazas ‾ 64 Ramp Plazas ‾ 301 Toll Collection Lanes

• All CFX’s facilities are integrated

into one system. Toll revenues are combined to support its overall capital plan.

• Toll revenues and other revenues

form the pledge for CFX’s revenue

• bonds. CFX has one Master Bond

Resolution and one system debt policy.

• Currently financing the completion
• f the western loop around Orlando

– a project that would not be financially feasible outside of the system concept.

Financial Plan Data, Assumptions & Questions

23

Hampton Roads Regional Projects

These assumptions were presented by VDOT on July 17, 2014

• Projects as previously determine by HRTPO
• Start with fiscally unconstrained project schedules
• All projects will be developed by VDOT as Design-Build (unless
• therwise noted by VDOT)
• Any Environmental Impact Statement (EIS) over 10 years old will

Require a Supplemental Environmental Impact Statement (SEIS)

• Project Development does not Start Until NEPA is Complete

Previous Assumptions for Review

24

These assumptions were part of the October 2013 HRTPO decision to move forward with the 9 mega projects:

• HRTF projects should be included in the HRTPO approved LRTP, supported by

HRTPO resolutions, and meet a project cost threshold of $100 million

• Additional State/Federal funding of $2.474 billion was incorporated into the

determination of financial feasibility

• Tolling of MMBT I-664, High Rise Bridge I-64 Southside, and HRBT I-64 to

produce $2.88 - $4.38 billion of funding was incorporated into the determination

• f financial feasibility
• HRTF package of bonds & revenue for funding of $3.3 - $1.8 billion to complete

the 9 projects, depending on the tolling package and additional funding needed

• Additional regional funds not needed for the 9 projects included:

– $2.7 billion available from estimated revenue generated in HR from Statewide additional funding beginning in FY 2021 – Additional HRTF bonds & revenue of $2.1 - $3.6 billion

Previous Assumptions for Review

25

• The following table details certain assumptions included in the financial

analysis presented by Secretary Layne on Dec 11, 2014:

Previous Assumptions for Review

Assumptions Description HRTPO Priority Projects Initial Financial Plan Water Crossings Tolled Projects I-264/I-64 interchange Improvements    I-64 Widening Segment 1 (Exit 255 to Exit 247)    I-64 Widening Segment 2 (Exit 247 to Exit 242)    I-64 Widening Segment 3 (Exit 242 to Exit 234)    Fort Eustis Interchange (Exit 250)    High-Rise Bridge    460/58/13 Connector    Monitor Merrimac Bridge & Tunnel – Seg. 2 (Tunnel)    Monitor Merrimac Bridge & Tunnel – Seg. 4 (Peninsula)    Monitor Merrimac Bridge & Tunnel – Seg. 5 (Southside)    Patriots Crossing / Craney Island Connector    26

Previous Assumptions for Review

Assumptions Description Tolling Options: Hard Toll

• $2.76 flat toll for all traffic

‒ Assumed on tolled water crossings ‒ Represents the revenue maximizing toll rate that was determined based on the results of a preliminary traffic and revenue study HOT Toll

• Peak/Off-peak ($0.33 /$0.15) per mile toll for HOT lane users

‒ Assumed on tolled projects ‒ Represents the revenue maximizing toll rate that was determined based on the results of a preliminary traffic and revenue study Financing Options: Bonding of Tax Revenues

• Tax-exempt revenue bonds that are supported by regional tax revenues

‒ 2.1% sales tax on fuel / 0.7% retail sales and use tax Bonding of Toll Revenues

• Tax-exempt toll revenue bonds that are supported by revenues from tolled projects

TIFIA Loan

• Credit Assistance in the form of direct loans from FHWA’s TIFIA Loan program for tolled projects

Design-Build-Finance

• Delivery option that assumes the private sector will be responsible for the design and construction of a project as

well as financing the construction phase with milestone payments paid to the private sector entity upon successful completion of construction. ‒ Only assumed for Patriots Crossing / Craney Island Connector (Assumes a 10 year financing) Securitization

• For tolled projects, toll revenues may be securitized through a brownfield P3 transaction in which a private

sector investor makes an upfront payment for the right to receive the ongoing revenues.

27

• The following table details certain assumptions included in the financial

analysis presented by Secretary Layne on Dec 11, 2014:

Construction, Roadway Long Term O&M / R&R, Toll Collection Costs

• Need all costs in inflated year of expenditure dollars
• Do we include the additional State/Federal funding of $2.474 billion that

was incorporated in the Oct 2013 HRTPO plan?

• If fiscally unconstrained project schedules are not feasible, in what order

should projects be delayed? Based on current order of development?

• Will VDOT pay for long term roadway O&M / R&R? If not, will VDOT

provide a O&M / R&R commitment to pay to allow a gross pledge?

• Who will pay for toll collection costs?
• Can HRTF revenue be used for Long Term O&M / R&R and Toll

Collection Costs?

Strategic Financial Plan Needs, Assumptions & Questions

28

HRTF Revenue & Bonding

• Revenue growth assumptions, or test a range?
• Coverage/Additional Bonds Test assumptions, or test a range?
• Level annual debt service or ascending?
• Desired credit rating outcome?
• Other feedback

Strategic Financial Plan Needs, Assumptions & Questions

29

The physical assumptions included in prior T&R work will impact the usefulness of those forecasts

• What projects are included?

– Is this same set of projects? – Are the project start and end points the same? – What is assumed about new capacity in rest of the network

• Capacity

– Number of tolled vs non-tolled lanes by facility – Are any reversible lanes, and if so during which hours of operation?

• Project Configuration

– Number and location of access points – Types of access points (slip ramps from general purpose lanes, major interchanges – Type of toll collection (mainline gantries, ramp tolling or mixture)

• Opening date to traffic

30

Strategic Financial Plan Needs, Assumptions & Questions

The tolling policy and toll rate assumptions of the prior T&R work will also impact the usefulness of those forecasts

• Tolling Policy

– Objective: traffic optimization vs. revenue maximization – HOV policies: no HOV free vs. HOV2+ vs. HOV3+ – Consistent with other regional facilities? Parity for water crossings? – Toll collection: E-ZPass only or allow Video Tolling

• Higher toll rates for Video Tolling?
• “E-ZPass Flex” needed for free HOV?

– Conflicts with existing tolling agreements

• Toll Rates

– Initial Toll Rates

• Does tolling start at initiation of development or when completed?
• Need to understand “HOT Toll” vs “Hard” options
• Do they vary by time of day? Consistently with other facilities?

– Escalation of Rates

• Are they tied to CPI or other measures?
• Do they vary by roadway performance or congestion?
• Is there a required authorization process, and if so, at what frequency?

31

Strategic Financial Plan Needs, Assumptions & Questions

We need to understand key features of prior T&R work to utilize their outputs

• Level of study - Preliminary or more detailed?
• Beyond capacity and toll rates, what were the other key assumptions?

– Base traffic levels – Growth to future levels – Key parameters, such as Value of Time, etc.

• What forecasting models were used?

– Regional travel demand model – Other models, such as micro-simulation and/or spreadsheet – Are they available to be shared or can modified scenarios be run by original consultant?

• Are the reports and detailed results available?

32

Strategic Financial Plan Needs, Assumptions & Questions

Non-HRTAC Projects: Hampton Roads Bridge Tunnel

• October 2013 HRTPO analyses included tolling of HRBT I-64
• It is unclear whether the financial plans summarized by Secretary Layne

assumed additional lanes and or any tolling on the HRBT

• Any future improvements and tolling plans to HRBT have a significant

impact on traffic & revenue for the HRTAC projects

– Is tolling HRBT acceptable and under what conditions? – What is the assumed level of service on HRBT? – What schedule is assumed and is it based upon financial feasibility? – Is there toll rate parity with HRTAC water crossing projects? – If HRTAC pursues a regional tolling system, should HRBT be developed independently by VDOT and/or as a P3 concession, or incorporated as part

• f the regional system?

Strategic Financial Plan Needs, Assumptions & Questions

33

Identified from Available Information (Verification Required) Unknown Key Assumptions Overall Policy

• Toll rates revenue maximizing
• HOV policy
• Truck usage
• Integration with other toll projects

Physical Assumptions

• Project development timeframes
• Details of HOT lane network (project

limits, capacities, and configurations)

• Were additional potential HRTAC

projects included and tolled

• Capacity increases (and tolling) of
• ther roadways (HRBT, etc.)

Toll Rates / Collection

• Revenue Maximizing ($2.76

water crossing; $0.33/$0.15 per mile HOT)

• Cashless (presumably)
• $ year of toll rates and how are they

inflated

• Video toll premium charge

Other Key T&R Inputs

• Availability and level of T&R study and

models

• Key inputs and parameters: base

traffic, growth, VOT

Interpretation of Available T&R Materials

34

Interpretation of: HRTAC_Technical Committee Scenarios_Secretary's Comments_11Dec14_v2.pptx