North Carolina Turnpike seeks subordinate debt to fill funding gap for Triangle Expressway

North Carolina Turnpike Authority (NCTA) has issued a Request for Expressions of Interest in subordinated loans to fill a gap in financing of the Triangle Expressway project. Earlier the Turnpike said it needed support from the state to cover the difference between the debt service costs of prudent financing and the prospective revenue.

There was a $203m gap which needed annual support from the state legislature of $12m to $18m per year on the project with an overall cost of $858m, the Turnpike told the legislature.

The state legislature broke up for the summer without reaching agreement on any support for the Turnpike, so the Turnpike is now looking to be self-sufficient.

Turnpike CEO David Joyner told us in a recent interview he'd been told by several finance people that there was no need to go to a private concession to fill the gap. Citigroup, Bear Stearns and other public finance people have been preaching the opportunity for public toll authorities to more closely match the kind of financing being offered by private concessionaires. This involves doing some high risk, high interest rate bridge finance.

Unrated medium-term subordinated debt was the way to go, they said.

So NCTA is going into the process of getting proposals from banks and other financial institutions.

The RFEI says the move is exploratory and the Turnpike may not proceed with any extra debt proposed.

NCTA says its "strong preference" is to maintain full control - not only of the building process, but also to maintain and operate the facility and provide customer service, and to control toll rates. That rules out a concession. To the maximum extent possible it wants to fund the project with tax-exempt senior lien bonds.

Joyner told us of a concession for the Triangle Expressway: "I'm not going to say (we'd) never (do it) but our preference is strictly debt. We don't want to cede day to day control. I'm confident we'll find some way to fund the gap (short of ceding control)."

NCTA plans to issue $675m of senior lien toll revenue bonds designed to get an investment grade credit rating and bond insurance in 2008 in a public sale.Gross toll revenues would be pledged leaving operations and maintenance (O&M) subordinated. NCDOT would make a contingent commitment to cover O&M.

A USDOT TIFIA loan would be immediately subordinate to the revenue bonds with a junior lien on the Expressway's revenues.

The RFEI says it remains to be determined whether USDOT will put any restrictions on early retirement of the gap-filling subordinated debt they are going for.

The Authority is apparently looking for some kind of flexible short to medium term funding that will take close to the risk that equity investors would take in a concession financing. They aren't looking for underwriting or advice but for financial offers. They already have UBS/Bank of America as underwriters and PFI as financial adviser. See RFEI:

http://www.ncturnpike.org/pdf/NCTA_TriEx_SubDebt_RFEI-NCTA_Rev2_090407.pdf)


BACKGROUND: The Triangle Expressway is a 30km (18.6mi) bundle of four pieces of tollroad in the western part of the Raleigh area often known as Research Triangle. It comprises segments of a Raleigh outer loop with the 540 route number, part interstate and part NC state route and called the West Wake Parkway, plus a short spur called the Triangle Parkway to the north.

It is the first project of the NCTA and decisions have yet to be made about tolling. Major decisions will be:

- all-electronic or cash plus electronic,

- E-ZPass IAG standards or TransCore sticker tags

Environmental permitting is almost complete.

A traffic and revenue study by Wilbur Smith suggested an 11c/mile (7c/km) initial toll rate. It suggested average daily traffic in year one (2011) at 38k, rising quickly to 79k in three years (2014) with 2030 traffic at 166k.

Revenue goes:
2011 $12m
2014 $25m
2020 $48m
2025 $72m
2030 $99m

Full project cost is now put at $993m in year of construction dollars.

Open to doing concessions in other circumstances - Mid Currituck Bridge

David Joyner is quite candid. He says its the constituency for a toll project that he sees as decisive in whether the financing is via a public authority or a concession. He told us the Mid-Currituck Bridge project for the Outer Banks will almost certainly be put out for concession proposals. That's because the majority of the users will be tourists and other visitors and there is less of a local constituency than for urban congestion relief projects like the Triangle Expressway.

The proposed Mid-Currituck bridge is 11km long over the Currituck Sound between the mainland and the Outer Banks or barrier islands/peninsula on the ocean.

Many of the potential users are from Virginia and points north.

Preliminary study suggests a cost of $460 and traffic that will only support about $200m in traditional revenue bonds, but Joyner says he thinks it may be a better project.

NCTA is working for a draft environmental report by the end of next year and a final permit end 2009. In the last year Joyner would like to see a concession procurement running in parallel with the final permitting, so construction could start immediately for opening of the bridge by end-2013.

Other NCTA projects financial viability under traditional public fianncing is shown in slide below:

TOLLROADSnews 2007-09-11