Financing of Capital Beltway HOT Lanes incomplete but Transurban says "on track"

A prominent Wall Streeter told us this morning that TOLLROADSnews was wrong to report that the HOT Lanes on the Capital Beltway in Virginia had achieved financial close. We wrote that last December - see http://www.tollroadsnews.com/node/3315 He emailed: "Not true, nothing has been funded. It's actually a very good example of how the credit crunch has impacted concession finance."

He went on to say that Transurban have not been able to syndicate the DEPFA letter of credit. And he said the sale of the private activity bonds (PABs), "originally scheduled for yesterday, has been put off."

From what we can discover he's partly right, partly wrong, and some of what he says is subject to a less alarmist interpretation.

He's wrong that nothing has been funded. Transurban and Fluor have contributed equity funds and Virginia DOT has contributed grant money for general purpose lane construction that is part of the $1,524m deal. Transurban says nothing was scheduled for yesterday.

He's right that the major lending for the project is not done although they have "commitments" and that the freeze-ups and uncertainties of the financial markets are causing delays.

How serious are the delays is subject to differing interpretations. Funding is often a bumpy, erratic process that takes longer than expected. See the Stanley dog story below on the rocky road to the financing of the Dulles Greenway 15 years ago. The Northwest Parkway Colorado deal with Brisa last year took several months versus the one month they had predicted for financing. But it got done.

Transurban says

Megan Fletcher, Transurban spokesman in New York told us after checking with their finance people that they are "on track" with financing in line with their notice to the Australian Stock Exchange in December (Click to see here). She says:

"The (Beltway) project reached close in December on the back of four sources of capital - private equity, VDOT funding, a TIFIA loan and PABs. The equity, VDOT and TIFIA components were all locked in prior to close. The PABs were supported by a forward bond purchase agreement with a leading Wall Street firm and a back-stop commitment from DEPFA bank to provide a letter of credit enhancing the bonds.

"While the DEPFA commitment provides funding certainty to the project, it has always been our intention to competitively bid out the required letters of credit to the bank market in the first half of 2008. This process has been ongoing and we have already secured commitments from a number of banks covering the full amount of the debt on very competitive terms.

"We are currently working through the final elements of the process in advance of the bond issuance and our original schedule has not changed (there was never anything scheduled for yesterday).

"We are still very much on track to issue the bonds in the first half of 2008 as previously communicated."

The $1524m project on the Beltway is being funded with:

- $315m equity drawn over 5 years from DRIVe (75% Transurban, 25% CP2)

- $31.5m Fluor equity drawn over five years

- $587m senior debt 40 year private activity bonds (PABs)enhanced by AA bank letter of credit, 5.35% interest

- $587m 35 year USDOT TIFIA loan subordinate to PABs at fixed rate of 4.45%

The project adds four lanes to 22.5km (14 miles) of the Beltway between the Springfield interchange and the Dulles Toll Road with many direct connector ramps at interchanges, and rebuilds segments of the existing 8 lane hightway to create space in the middle for the toll express lanes.

How the Stanley dog got the Dulles Greenway built - keeping CEO around for Close #3

The late Ralph Stanley CEO of the Dulles Greenway, Virginia in 1993 had to organize three attempts at a financial close - roomfulls of insurance company people, bankers and lawyers with mountains of documents to be executed simultaneously - before he got funding lined up for the first private tollroad in the US in the automobile era. He had two "closings" that failed, either because one or other participant failed to show or they couldn't reach agreement on some provision and the others wouldn't stay around waiting, and walked out.

He confided to me after the event that if the third closing had failed he had been "all ready to disappear to Madagascar."

If it hadn't been for his beloved large dog, he said, which was constant presence in the Greenway's offices in the main street of Leesburg, and the difficulties of transporting the hound internationally, he probably would have taken off after the second closing had failed.

TOLLROADSnews 2008-04-17