P3-VALUE Webinar - August 7, 2013
P3 Program Manager
Office of Innovative Program Delivery
Victoria Farr: Thank you, Jim, and on behalf of the Federal Highway Administration's Office of Innovative Program Delivery, I would like to welcome everyone to today's IPD Academy Webinar, P3 Evaluation Financial Assessment. My name is Victoria Farr. I'm with the USDOT's Volpe Center in Cambridge, Massachusetts, and I will be moderating today's webinar, as well as facilitating our question and answer periods, and helping to address any technical problems, along with my colleague Aaron Jette. Our presenter for today is Patrick DeCorla-Souza. Patrick is the P3 Program Manager within the Office of Innovative Program Delivery. Before he begins, I would like to point out a few key features of our webinar room. On the top left side of your screen, you'll see the audio information box. If you are disconnected from our webinar at any time, please be sure to dial back in so that you can receive the audio feed. Below the call-in information is a list of attendees, and below that in the bottom left corner of your screen is a chat box that you can use to submit questions to Patrick throughout the webinar. If you are having any technical difficulties, please use the chat box to send a private message to myself, Victoria Farr. Our webinar today is scheduled to run until 3:30 p.m. Eastern, and is divided into five lessons. We will queue up any questions for Patrick at the end of each lesson, and we also anticipate having a few minutes at the very end of the course for additional question and answers. I also wanted to let you know that we are recording today's webinar, so that anyone who was unable to attend the session can listen into the presentation at a later date. A copy of today's presentation will be available for download at the conclusion of the webinar.
Finally, we have four quick poll questions that we'd like you to answer for us to help us better identify our audience and your familiarity with the content. On the top left corner of your screen, we're asking, "What is your affiliation?" Whether you are with the FHWA Division Office, non-Division office, State DOT, other Federal Agency, other State Agency, NPO, private sector, or other. And to the right of that, "How many people are participating along with you today?" Whether you are at your computer alone, or if you have a group of up to ten or more people in a conference room with you. On the bottom left-corner, "What is your current level of knowledge and experience with financial assessment?" Either you have no prior knowledge or experience, a very basic understanding, some knowledge and experience, or a lot of direct knowledge and experience, or you're an expert. And then on the bottom right, "Which of the following P3 value tools have you accessed?" And that is a multiple answer question, so you can check all that apply, either the risk assessment tool, the public sector comparator tool, the shadow bid tool, the financial assessment tool-- which we will be highlighting today-- or whether you have accessed none of the P3 value tools. So thank you very much for your responses. I will close these out. And turn the presentation over to Patrick, who will begin with the course introduction. Patrick?
Patrick DeCorla-Souza: All right, thanks, Victoria. And thank you all for attending this last of our four webinars on P3 value. If you haven't participated in the earlier webinars, we have recordings available so you can catch up. So as Victoria said, my name is Patrick DeCorla-Souza, I'm with the Office of Innovative Program Delivery. And I've been doing these webinars over the last three months.
So the first slide here simply gives you the URLs if you missed the prior webinars, you can-- you will have the ability to download these presentations, so you will be able to click on the URLs and listen to the recordings. P3 value, for those of you that have not yet had an opportunity to try it out is a set of four analytical tools that are integrated and are designed for the purpose of doing financial analyses. One form of it is value for money analysis.
It is comprised of the four tools you see listed here, a risk assessment tool to help with identifying risks, and quantifying them and monetizing them. There's a public sector comparator tool that helps you calculate the cost for conventional delivery, and that's the baseline against which you would compare your P3 option. And the P3 option is calculated through the shadow bid tool, and it helps you calculate the amount of payments you would need to make to the private concessionaire as well as other ancillary costs you might incur as a public agency. And finally the final financial assessment tool pulls all of this information together, compares the public sector comparator estimate with the shadow bid estimate, and calculates the value for money. The financial assessment tool may also be used to assess financial viability, which is your ability as a public agency to actually pay for the project. So the focus of this webinar is actually on that last bullet, assisting in assessing financial viability. The prior webinars covered the first bullet, which is the comparison of the PSC and the shadow bid, and all of the prior tools.
So this graphic shows you how the tools are interrelated. You have a set of project assumptions that are input into the risk assessment tool, the public sector comparator tool, the shadow bid tool, and these tools calculate the values that go into the financial assessment tool to do the comparison for value for money analysis. And now the financial assessment tool can independently be used to simply do a financial viability analysis that is simply for you to figure out if you can afford the project. In other words, are the costs of the project sufficient, or are the revenues sufficient to pay for the cost of the project?
So what we will do in this webinar is lead you through five lessons. As you see here we'll first talk about P3 financial structures. We will then have a discussion of what financial models are, and then we will show you how these financial models may be used to address the metrics or to calculate the metrics that the public agency may need to know in order to find out if a project is viable. Then we will, in Lesson 4, look at what the lenders are concerned about in assessing financial viability. And finally what a concessionaire is concerned about will be discussed in Lesson 5.
So hopefully by the end of the course, we hope you will understand a little better how P3s are structured. You should be able to describe the role of financial models, list key inputs and the outputs from financial models. And hopefully you will be able to describe the kinds of metrics that public agencies, lenders and concessionaires are interested in. And finally, we will be presenting some outputs from P3 value which we hope by the end of this webinar you will understand how they relate to the material we are presenting, as well as for those that are interested in delving deeper into P3 value, we have a couple of homework assignments that will help you get a hands-on experience with P3 value and understand a little better how these numbers are calculated.
So I will first talk about the financial structure of public/private partnerships. Of course, in all of these webinars, we assume that you have listened to the recordings of the prior webinars, or have prior knowledge, so if you find something that is basic that you don't understand, I encourage you to listen to recordings from prior webinars. This is something we covered earlier in a prior webinar.
This is just a refresher, showing you the various kinds of P3s and what P3 value focuses on is the type of P3s that are in bold: design, build, finance, operate and maintain. And there are two types of such P3s. One is a token session, the other an availability payment concession. So that's the focus of P3 value. You can also use P3 value to calculate what are known as shadow tools, which is a payment that the public agency makes per vehicle that uses the roadway.
The structure of a P3 is displayed in this graphic. In the center, you have the concessionaire, who has an agreement with the public sponsor; generally there might be a subsidy, because most often toll revenues are inadequate to fully pay for a transportation facility. On the other hand in some cases, there are extra revenues. And there might be an agreement to share those revenues. And that's what's indicated by the arrows that go to the public sponsor. In the case of the lenders, on the left-hand side, the lenders provide funding to the concessionaire, also known as a special purpose vehicle, or SPV. And this is through bonds or loans, and the concessionaire repays the lenders over the concession term. Either the bank in the case of the loans, or bond holders in case of bonds. On the right hand side, you have equity investors that provide extra funding, again, it's usually a relatively small portion of the funding needed. Most of the funding comes from lenders. But it's important that equity investors have some skin in the game. And generally in a high-risk project, lenders will require more equity, and that's what you see flowing into the concessionaire on the right hand side. And as a compensation for their investment, the concessionaire provides dividends or distributions to equity investors over the life of the concession, which generally is the balance of revenue that is available after paying off the lenders and other miscellaneous costs that are incurred. On the bottom, you have the facility. And of course, that's where the funds are going into, the facility needs funding to construct and to operate, and that's what you see you going down with that blue arrow. And the other arrow shows the return from the facility in terms of toll revenue. So this is a toll concession. If it was an availability payment concession, the toll revenue would go all the way up to the public sponsor directly, and instead of a subsidy, the arrow from the public sector to the concessionaire, you would have an availability payment, which is a payment made annually or at some periodic interval over the life of the concession.
So to understand financing and financial models, it's important to have an understanding of what project finance means. Now we all know what financing is, it's basically a temporary provision of funds from a bank or from bond holders. And you pay them back from revenue or income you get in the future. So in effect, financing is a way to rearrange future revenues so that they're available today for you to build the facility that you're interested in putting in place. So what is project finance then? When you say project finance, you're really talking about a specific type of financing where the revenue for the most part comes directly from the project. So in the case of a toll facility, the revenue is coming directly from users who pay tolls in the toll facility. Now, when you say project finance, it also means that lenders limit the claims on the revenue to whatever is produced by the facility. In other words, if the revenue is inadequate to pay debt service, the lenders can't go back to the original equity investors and go into their assets and try to claim monies from their assets. So it's called non-recourse financing. So basically, if the revenues from tolls in a toll concession are not enough, the lenders are pretty much out of luck. They take a loss. And so that's the difference between, let's say, your normal financing in the case of a toll facility that may be run by the DOT, for example. If those toll revenues are not enough, often those revenues might be-- or the bonds might be backed by the full faith and credit of the DOT, and lenders will have access to additional tax dollars if the toll revenues are not enough. So it's important to understand this distinction, because in a P3, what you have is project finance, which makes the bank loans or the bonds riskier than if the project used regular types of financing where the financing is backed by the full faith and credit of the public agency.
This graphic depicts a typical cash flow waterfall. That is really the order in which revenues from the facility are used or paid. So what you see here, the first step is a revenue fund, where all of the toll revenues go into, and that revenue is used first for operation and maintenance expenses. Then, anything left over would be put into an O&M reserve fund. After that, you would pay off the senior debt service, so the senior bond holders would be paid. And any reserves required in that fund would be replenished. And after that, you would pay any subordinate debt service payments. And TIFIA, for example is a form of subordinate debt, so they are paid next. And the reserve fund is replenished. And after that, you might put anything left over into a rehabilitation and reconstruction fund. This is revenue that's needed on a period basis to fix the facility. And only after all these reserve funds and expenses are paid would the balance of the cash go to the equity investors. Of course, sometimes there is nothing in earlier years, as you know, generally speaking it takes a while for toll revenues to ramp up, as users try to get-- you know, more and more users come to a facility. In early years, you would find equity investors probably getting no return at all.
So where do P3 project revenues come from? We've already said tolls from users, but there might be other sources, and an example is fees from advertising. Of course this is for transportation in the case of transit; it would be fares from transit riders. Now in addition, we have other ways of compensating the private sector, availability payments is one way, annual payments over the term of the concession, shadow tolls, which is really another form of availability payment where instead of having a fixed amount paid annually, that amount depends on the amount of traffic that is using the facility. And finally, in some cases you may have progress payments or completion payments early in the construction of the facility, which can help with paying-- or reducing the amount that the concessionaire needs to borrow upfront. So the revenue for public agencies, obviously for their subsidies has to come from somewhere. And if it's an availability payment concession, and if there are tolls in the facility, that revenue could come from tolls that are going directly to the public agency instead of the concessionaire. They could come from general taxation, or in some cases value-capture strategies. And this is where beneficiaries, neighboring land holders, for example, pay additional taxes because of the extra value a transportation facility will provide to their property. And that's more common in transit projects.
So this slide provides you a listing of the types of entities that invest, first in equity, you have an infrastructure development companies, investment banks, infrastructure funds, and more recently pension funds and foundations. And insurance companies have become interested in equity investment. You get a higher return with an equity contribution. Debt is in two forms. Loans, which could be from private banks, could be from the federal government through TIFIA, and could be from state infrastructure banks, through SIB loans. Or through Section 129 loans, which are also a form of federal funding that goes through the states. Bonds are generally, could be project revenue bonds, or corporate bonds. Corporate bonds, of course, are not project financing, they're the SPV takes out bonds that-- not the SPV, but the shareholders of the SPV would take out bonds directly to fund the project, and that's generally not very common, but it does happen. And finally private activity bonds, which is still private sources, but it is issued through a public agency, which allows the bond holders to take a tax exemption.
P3 project debt consists of as we said either bonds or loans, and the important difference between debt and equity is that debt is paid before equity. So in case cash is insufficient, the equity is the one that doesn't get paid. In case of bankruptcy, you might find that equity investors lose their entire investment, and the banks and the bond holders take over the facility entirely and become owners of the facility. Because they have less risk, then the equity investors, they require lower rates of return than equity. And the rate of return is fixed, unlike in the case of equity where their equity investors might get more than what they bargained for, or they might get less if a project isn't doing well. The interest rates on debt vary by the amount of risk. So for example, a greenfield project, which is a new facility, has more risk, so you might find that lenders acquire higher rate of return or higher interest rate for greenfield projects than for brownfield projects. Tax exemption is a big consideration. If there are tax exemptions, lenders or bond holders are willing to take a lower interest rate. And in the case of government loans, such as TIFIA, you might have even lower interest rates than those given by private lenders, simply because of course the federal government gives TIFIA loans at the US Treasury rate, which is the AAA rating and the lowest rate you can find on the market. And finally, the market itself, for example, during the recent financial difficulties in 2008, there was little demand and that would have affected the interest rates at that time.
Private equity assumes the highest risk, because they are the last paid. They have an upside potential, however, and they could lose their entire investment in case of a default. Equity investment, of course, is needed in order for lenders to agree to lend. You know, they need that cushion, they need that extra amount in the facility, so that if things don't pan out, the one that gets hit is the equity investors, and they still get most, if not all of the amount that they provided in terms of debt. So the equity investors try to have what is called a high gearing ratio, or high leverage. And by that we mean that they try to have as much debt as possible on a project. So, the reason they do that is by doing so, they can keep, of course, costs down, and therefore get the project. I mean, they can have the lowest bid on the project.
And how that affects the bidding process, you can see in this table. Let's say you have a project cost of a million dollars with low leverage of 50/50, which means one-to-one ratio, $500 million debt/$500 million equity. The return acquired by equity investors on an annual basis at a 15 percent rate is 75 million dollars. And the debt at an interest rate of five percent, the interest on the $500 million in debt is 25 million dollars. So the revenue required to pay off the equity and the interest is $75 million plus $25 million, which is 100 million dollars. On the other hand, if you have a nine-to-one ratio, a nine-to-one gearing ratio or leverage, debt is 900 million dollars, and the equity is only 100 million dollars. Since it's only 100 million dollars, the rate of return on that equity at 15 percent is only 15 million dollars a year. Much less than the 75 million in the low-leverage situation. And that makes a big difference, because if you see the interest payment stays relatively low-- it's 54 million dollars. This is because the interest rate is slightly higher-- it's not five percent anymore, it's six percent. So the total of the interest and the equity rate of return comes out to only 69 million dollars. So what this shows is the effect of high leverage. The higher the leverage the lower the financing cost, and therefore the lower the amount of bid, or revenue required-- and revenue can be in the form of availability payment or it can be in the form of a toll. But the bottom line is less revenue is required to pay for a project with high leverage. The equity rate of return actually varies by phase of a project.
And this graphic shows you a greenfield project, and how that rate of return might vary from the development phase through the construction phase and down through the ramp-up phase. And the reason is once the project is built, you know that-- I mean, you've built the project, you've taken care of all the risks of construction, so now, you only have to worry about ramp-up when, you know, will the users come? And after a period of time, you know how many users you're getting on the facility, and what the toll revenue is, and that risk get reduced further. And so over a period of time you might find equity investors might actually be selling their stakes in the project, and getting out of the project and selling it to other equity investors that are more risk averse, and want to have less risk. And so they might buy in at the ramp-up phase, or at the operations phase. And then the high risk investors will take the revenue they get, or the money they get from selling to these other low-risk investors, and they go in for additional high-risk projects. Again, with the intention of making a high rate of return. So that concludes the first lesson, and I turn it over to you, Victoria.
Victoria Farr: Thank you, Patrick. And actually in the interest of time, I'm going to recommend that we move on to Lesson 2. There have been no questions submitted in the chat pod, but I did want to bring your attention to a comment that was submitted by William Ankner regarding that the Pocahontas Highway is a good example of non-recourse. So if you had any response to that, Patrick, please share that, otherwise, I think in the interest of time, we should move on to Lesson 2. And I will ask that all participants please feel free to enter questions in the chat pod throughout this lesson, and we will respond to them once Patrick concludes this lesson.
Patrick DeCorla-Souza: All right, so let's move on to Lesson 2, Financial Models. Here we are going to give you the fundamentals of financial modeling. It is very complex, but we're going to introduce you to what they involve, what are the inputs and what are the outputs. So first we need to understand the difference between financial assessment and other kinds of economic investment. And you know, financial investment, they're only interested in cash flows in an economic investment; you are interested in things more than cash flows. For example, travel time benefits, user benefits that are not cash. Safety, which is not cash. So what we are focusing on in financial models is simply cash flows. And financial models are used first to evaluate procurement options, and value for money analysis is the method used. And we had a whole webinar on that, which you can review at your leisure. There's a recording on the website. The value for money analysis helps you decide whether a P3 has better value relative to a conventional procurement. In the financial viability evaluation, you are trying to determine whether you can afford the project. In other words, there are going to be most likely some cities that will be required for the project. So in most cases, toll revenues aren't adequate. So you'll need to understand how much of a subsidy might be required and whether you would have the ability to come up with those funds, either from your existing budget or through borrowing. Or you might want to figure out whether you can afford to have the concessionaire charge higher tolls to make up for that shortfall. So that is what financial assessment is about when you're looking at it from the public perspective.
So it's also important to understand that lenders also do financial viability assessment, but in their case they're more interested in understanding the debt capacity of a project under extreme scenarios. For example, if there's higher inflation, or if toll revenues don't come in as expected. So they run these models to look at extreme scenarios and this is called stress testing. Basically to determine whether there would be enough revenue to pay at least their loans, pay back their loans. They don't care about the equity people, but they still want to make sure that they'll get paid back if things aren't as rosy as forecasted. Concessionaires are looking at the extra cash flow after the debt is paid off, or the debt service is paid. So they're trying to figure out how much extra cash flow there might be, and what that is worth in present value terms so that they can understand how much equity they can afford to invest. Because if they know how much future cash flow will be coming back, they can figure out based on their time value of money and their required rate of return, they can figure out how much they can afford to invest in a project. So all of these different parties use financial models but for different purposes. And the way they calculate these subsidies in case of the public agencies or debt capacity in the case of lenders is through financial modeling which involves discounting of cash flow.
So it's important to understand what discounting means. This slide shows that discounting is simply a way of calculating the present value of future project costs and revenues, and you use a discount rate, which is the percentage by which the cash flow element in the future is reduced for each year, and this is exponential so you will find the impact of this exponential calculation can be quite significant. So discounting can be thought up as an exchange rate between present and future cash flows and it represents their discount rate you would use would normally reflect the rate of return that you're expecting. So the lenders would use whatever interest rate they're expecting the equity investors would use the higher rate of return that they're expecting to figure out what the value of the future cash flows is in present value terms. It accounts for the time value of money in economics. Of course, economic evaluation, this is an important concept. Delaying consumption is not as appealing to people so they're willing to have less money today then more money later on, and in some cases discounting is used to account for uncertainty in future cash flow. So, for example, if somebody who I don't trust tells me they're going to give me $10.00 in one year, I might discount that heavily and I would think-- value it at only $5.00 or $1.00 because I don't trust that person. But if it's Uncle Sam, who I trust and has a AAA bond rating, I would discount it by whatever rate of interest because I'm quite sure that I'll get that money back from Uncle Sam.
So there's something here that we need to understand that there are two different types of discount rates, so you need to understand where you use these different discount rates. There's something called a real discount rate, which is applied to what are called real cash flows and those are cash flows in today's dollars. So they're not inflated. This is normally done in economic evaluation, which, for example, future benefits or travel time savings for example. You don't inflate those based on your knowledge that the dollar is not going to be worth as much ten years from now. You just use today's dollar and so the discount rate you would use would be a real discount rate. Now in financial analysis, we are normally talking about Europe expenditure cash flows, so the actual cash you will be getting in the future, and so that is actually inflated dollars. For example, you might be paying operations and maintenance costs. You would need to figure out exactly how much cash you would need including inflation and so those numbers would need to be discounted by a rate which incorporates the inflation rate, and so there's an example calculation at the bottom that shows you how that would be calculated. If you have a six percent real rate and an inflation rate of 2.5 percent, you would think that you might be able to simply add the two and get 8.5 percent but to be more accurate, you have to do the kind of calculation shown in the bottom bullet where you actually get a rate of 8.65 percent, which is known as an all-inclusive rate. Basically it accounts for the effect of compounding.
So here is how present values can be quite different depending on when you are getting the money. If you're getting $10 million in a year or two, it's worth, in year zero, that is the present, it's worth at a five percent discount rate somewhere around $9.5 million. So it should be around that at a five percent discount rate. In the case of-- well no, it would be you're discounting it over two years, so close to $9 million instead of $9.5. If the revenue is being received in Year 4, you're discounting by four years and so it's five percent each year. So you would think that's close to 20 percent but you really, because of the exponential nature of discounting, what you see is the value's a little more than $8 million.
So "net present value" is a term that you're going to hear very often in financial modeling. It's a sum, the sum of the present values of all the cash flows, positive and negative, over the entire period of the concession or the life of the project. Now if the number turns out to be a cost, then that net present value may be called net present cost and the discount rate can really have a bit effect on that number because as we saw, if there payments that are made late in the concession period that will have much lower value than payments that are made early, let's say a completion payment made after the project is billed.
The effect of the discount rate is depicted in these graphics here. So here is a project that is built in two years and in Year 3, the concessionaire begins to get availability payments of 26.5 million dollars. If those payments are discounted at five percent, you end up with a present value over 30 years of $345 million. On the other hand, if you have that same availability payment of $25.6 million over 30 years and you discount it at a higher rate of 7.2 percent. You get only $265 million. So a big different there, about 80 million dollars different, a sizable difference simply by a two percent difference in discount rate. So the choice of a discount rate can really affect comparisons and so it's very important to give a lot of thought to discounts and what the right discount rate should be, and we are developing guidance on that because this is one the most controversial parameters in value for money analysis or financial modeling, and we hope we will be able to provide good guidance to you on this issue.
So financial models involve providing a lot of input and you will see in P3 value, if you do the homework assignment that we will provide at the end, you will see that you will need to provide information such as how much of grants come from the public agency, the amounts of the loans, what is the traffic forecast, what are the toll rates. So these are all inputs on the cost side and the revenue side. You also need to know how much the interest rate might be, the term of the loan or bond, the rate of return required by equity. All of these pieces of information are thrown into the financial model and outcome these cash flows, and so they are annually, and in the case of P3 value it's actually done on a six month period because usually bond holders are paid at six month intervals. So you get this cash flow that shows where money is coming from, which is the source of funding and it can be either from revenues or it can be borrowings. So you get that. Those are positive cash flows, and then you have negative cash flows, which are capital costs, operating costs and payments of debt service by the public agency or it can be payments by the concessionaire to its debtors or payments to their equity investors. So all of this information can be used to calculate the project's capacity to repay debt. That's what the lenders use financial models for. The capacity to attract equity and how much equity is appropriate. That's what the concessionaire's use the financial models for, and finally whether a public subsidy will be needed and that's what the public agency is interested in. How much, after you take account of all these revenues and financing costs, will the public agency still have to come up with a subsidy payment? That's what they're interested in.
Now financial models, as I said earlier, are very complex and simpler models have been developed, and P3 value is one of them. The World Bank also has its own model, and these models help provide insight into financial liability. To do a more thorough analysis for actual practice, you need to develop models that are especially designed or structured for the particular project and so you need to hire financial experts for that. But it's important to understand what the financial models are and how they work so that you can look over the shoulder of the experts that you hire.
So in this slide we show the various places in which you would use financial modeling, so you, as we said, might use it as a public agency to determine the subsidy requirement or whether the toll rates are too high, too low, et cetera. You might use it if you're doing value for money analysis to estimate what a private bidder might bid in terms of what amount of subsidy they might require or what the amount of availability payment they might require to do the project. In the bidding phase, you would use it to help design your request for proposals. Bidders use it in the bidding phase to go through the financial structuring to try, and as we showed in that table earlier, to optimize the financing to reduce the financing cost to the extent possible so that they can provide the lowest bid and the public agency would use financial models to evaluate the bids that they received.
In the commercial and financial close phase, lenders are obviously doing due diligence to check as we said earlier different stress levels to see how much they can afford to lend without taking too much risk and the models might be used by the public agency to evaluate terms of the agreement with the private sector because at this point, you're normally trying to decide on risks. The concessionaire's trying to push as much risk as possible back to the public agency, and the public agency is trying to push risks to the private concessionaire and there's a lot of bargaining or determination that you need to know what those risks are worth and the financial models help you determine what they are worth. During the concession period, the financial model may be used to monitor project performance so lenders are using it throughout the period to find out where things stand and whether things are operating as forecasted. If there are any what are called relief events or changes in the contract or you might want to use it to figure out how much compensation is required to be paid to the concessionaire. If revenue is to be shared, excess revenue is to be shared, based on a certain rate of return that the concessionaire is getting from the project, then the financial model will be used to determine whether that rate of return has been reached, and so this financial model's extremely important throughout the life of the concession. That concludes Lesson 2. I turn it over to you, Victoria.
Victoria Farr: Thank you, Patrick, and in the interest of time especially since we did receive questions from the audience, I'm going to skip the test or knowledge and move on to our Q and A layout. So for any new audience members, your view is that the presentation is in the bottom left of your screen and it's essentially swapped places at the top box, which is now the larger middle portion of your screen. So, Patrick, the first question we got, and this is two up from the bottom, is "Do the public agencies, lenders and concessionaires ever rely on the same model housed in the P3 or are they generally referring to separate financial modelers?"
Patrick DeCorla-Souza: So I think for good practice, you would want to all have one model that everybody agrees on. In practice, I assume each one has their own model but if in the long terms you're going to use a financial model to determine your compensation for relief events or when changes are being made to a contract, it is important to have a single model that everybody agrees on especially if this model is going to be used in future for revenue sharing, for example. How do you know when a trigger has been reached? If the concessionaire's using a different model then the public agency, there's going to be a dispute as to when a certain rate of return has been reached. So it's important to have the same model especially in circumstances where you have the need to know when the triggers are reached and also for compensation events.
Victoria Farr: Thank you, Patrick, and the next question that we got from an audience member who said that they were "curious if the models also incorporate IRR calculations by the SBV to determine a go or no-go decision point when position cash revenue flows begin."
Patrick DeCorla-Souza: Okay, and where is that question?
Victoria Farr: It's the very bottom entry in the chat box.
Patrick DeCorla-Souza: Okay. So the IRR calculated by the SBV, I assume you're talking about the equity rate of return. This is the question that-- of course I will have to think about a little more in detail, so maybe it might become easier once we get to the actual model. I don't think this question is clear to me the way it is up there on the screen. So we can get into a one-on-one discussion.
Victoria Farr: Sure, Patrick. So I will revert back to our presentation view. We can move on to lesson three and in the interim, the person that submitted that question can always clarify in the chat box or at the very end, if we have time, can come on the phone and have more of a dialogue with you then.
Patrick DeCorla-Souza: So we're now trying to look at a little more detail how these various parties, the public agencies, lenders and concessionaires use financial modeling, and I'm going to try to, with an actual example, show you how this is done. It's a very simple hypothetical example that they're going to use throughout the rest of this webinar. I have gone through this already explaining the project evaluation versus -- that is economic evaluation but versus financial assessment so we can go on to what the public agency is trying to get out of financial models.
So we said one of the issues is they want to determine if the project is affordable. How much of subsidy they need to provide, but they can also use it for other things and the last bullet shows you after doing this financial assessment, they might want to change the scope a little a bit to make the project more marketable to make it more feasible, reduce their subsidy requirements, et cetera, and so one of the ways you can do is think of having a longer concession term. You might consider instead of a toll concession having an availability payment. Structuring payments can be an important part of this financial assessment. So depending on when you have the money, you can design the RFP to seek proposals that fit your cash availability profile, and so that's what financial models help you do.
So in the case of a revenue positive project, which is very rare in the United States, the output of a financial model might be the concession fee. So this only happens on brownfield projects in the United States. In most cases, we are looking at revenue negative projects so the public agency is trying to find out is how much money would be required by the concessionaire in the form of a competition payment, if it's a toll concession, or in the form of an availability payment, if it's an availability payment concession, and of course if you're looking at a shadow toll rate, which has not been done in the U.S. yet, you would want to know what shadow toll might be required by the concessionaire. So it's always in a toll project, it's a balance between toll rates and public subsidy. So somebody has to produce the revenue that goes to the concessionaire, so it either comes from the users in the form of tolls or it comes from the public agency in the form of a subsidy, and if the public agency wants to push more of the cost onto users, it will allow higher toll rates. On the other hand, if there's a pushback from users of the facility or potential users of the facility asking for lower toll rates, the public agency has to figure out how much extra subsidy it would need to provide if the toll rates were going to be reduced to satisfy these toll opponents. So that's what financial modeling is used for, at least from the public agency's perspective.
So as I said, they're going to use a very simple model first, and then we will show you how P3 value produces those numbers.
This is the same project we've looked at in prior webinars, a simple $100 million project, a 30 year project life, ONM costs of $10 million a year with risks of $2 million a year in the P70 level, three percent inflation and a discount rate of five percent.
So here is the capital cost calculations. The $100 million is divided up, $30 million in Year 1, $70 million in Year 2. The risks are divided up in the same way. The risks are $20 million and divide it up proportionally, $6 million in Year 1, $14 million in Year 2. Of course, the next column shows the total costs, the totals of those two numbers, and the present value is calculated at a five percent discount rate. So you add those two numbers and you come up with a total NPV, fourth row in that table, of $110 million. Now P3 value does discounting but in a more sophisticated way used by financial modelers. So they assume, at least in this case, they assumed a loan. So they assume that, and they're using six month periods. So the $30 million is divided up, $15 million in the first six months of Year 1, $15 million in the second six months, and payments are assumed to be made to the contractor at the end of the six month period. So that's when you need to go to the bank to get a loan. So the discounting happens from the payment point down to, say in the case of Year 1 the first period, the first $15 million is paid on July 1 of Year 1. So it's discounted back to January 1 of Year 0. So you have about year and a half worth of discounting done just on that first six months payment. If you use the simple approach and said $30 million and discounted it at only by one year instead of a year and a half. The six month discounting accounts for this difference.
If you discount more, obviously you're going to get a lower number and so that's what P3 value provides is $106 million instead of 110 and you'll see these if you do the homework, the $88.7 million in construction costs versus our $92 million discounting only by one year, and the risk costs are shown in the row at the bottom, the $58 million dollars but that includes not just the risk costs in the construction phase but also risk costs in the operations phase which comes out to be about $40 million. So that's where you will see the numbers in P3 value.
Operations costs calculations, again we had $10 million a year so you first inflate it. The first row you see inflating at three percent a year, in Year 3, you have $10.9 million. The risk costs again be $2 million inflated to Year 3 is $2.2 million. The total is $13.1 and discounting them from Year 3 down to Year 0, you get $11.3. So you do that for every year up to Year 30 and if you follow along on the fourth row there, you see how ONM costs are much higher in nominal terms, in Europe expenditure terms. They go up to $29.2 million total in the third column there but the present value of that high number is only $6.7 million. So to get the net present value of ONM costs, you simply add up that last column and you will come up with a total of $247.6 million. Now with P3 value, because it's doing the six month discounting, again, we get a lower number, $244 million total, which is broken down 203 base and $40.7 million in risk costs.
So if you want to look at the number, here it is on the second row there. That's the $203 million that P3 value produces, and we talked about the risk costs of $40 million, which appear lower down in that table.
So now let's talk about revenues, the calculation of revenues. You need to know the traffic. So in Year 3, in our hypothetical example, we say daily traffic is 21,600 vehicles per day. You first convert that to an annual figure. The toll rate is $2.00 in Year 0 dollars, so you inflate that and it becomes $2.19 in Year 3, and so you multiply all of these together and in Year 3 you come up with a revenue of $17.2 million. Wherever we have an assumption that there will be some revenue leakage, that is tolls that are not paid by people who use the facility for whatever reason and the revenue is uncollected and you assume a five percent uncollected revenue, so that brings that down to $16.4 million, and during the ramp up period, which is a two year ramp up period, we assumed a 67 percent reduction in revenue. In other words, users that have still to get used to and get familiar with the facilities on the first year of operation, which is Year 3, it doesn't achieve the full potential of 21,600 vehicles per day. It's 67 percent less than that total usage, and so we reduced the total revenue again by 67 percent and come up with $5.4 million.
So you do that kind of calculation for every year to Year 30 and you see that in this table and the last column shows you the present values of all of these revenues and so you get a total revenue, and these are all in nominal terms of $686 million but the net present value, if you go one step more and discount each of those, you will get $295 million. Now P3 value gives us $290 million. Again, this because of the six month discounting effect.
This is the number. Again, the results from P3 value and so to figure out what amount of subsidy the public agency might need to provide, all you need to do now is find out the total of the lifecycle costs, both for operations and capital, during the construction phase and we get a total, adding the $110 million and $247 million, you get a total of $358 million in costs. The revenues we calculated through our simple approach were $295 million. So we get a subsidy needed of $63 million.
The equivalent amount in P3 value, with its six month discounting, is $60.4 million.
Now if you want to find out whether higher toll rates might reduce your subsidy, you can do the analysis and P3 value will you to do that. What you will find is that you will actually get a surplus and the toll revenue increases to $368 million from $295 and you end up with a $10.6 million surplus and a $3.00 toll rate will have an even greater surplus, which means that in such a case the concessionaire would likely need to pay a fee to you to build the facility and collect tolls on it.
So here are the results from P3 value. You see the higher toll revenues, $362 million, calculated with a $2.00 toll, and the net cost is actually a surplus. It's not a cost. It's actually a net fee that the concessionaire would have to pay of $12 million. These are all very simplified analysis. They're doing everything at a five percent discount rate not accounting for financing costs.
If you want to instead see how increasing the concession period might affect the amount of subsidy you would need to provide, you can do that and, of course, you get more revenue but also with a longer concession you had more costs for operations. So both go up and the net result is for a 35 year concession, you only drop the shortfall by a small amount, from $63 million to $55 million. 40 years further, it drops into $48 million and then 50 years to $35 million. So basically extending the concession doesn't get you very much to reducing your subsidy, although it does help.
So with a 35 year project life, and you'll do this for your homework, the project will have higher-- from the $203 million, we now have $229 million instead as operations and maintenance costs and the toll revenue increases to $329 million with P3 value and the deficit or the subsidy to be provided is $52.7 million. So that concludes Lesson 3, and I turn it over to you, Victoria.
Victoria Farr: Thanks, Patrick. So it looks like we are getting a few new questions in the chat pod so I'm going to change our view slightly. The second one up from the bottom and I believe this has to do with equity IRR, the participant is asking so what's the target then? Are shadow/availability rates aimed at the efficiency gains from a private operator, for example?
Patrick DeCorla-Souza: Okay. Well, you know, you are trying to reduce the public payments. One way you are reducing public payments is because of the efficiencies from the concessionaire either due to better or innovative construction methods or managing risks better you have lower costs. So, you know, the cost that we calculated in our tables was from the public agency's perspective. And so we came up with $110 million in construction present value. If the private operator is constructing it they might be able to get efficiencies. And in our prior webinars for value for money analysis we actually assumed a ten percent efficiency on the construction costs. And then for operation and maintenance costs, we assumed a private operator would get five percent reduction in costs. I mean the bottom line is unless the concessionaire is able to get efficiency gains, the higher financing costs are going to make the concessionaire's proposal or the P3 option look worse than the conventional procurement because the conventional procurement will use the lower financing cost of five percent borrowing rate. Of course, that is because when you are using a five percent borrowing rate, you are usually using the full faith and credit of the public agency to back your bonds or loans. Of course, there's a risk to that you have not calculated. And that's why it is very important to figure out what is the risk under an availability payment scenario where you might take toll revenue risk, for example. You know, what is the risk, what is the value of that risk that you are bearing? You know, just the state itself, the full faith and credit of the state. What is the impact? That impact needs to be calculated to do a fair comparison.
Victoria Farr: Thanks Patrick. And the next question two up from the bottom from Amir, what is the optimum toll rate? How can we determine the best toll rate with highest revenue?
Patrick DeCorla-Souza: Optimum toll rate should be a function of traffic and revenue studies. If you are really trying to maximum revenue, if that's your goal, then there will be a different optimum toll rate than if you are trying to optimize other public goals such as maximizing use. And so you need to know what you are trying to maximize. Now, the private sector will try to optimize revenue, obviously, because the private sector is trying to maximize profit. The public sector has a goal of maximizing use of the facility. So the two may not necessarily be the same and that's why in the case of a toll facility, the public agency generally sets the toll rates or tells the concessionaire what the maximum toll rate they can charge is. So that's part of the agreement set. And they would determine that based on, of course, maximizing use of the facility which is their goal.
Victoria Farr: Thank you, Patrick. And then at the very bottom there's a comment from Conrad who begins with the disclaimer that I am not the funniest person, but as a functioning toll road I believe we have one model that ends up as the quote unquote certified model but that we run at least three models with various levels of assumptions that range from reasonable to conservative before we do any bonding.
Patrick DeCorla-Souza: All right. That's a very good point and that's what I meant with the stress testing that lenders do. They run the model several times. You know, the previous questioner was asking-- I think what this Conrad is saying is you're changing the assumptions in the model, you're keeping the model the same, the parameters in the model are the same. What you're changing are the assumptions or the inputs that provide for higher or extreme cost scenarios or extremely low revenue scenarios. And that's part of-- when I say the same model should be used by both the public agency and the concessionaire, I'm basically saying, you know, the kinds of things we see in P3 value, for example, you can't have one model where the payment is assumed to be made at the end of a cash flow period, and another model where it is made at the beginning or the middle of the cash flow period or the discounting. You know, you can't have one model discounting to January 1 in year zero and the other model discounting to July 1 in year zero. So all of those modeling issues rather than assumptions which you can change from one model run to another.
Victoria Farr: All right, Patrick, well, seeing no other comments or questions in the chat box I think we'll move on to lesson number four.
Patrick DeCorla-Souza: Okay. So I think these remaining, we're going to lesson four to talk about the lender's perspective and the lesson five will talk about the equity investor's perspective. And the reason they're doing that is because as a public agency, you need to understand how these other parties make their decisions because if you're going to develop a shadow bid you need to know how the lenders think and how equity investors think. So lender's use financial models to figure out the project's capacity to repay debt for stress testing under extreme scenarios. And during the concession period to track the loan performance, to make sure that there's enough money in the reserves that the cash flows are coming in as expected, et cetera.
So this is a key requirement by lenders is the annual debt service coverage ratio also known as ADSCR and that is the cash flow available for debt service divided by the required payment or the required debt service. And this is going to very depending on how risky the lenders think that the cash flows are or the income or the revenues are. So for a toll project, they might choose to have a 1.30 ADSCR for an availability payment where it's the public agency making the payment to the concessionaire which is a revenue to the concessionaire. They might think of the public agency as more reliable and so require only 1.15 as the ADSCR. So the ADSCR can make a big difference on how much the lender is willing to provide as debt. This table shows you an example. The interest rate is the same in both cases. The cash flow available for debt service, also known as CFAD, is the same for both. And we calculate based on the ADSCR we calculate that a debt service, annual debt service of only $769 is possible with the 1.30 ADSCR. But if you have 1.15 you can pay as much as $870. So if you can pay more in debt service that's at six percent interest rate, you can borrow more. So that's why this is very important. You can see that $11,100 can borrowed under 1.15 and only $9,800 under 1.3 ADSCR. So critical issue is, you know, you can bring the cost down for the concessionaire by selecting an availability payment model. So it will appear that your project is less costly but the risk doesn't go away with if you're expecting to pay the availability payments from toll revenues that risk hasn't gone away and you still need to account for that risk.
So what I'm going to show you the very simple way to figure out how much you can support from the revenues in a project and this is the same project, hypothetical example, and I'm going to use something called a loan life coverage ratio. It's exactly the same as the annual debt service coverage ratio. But instead of looking at one year's worth of cash flow, you're looking at cash flow over the entire life of the project and that gives you a lot more flexibility. Of course, in that case the loan life coverage ratio for the same ADSCR may be lower because you're making it more flexible.
So we will use this simplified methodology to calculate the capacity from our project to support debt.
And I'll go to the table because it explains that a little better here. We are expecting a completion payment to be made to the concessionaire of $69.6 million. This is because the toll revenues are not adequate. You recall that when we did our analysis we found that about $63 million was the amount of subsidy that we needed to provide to the concessionaire. Now, obviously, we're not going to pay the $63 million in year zero. That would be too risky. You want to see the project built before you will part with any money. So you give the concessionaire that $63 million in year two. However, because of the time value of money that becomes $69 million. So that's a completion. You give it to the concessionaire in the form of a completion payment and there's O&M costs in year two. I mean the project's not operating yet. So that's net cash flow to the concessionaire. You divide it by a CFAD over loan life coverage ratio. And I've used 1.2 here assuming that the loan life coverage ratio would be lower than the 1.3 which is an annual rate. And so I get $58 million in year of expenditure dollars, and then you discount that to the base year, year zero and that is $52.6 million. So you do that for the toll revenue coming in year three. We said it was $5.4 million. This is the ramp up period, high O&M costs at $13.1 million. You have a negative cash flow and a negative debt capacity of 5.5 there. And then you would do those calculations for the remaining years. And if you do all of the calculations you come up with a net present value of $91.5 million. So that is, in effect, your capacity or the lender's capacity to lend to the project. That's what the lender would be willing to lend in present value. Now, in reality you might not borrow the entire 91.5 million in year zero. You would, in reality, borrow some of it in year one, some of it in year two as you need to start the project. So that concludes lesson four and I turn it over to you, Victoria.
Victoria Farr: Thanks, Patrick. So that was lesson four and seeing no question or comments, let's just go right into lesson five here.
Patrick DeCorla-Souza: Okay. Do you want to have them answer the question?
Victoria Farr: No, Patrick, we are running a bit behind, so I think we should just move on.
Patrick DeCorla-Souza: All right. So from the concessionaire's perspective, it's very similar to what we did from the lender's perspective. So the bidder is trying to figure out how much a subsidy they will need from a public agency and they would use the financial model to structure as we saw early on to structure the financing to reduce the financing costs, so maximize its leverage, in other words, have as much debt as possible. And have favorable terms on grace period because they know, for example, that they won't have revenue coming in during the first two years so they want to push off the payment of the loan. And they want to maximize maturity as much as possible, you know, have a long term of debt.
So some of the metrics they use are the weighted average cost of capital, the equity, internal rate of return and that has come up earlier, and the project internal rate of return. So we need to understand what these are.
Weighted average cost of capital is the money that the investing company is putting into the project. In the case of an equity investor it might have some of its own funds and it might borrow some funds. So if it's its own funds it might get from floating stocks in the stock market in case of debt. It might issue some bonds. And so the average of the stocks and bonds rate of return expected by stock investors, versus the rate of return expected by bond investors, would be its average cost of capital. Now, the concessionaire is an NPT in itself. So the concessionaire would also have a cost of capital. And so the cost of capital when you're considering a concessionaire would need to incorporate the project risk premiums. And so it would be higher than the investing companies, WASCC. The formula there is quite complicated, but the most important thing to understand is that corporations or concessionaires have to pay income tax. However, they get a deduction for interest that they pay on debt. So when you actually calculate the cost of capital, you have to account for the fact they are getting a tax break on the interest and so that's why you have this complicated formula there to calculate the WASCC instead of a straight average of rate of return on equity, rate of return on debt, and then simply average the two. It's not as simple as that. So we have an example down there where you can see how that's calculated with actual numbers.
The equity internal rate of return is somewhat more complicated as you can see in that formula. I won't bother you with explaining that formula. I'll just show you a table later on where you can understand how these are calculated. What I need to make clear is why you have a difference in the equity rate of return required for a project, versus the WASCC of the company.
So this is a good table to explain how that comes about. So you've got a company that it cost them six percent to borrow money or to get money from investors. So it takes that money and invests it but it also taking on additional risk with the project because they may not get-- to take on those risks from project construction they need to be compensated. So they want during the construction phase they will ask for two to four percent additional premium. And then there's a general project risk which compromises all kinds of issues relating to the economy and toll rates and all of that. So in the construction phase, once you add up all of these premiums you find that equity investors may actually require as much as 12 to 14 percent rate of return. In the ramp up phase, toll revenues are still not sure and what you see there is the construction phase risk has gone done from four percent to two percent. So now you only have ramp up risk which is two percent and so that equity rate of return is in the range of ten to twelve percent. Once traffic stabilizes and toll revenue is coming in at a regular rate the risk of toll revenue has disappeared. So you see there's a zero for phase risk and so all they require then is the eight to ten percent in equity rate of return. So depending on when equity investors come into a project they will require a lower equity rate of return.
The project internal rate of return is similar to the equity rate of return, but in the equity rate of return all we are concerned about is the cash flows that go to equity. In this case, we are including cash flows that go to both debt and equity. All right, and so now what I want to do is explain how these calculations are done. So first let's look at the equity rate of return.
So first what you need to do to get an equity rate of return is you need to know how much cash flow is available for debt service. So your total revenue from tolls, minus the O&M cost gives you the CFADs. Once you have that number for tax purposes, now, you have to go through a couple of steps. First, you have to calculate taxable income. And basically what you need to do is subtract out the interest portion of debt service. Remember, I said that interest is a deduction for federal tax purposes. And also when you're doing your taxes you can subtract an amount for depreciation. So it's a standard rate depending on the life of the project. It can be a straight line depreciation so if that's true, it would be one-thirtieth of the cost of the project. So that's an extra deduction that the federal government gives you. So once you've calculated the taxable income you can calculate the tax. Just go to your tax tables or whatever as you do your personal income taxes and you find the tax you need to pay. So you subtract that tax and then you get, in comma, after taxes. So how do you get equity distributions? There's a fictitious deduction we made for depreciation so we have to account for that. So equity distribution is equal to the income after taxes that we just calculated in the bullet above. We add back the depreciation. We also have to subtract out the principle payment that we didn't subtract out for the income tax purposes so we have to subtract that out. And there are reserves required by lenders for, as we saw earlier, for cash flows there are O&M reserves, there are debt reserves, all of those have to be subtracted out and only then is equity paid. So you look at those equity distributions over the life to the project and you discount all of those cash flows and that's how you calculate your equity IRR.
So it's a trial and error process and that's what makes it more complicated because you need a discount rate so you have to guess what the rate of return is before you can do your discounting. So let's do that and we'll assume some rate of return and we'll go to the tables to show how that's done.
To make things easy I assumed a five percent rate of return. We know that's probably too low because that's just the rate that we used earlier for borrowing for interest. It was an interest rate and five percent is too low because it doesn't account for equity which would be a lot higher. But I'm going to use it simply to show you the process, all right. So if I have all of these cash flows that I've previously calculated, and these should be familiar to you because we've looked at it earlier in our previous examples, and we calculate the net cash flows. So, for example, in year one, we calculated we would need 30 million in base construction costs, plus 6 million in risk costs. And so that's a negative cash flow of 36 million in nominal terms. We discount that to year zero. It's $34.2 million. So you do that for all of the cash flows. Year two, we have some more construction going on but we've got some money coming in, a positive cash flow of $69 million. So the net is negative 14.4. We discount that. So basically that's what you're doing for the entire life of the concession. And you're looking at all of the net cash flows and the present value of all of those cash flows positive and negative, that is the investments, and the operation and maintenance costs, which are negative cash flows, as well as positives which are the revenues and those are mostly in the first column there except for the one public subsidy in column four. So when you net out all of these in the last column you have the net of all of these for each year. And if you end up with zero as the net, that is the rate of return that you're getting. So for this scenario, you're getting a five percent project IRR, right. So if you wanted a higher IRR, you would have to have higher revenues or you would have to have lower costs, all right. So what the formula is trying to do, the complicated formula that I showed you earlier, what it's trying to do is come up with zero in that last cell over there. I mean I made it easy because I used the numbers before. I knew five percent would do it. But you have to go through this trial and error process to come up with that zero. So if you get a number there, you have to try with a higher discount rate, or a lower discount rate, until you come up with the right number. So you don't have to do that physically because there is a goal seek function in Excel that does it for you and calculates this IRR number. So that concludes lesson five, so over to you Victoria.
Victoria Farr: Thank you, Patrick. And I wanted to let you know that in presenting the previous slide, apparently you answered David's outstanding questions from earlier regarding IRR. So that's good. We are still a few minutes behind, Patrick, so I want to make sure that we get to introduce the homework assignment and the evaluation. So let's just move on to the core summary. And then if there's any additional questions we can take those at the very end.
Patrick DeCorla-Souza: Okay. All right. So summary, I basically introduced you to financial models. It's very complex, and I showed you how different agencies, different parties to a P3 agreement look at financial models and their results.
We've lots of resources. And, of course, you can download these at your leisure.
In homework assignment too, we're actually asking you if you haven't taken webinar-- the previous webinar on value for money analysis which was on July 11, you would need to listen to the recording and then do this assignment. If you've listened to that webinar, or if you've participated in it, you can go ahead and do this assignment. We will have the instructions available for you to download and you can do it at your leisure from the Web room. And we will be going over the answers on August 16. So some of you may have done homework one but you could also do homework two. It's an advanced version of homework one in the sense that it deals with a toll concession.
The homework assignment three is a financial variability analysis. So you will be replicating the slides that I showed you earlier in this webinar. And you will see how you arrive at these numbers by using P3 value. We will also go over all of those steps in the webinar on August 16 and you can, of course, register for that webinar by clicking on the URL that we at the bottom of the slide.
So it's called an office hours homework review webinar on August 16. If you missed any of our prior webinars and you want to get remedial training you can register for any of these other webinars. They are repeats of the entire set of webinars, so there's a set of five webinars, four on P3 value and one introductory webinar that you can register for.
And here's my contact information. So we now have time to answer questions, Victoria. Victoria Farr: Thank you, Patrick. And per William's question I will provide a new layer in just a moment where you can indeed download a version of this presentation that Patrick gave today.
I did want to, beforehand, provide the contact information for Thay Bishop. Ty Bishop is the senior program advisor and capacity builder for the office of innovative program delivery and she helps, coordinates all of these webinars that Patrick has been putting on.
So with that, we'll move on now. I will change your screen slightly so that in the center now is an evaluation. It's about eight multiple choice questions and one open ended question. We really appreciate your feedback on today's webinar and we'll take your comments seriously in revising our future webinars. But of most interest to you at the very top left are some instructions for downloading today's materials. And below that is a box entitled presentation download. So there are three PDF documents including homework two, homework three, as well as the PDF version of today's presentation. So you download a file, simply click the file name, then click save to my computer and follow the prompts on your screen. So we will keep the webinar open for a few more minutes. If you do have any questions, please do submit them in the chat box. I'm also going to ask our operator Jim at this time to please provide instructions if someone wants to answer a question via phone.
Operator: Sure, Victoria, I'd be glad too, thank you. And to our audience joining us today on the phone, if you prefer to ask a live question over your telephone line, please press star and one your telephone keypad. And just a reminder, that if you're joining today on a speakerphone, please return to your handset before pressing star and one to ensure that signal does reach our equipment. Again, that is star and one ladies and gentlemen. Thank you, Victoria.
Victoria Farr: Thank you, Jim.
Operator: And, again, folks, a reminder that if you are joining on a speakerphone be sure that you do return to our handset before pressing star and one to make sure that signal does reach our equipment.
Victoria Farr: Thank you. So Jim, please do butt in if any questions come in via phone. Patrick, I'm not seeing any additional comments or questions coming in to the chat pod. So do you have any closing remarks for today?
Patrick DeCorla-Souza: I see a question from Bill Ankner about the download of this webinar. It takes a couple of days for us to get it on our website. So it will be at the same location, the same page on our OIPD website where all of these prior webinars are. So, you know, just check back in a couple of days. The entire webinar could be listened to and you can download, of course, the PowerPoint slides right now and they are in the box right above the chat box.
Victoria Farr: Yes, thank you Patrick for that clarification. I'm sorry, I did not mention that the recording will, indeed, be available at that same website and I entered the link, again, for your information. Okay. Patrick, anything else?
Patrick DeCorla-Souza: Well, I think I encourage all of you to download the homework and sign up for the August 16, webinar because unless you actually play with the numbers it really doesn't sink in. I mean I can assure you that you will benefit from doing the homework. So please, take a few minutes. At least homework three is a lot easier, a lot shorter. If you have a limited amount of time I'd say do homework three. Homework two is for those braver souls that want to get deeper into value for money analysis. So I encourage you to do the homework and join us on August 16. The other thing I wanted to say is I wanted to thank Victoria and Aaron Jette who have been great in moderating this Web conference and I always want to thank Jim, our telephone operator. So with that, Victoria, back to you.
Victoria Farr: Thanks, Patrick. I just will check in one last time, Jim, do you have any phone questions in the queue?
Patrick DeCorla-Souza: We do not.
Victoria Farr: Okay. Then we will wrap up this afternoon. Thank you very much, Jim and thank you very much Patrick for moderating today's webinar and thank you very much to all of our participants. We hope to see you, again, on future P3-VALUE webinars. Thank you everyone.