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P3 VALUE Webinars
Financing of Highway Public-Private Partnership Projects

February 02, 2017
Related Materials


Center for Innovative Finance Support

Build America Transportation Investment Center

U.S. Department of Transportation Federal Highway Administration

Office of Innovative Program Delivery


Brien Desilets
Managing Director,
Claret Consulting

Brien Desilets


Patrick DeCorla -Souza
P3 Program Manager,
Federal Highway Administration

Patrick DeCorla-Souza

Guidebook Contents

  1. Introduction
  2. Contract Structure
  3. Financial Structure
  4. Financial Models
  5. Illustrative Financial Viability Assessment

This presentation will introduce Chapters 1- 4.

Chapter 1: Introduction

Public-private partnerships (P3s)

Infrastructure Delivery Options

Flow chart: Infrastructure Delivery Options

View larger version of Infrastructure Delivery Options flow chart

Text of graphic

Design, Bid, Build » Design, Build » Design, Build, Finance » Design, Build, Operate and Maintain » Design, Build, Finance, Operate, Maintain » Privitization

(Moves from Public Sector to Private Sector with risk increasing towards Private Sector)

Degree of ownership, development integration, risk transfer and extent of private financing

Design-Bid-Build versus P3

Design-Bid-Build P3
Public sector takes on most risks (except construction) Risks shared between public and private sectors
Public financing (mostly) Private financing (mostly)
Lowest bidder Best value for least net present cost
Operations and Maintenance (O&M) and ongoing rehabilitation (if any) carried out by public agency (or under fee for prescribed services) once constructed O&M carried out by private sector; ongoing rehabilitation overseen by public sector stewardship of P3

P3 Delivery Models

Graph: P3 Delivery Models

View larger version of P3 Delivery Models graph

Payment Mechanisms

  • Toll Concession (Revenue Risk)
  • Availability Payment
  • Shadow Toll

Typical Toll Concession P3 Structure

Graph: Typical Toll Concessions P3 Structure

View larger version of Typical Toll Concessions P3 Structure graph

Typical Availability P3 Structure

Graph: Typical Availability P3 Structure

View larger version of Typical Availability P3 Structure graph


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Chapter 2: Contract Structure

Special Purpose Vehicle (SPV)

  • Limits exposure in the case of bankruptcy
  • Finances only project activities
  • Repayment sources are project revenues
  • Limits parent company exposure

P3 Contracts

  • Codify risk sharing arrangements through development, procurement, and negotiation processes
  • Include a set of back-to-back contracts
    • SPV transfers risk from public sector
  • Provide the basis for financing
  • Assign the right to collect project revenues

Typical Risk Allocation

  Public Sector SPV Subcontractor
Development Phase
Planning & environmental process    
Political will    
Construction Phase
Engineering & construction    
Changes in market conditions    
Operation Phase
Competing facilities    
Operations and maintenance    
Financial default risk to public agency    

SPV Arrangements

Flow chart: SPV Arrangements

View larger version of SPV Arrangements flow chart


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Chapter 3: Financial Structure

P3 Project Finance

  • Use of project revenues is restricted
  • Structure insulates the public authority and private investors from project bankruptcy
  • Can be structured off of the public and private balance sheet
    • Availability Payments a special consideration

Sources of Financing

Chart: Sources of Financing

View larger version of Sources of Financing chart

Typical Cash Flow Waterfall

Cash Flow Waterfall diagram

Text of Typical Cash Flow Waterfall diagram

  • Project Revenues
    • Revenue Fund
      • O&M Fund
        • Rehabilitation & Reconstruction Fund
          • Senior Debt Service (Reserve) Fund
            • Subordinate Debt Service (Reserve) Fund
              • O&M Reserve Fund
                • Equity Distributions

P3 Senior Debt

  • Relatively conservative (risk-averse) type of financing
  • High in repayment hierarchy (cash flow waterfall)
  • Relatively high Debt Service Coverage Ratio (DSCR)

Formula: DSCR = CADS / DS

Where DSCR = Cash Available for Debt Service (CADS) divided by debt service (principal + interest)

Tax-exempt Debt ("Muni Bonds")

  • Issued by state and local governments to finance infrastructure projects in the US
  • Carries a lower financing rate than taxable debt
  • Approximately ⅓ of all tax-exempt debt is issued as General Obligation (GO) bonds backed by the "full faith and credit" of the issuer
  • The other ⅔ of tax-exempt debt is issued as "revenue bonds" backed by designated sources of revenue which have some features in common with project finance

Private Activity Bonds (PAB)

  • Most tax-exempt bonds are reserved for public uses and have a 5% eligibility cap for private uses
  • A special type of tax-exempt bond, Private Activity Bonds (PAB) can be used for private infrastructure
  • The 2005 SAFETEA-LU transportation legislation authorizes $15 billion in PABs for surface transportation projects
    • As of November 10, 2016, approximately $11.2 billion of this pool had been allocated and $6.5 billion issued

Midtown Tunnel PABs

Principal (US$)
A 1/1/2022
670,000 4.25% 4.45%
B 1/1/2023 685,000 4.50% 4.60%
C 7/1/2023 1,775,000 5.00% 4.60%
D 1/1/2024 1,760,000 5.00% 4.75%
E 7/1/2024 2,900,000 5.00% 4.75%
F 1/1/2025 3,080,000 4.75% 4.90%
G 7/1/2025 4,875,000 5.00% 4.90%
H 1/1/2026 5,290,000 5.00% 4.95%
I 7/1/2026 6,700,000
5.00% 4.95%
J 1/1/2027 6,150,000 5.00% 5.00%
K 7/1/2027 8,480,000 5.00% 5.00%
L 1/1/2032 91,795,000 5.25% 5.25%
M 1/1/2037 209,185,000 6.00% 5.32%
N 1/1/2042 320,405,000 5.50% 5.50%
*The rate is the rate offered to bond buyers. When bonds are sold, they often do not sell at face value but at either a premium or a discount. The yield indicates the actual return offered to bondholders based on the actual price paid. Source: Midtown Tunnel Official Statement available from MSRB EMMA database, CUSIP 928104LK2.

Pros and Cons of Bank Financing


  • Monthly draws
  • Easier to negotiate modifications
  • More flexible repayment sculpting to match project revenues
  • Potential expertise of lenders in similar projects
  • Monitoring and project oversight


  • Maximum tenors of 7-9 years have been more common (up to 20 for availability payment deals) vs. up to 40-year tenors for bond financing
  • Not tax-exempt

Subordinate Debt

  • Generally requires lower DSCRs and higher interest rates than senior debt
  • Accepts a lower level of priority in the cash flow waterfall
  • May be provided by specialized funds or by project shareholders

Transportation Infrastructure Finance and Innovation Act (TIFIA) also provides a form of subordinate debt

TIFIA Financing

  • Types of financial assistance:
    • Secured (direct) loan - Maximum term of 35 years
    • Loan guarantee - Guarantees repayments to non-Federal lender
    • Standby line of credit - Contingent loan available
  • Involved in almost all major US highway P3s (other than asset monetizations)
  • Generally up to 33 percent of eligible cost financed
  • Provides capital, supplemental and subordinate, to projects
  • Flexible repayment terms and interest rates

TIFIA P3 Loans

Project Amount Rate (%) Term (years)
I-95 HOT Lanes $300.0 2.76 35.0
Presidio Parkway Tranche A $90.0 0.46 3.5
Presidio Parkway Tranche B $60.0 2.71 28.0
Midtown Tunnel $422.0
3.17 44.0
LBJ-635 Corridor $850.0 4.22 40.5
North Tarrant Express $650.0 4.51 35.0
Port of Miami Tunnel $341.0 4.31 35.0
$603.0 3.63 35.0
SH-130 Segment V-VI $430.0 4.45 35.0
I-495 HOT Lanes $589.0 4.40 40.0
TIFIA has been involved in almost all major US greenfield P3s and approximately a third of the projects in the TIFIA portfolio are P3s


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Role of Equity in P3

  • Equity investors:
    • Appear at the bottom of the cash flow waterfall in first-loss position
    • Try to insulate from losses by seeking to transfer risks to subcontractors
    • Accept highest level of risk and require a higher return on investments

Equity flow waterfall

Text of waterfall diagram

  • Revenue
    • Opex
      • Debt Service
        • Taxes
          • Equity Returns

No investor guarantee on returns and no investment recourse

Types of Equity Investors

Investor Strategy/Objective Project Transaction Example
Subcontractors engaging in Design Build and Operations & Maintenance Broadening participation and potential financial returns over the project term Midtown Tunnel: Skanska is a 50% equity investor in the SPV and member of the DB contractor team
Financial institutions Provide development capital and typically exit once the project is up and running or even before Denver Fastracks Eagle P3: Macquarie sold its stake after the project reached financial close.
Pension funds and insurance companies Seek long-term return; they prefer a larger share of the concession's cash flows Florida I-595: TIAA-CREF acquired a 50% stake when the project neared substantial completion

Equity Investors in US Transportation P3s

Project/Investor Amount ($millions)
East End Crossing
Walsh Investors $26.00
VINCI Concessions SAS $26.00
Bilfinger Berger $26.00
I-95 HOT Lanes
Fluor $24.20
DRIVe USA $217.80
Presidio Parkway
Hochtief $23.00
Meridiam $23.00
Midtown Tunnel
Skanska $99.45
Macquarie $121.55
LBJ-635 Corridor
Cintra $364.00
Meridiam $266.00
Dallas Police / Fire Pension Fund $70.00
North Tarrant Express
Cintra $241.50
Meridiam $141.90
Dallas Police / Fire Pension Fund $42.60
Port of Miami Tunnel
Bouygues $8.00
Meridiam $72.30
ACS Iridium $207.70
SH-130 Segment 5-6
Cintra $136.40
Zachry $73.40
I-495 HOT Lanes
Flour $35.00
Transurban $315.00

Equity Returns for Different Project Phases

  • Required equity return decrease as the risks affecting returns reduce over time through key phases
  • Differentials exist even though investors pass most risks onto subcontractors
Phase Risk-free Rate Project Risk Phase Risk Equity Return
Construction 6% 2-4% 4% 12-14%
Ramp up 6% 2-4% 2% 10-12%
Long-term operation 6% 2-4% - 8-10%
Source: Adapted from Yescombe, E.R. (2007) Public-Private Partnerships: Principles of Policy and Finance. Oxford UK: Elsevier Ltd.

US Secondary Equity Market

  • US secondary market for equity stakes in P3 projects is just beginning to develop
  • Transaction examples:
    • I-595
    • Dulles Greenway
    • CA SR-125 South Bay Expressway

Equity Share on US Transportation Projects

Chart: Equity Share on US Transportation Projects

View larger version of Equity Share on US Transportation Projects

Upfront Government Contributions on US P3 Projects

Chart: Upfront Government Contributions on US P3 Projects

View larger version of Upfront Government Contributions on US P3 Projects

Operations Phase Contributions

  • Govt. contributions to operations have not been a feature of US P3 projects
  • Possible to mix availability payment and user fee (toll) revenue streams
  • The recently awarded I-77 P3 in North Carolina is expected to feature a mix of operational payments and toll revenues

Credit Enhancements

  • Credit enhancements help to reduce project risk
  • Main tradeoff: price vs. liquidity
  • Cash reserves are the most liquid
  • Insurance costs the least (<1% of project costs)
  • Surety coverage is required

Credit Enhancements

Source of Funds Terms and Conditions Value Availability
Cash reserves Funded at financial close Project specific Immediate (*)
Cash reserves Funded from project cash flows Project dependent Immediate once constituted
Letters & Lines of credit On call from a financial institution Supports project cash flows during construction to avoid impact on schedule. About 5-10% of contract value Immediate (irrevocable and unconditional)
Parental guarantee Guarantee of performance by ultimate parent of the Construction or the Operations & Maintenance contractor Based on probable loss Immediate subject to credit worthiness
Performance bond Surety bond provides core performance support in case of contractor failure 100% of contract value Conditional and subject to process
Insurance Provided by third party to subcontractors and SPV Priced on coverage, insured Conditional and subject to process
Notes (*) Lenders will only consent to use of the reserves for their designated purpose. In other words the debt service reserve is not available for maintenance purposes.


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Chapter 4: Financial Modeling

Use of Financial Modeling

Project Development
  • Determine financial viability
  • Assess P3 Value for Money
arrow pointing right
  Bid Preparation
  • RFP designed to ensure project can be successfully tendered
  • Bidders test potential financial structures
  • Bid evaluation by public agency

Use of Financial Modeling

Commercial & Financial Close
  • Due diligence by Lenders
  • Term negotiations
arrow pointing right
  Concession Period
  • Monitoring project performance
  • Price compensation payments
  • Calculate any refinancing gains
  • Revenue sharing
  • Handback


P3_VALUE 2.0 Flow chart

View larger version of P3-Value 2.0 Flow Chart


Risk Assessment   Value for Money Analysis  
arrow pointing right
  Financial Viability Assessment   Project Delivery Benefit-Cost Analysis

Tool and References

  • P3-VALUE 2.0 Excel Spreadsheet
  • User Guide
  • Primers and Guidebooks


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FHWA P3 Training


  • Introduction to P3s
    • Overview
    • Project Development
    • Procurement
    • Risk Assessment
    • Value for Money
    • Project Financing
  • Successful P3 Practices and Model Contracts
    • Successful Practices Over Project Life Cycle
    • Model Toll Concession Contracts
    • Model Availability Payment Contracts

Advanced Analysis

  • P3 Project Financing
    • P3 Structuring
    • Finance Viability
    • Financial Models
  • Risk Assessments
    • Risk Identification
    • Risk Analysis and Valuation
    • Risk Allocation
  • Value for Money
    • Public Sector Comparator (PSC)
    • P3 Option
    • Evaluation
  • P3 Benefit-Cost Evaluation
    • Estimating P3 Efficiency Impacts
    • Estimating Public Benefits

Upcoming P3 Webinars

  • February 9 Use of Performance Measures in P3s
  • February 16 P3 Projects in the U.S.

To register for the webinars, please visit:

FHWA P3 Toolkit:

Fact Sheets
  • Ten concise single-sheet discussions of key P3 concepts for a non-technical audience
  • P3 Concessions for Highway Projects
  • Risk Assessment
  • Value for Money
  • Financial Structuring and Assessment
  • Establishing a P3 Program
  • How FHWA Reviews P3s
  • Model Toll Concession Contracts
  • Model Availability Payment Contracts
  • P3 Project Financing
  • Risk Assessment
  • Value for Money
  • Benefit-Cost Analysis
Discussion Papers
  • Revenue Risk Sharing
  • Performance Requirements for Design and Construction in P3s
Analytical Tools
  • P3-VALUE
Informational Reports
  • Successful Practices for P3s
  • Highway P3 Projects in the U.S

Contact Information

Brien Desilets
Managing Director

Claret Consulting
(703) 760-4491

Patrick DeCorla-Souza
P3 Program Manager

USDOT Build America Bureau
& FHWA Center for Innovative Finance Support
(202) 366-4076

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