Transcript

Kayla: Ladies and gentlemen, thank you for standing by. Welcome to the Guidebook on Financing of Highway P3 Projects. I would now like to turn the conference over to DJ Mason. Please, go ahead.

DJ Mason: Thank you, Kayla. On behalf of the Federal Highway Administration's Office of Innovative Program Delivery, I would like to welcome everyone to today's webinar, The Guidebook on Financing of Highway P3 Projects. My name is DJ Mason, I'm with the USDOT's Volpe Center in Cambridge, Massachusetts and today I will be facilitating this discussion and providing technical assistance. I will introduce Patrick DeCorla-Souza, the P3 Program Manager at the Office of Innovative Program Delivery momentarily. But before he begins, I would like to point out a few key features of our webinar room today. On the top left side of your screen, you will find the audio call in information, if you are disconnected from our webinar at any time, please use that call in information to reconnect our audio. Below the audio information is a list of attendees, below the list of attendees is a box titled, "Materials for download" where you may access a copy of today's presentation as well as the guidebook PDF. Simply select the file, click download files and follow the prompts on your screen, a new tab or window may open in your Internet browser to complete the download, this is normal. In the lower left corner is a chat box where you can submit questions to our presenters throughout the webinar. We will pause for questions periodically throughout the presentation and we may also take questions over the phone later on. Further instructions will be given at that time. If you experience any technical difficulties please use the chat box to send a private chat message to Jordan Wainer. Our webinar is scheduled to run until three p.m. today. We are recording today's webinar so that anyone unable to join us may review the material at a later time. Finally, before we get started, there are three quick poll questions we'd like you to answer to help us better understand our audience. They should appear on your screen now. Those three questions are, "What is your affiliation? How many people are watching this webinar with you?" and, "What is your familiarity with P3 concepts." I'll give you a couple of seconds just to answer those questions.

DJ Mason: Alrighty, thank you for your responses. I will now close out these polls. And with that, I would like to turn the webinar over to Patrick DeCorla-Souza. Patrick?

Patrick DeCorla-Souza: All right. Thanks DJ. Again, welcome everyone to this webinar which will introduce to you the Guidebook on Financing of Highway Public Private Partnerships that FHWA and the Build America Bureau released last month. So we are simply going to introduce you to this guidebook, it is available both on our website and right here, you can download it from this web room. Now I want to introduce to you our main presenter, Brien Desilets, the Managing Director of Claret Consulting. Brien is the primary author of the guidebook and we are fortunate that he is here with us today to help present the main parts of the guidebook. Now, I am the P3 Program Manager of the Federal Highway Administration and I also work half time at the Build America Bureau and I will be presenting the first and last segments of this webinar. So first, just to give you an overview of this guidebook, it has five chapters, we will be covering four of them today. The fifth chapter is an illustrative financial viability assessment which you can of course read at your leisure but we also have several recorded webinars on financial modeling and viability assessment using our P3-Value tool which is available on our website. So what I'm going to do is simply first give you a very brief overview, a brief and quick overview of what P3s are just to put what Brien is going to tell you in context. So when we talk about public-private partnerships we are normally talking about something called design, build, finance, operate, maintain or DBFOM. It's a long term contract that involves not just the designing and building of the facility but also financing it and operating and maintaining it over the long term. Now you might also have the same long term contract but without the financing and that's called design, build, operate and maintain and if you don't have the operation and maintenance component then that is called design, build, finance. So these are normally the types of delivery options that might be considered as public-private partnerships. As you can see, the level of risk increases, the level of risk borne by the private sector increases with each stage and the level of integration of responsibilities increases giving an opportunity for the private partner to innovate and bring in efficiencies. So this slide shows you on the right hand side how a P3 differs from the conventional design-bid-build. So we have risks that are shared between the concessionaire and the public agency whereas in the case of design-bid-build most risks are borne by the public agency.

Patrick DeCorla-Souza: Okay, so in P3 situation, we had most private financing, there might be some public contributions. The selection of the contractor for this long term contract is usually based not just on cost but also on value because it's brining innovation and quality so both quality and cost are considered in selecting a bidder. And then in a P3 situation, as we said earlier, operations and maintenance are carried on by the private partner and this is very different from conventional procurement where most of the O&M is the responsibility of the public agency. This is another slide that shows the same type of differentiation. You see the integration level going right to left and you see that the DBFOM has the highest level of private finance as well as the highest level of integration of the various responsibilities. Now P3s, the concessionaire in a P3 may be compensated in three different ways. The most common are through revenue from tolls that are paid by users of a highway facility. Alternatively the concessionaire might be paid through an availability payment which is a periodic payment made by the public agency to the concessionaire and this can happen either on a toll road or on a facility that does not have tolls. If the facility is tolled, all the toll revenue actually goes to the public agency and the private partner is paid using perhaps those revenues but also additional funds from its own budget. A shadow toll is very similar to an availability payment except the periodic payment is based on the number of vehicles using the facility. So for each vehicle that is served by the facility, this concessionaire is paid something which is called a shadow toll. This slide shows a typical toll concession structure. So right in the center, you have the special purpose vehicle here which is the concessionaire, this is a fancy term for the concessionaire or the company that is responsible for design, build, operate, finance and maintain. What you see is there's a contract between the agency and this special purpose vehicle, the concessionaire and there might be some contribution from the agency to the special purpose vehicle especially if the revenues anticipated from the toll facility aren't expected to be sufficient. Now if the toll revenues are going to exceed expectations then some of that revenue can be shared and all of these provisions are noted within the agreement between the agency and the concessionaire. Now the concessionaire of course builds the facility and then operates it and receives toll revenue from the facility and that toll revenue is used first to reimburse or to provide debt service as it is called to the lenders, the debt providers which may be banks or bondholders and then you also have equity investors, so these are folks who have more risk because they're the last to receive any balance of funds flowing from these toll revenues. Lenders get paid first, anything left over is paid to these equity investors. And they provide some of the funding and in a toll concession, it's normally a higher percentage because the lenders want to be quite sure that they will be paid so they don't obviously provide the full extent of-- they do not provide funding to the full extent of what might be received from the revenues because of the risk.

Patrick DeCorla-Souza: Now in an availability payment structure, you have exactly the same situation except as you see here, the toll revenues go to the public agency, everything else is exactly the same. We've got a little time for questions, if somebody has any questions, please put them in the chat box. And I don't see any questions so let's move forward. And let me introduce now, Brien Desilets who will do the Chapter 2 which is Contract Structure. Brien?

Brien Desilets: Thank you, Patrick. Looking at Chapter 2 now, we first talk about the special purpose vehicle which Patrick discussed a little bit, at least some of the arrangements around it. So the idea behind the SPV is to create a focus for the project. This is really a feature of project finance, you could compare it public finance and corporate finance arrangements and it relates in some ways to revenue bonds in the muni sector which we'll talk about a bit later, but basically rather than have a corporate arrangement where a corporation may have many different projects and it can sort of mingle revenues and costs across those projects, cross subsidize if you like, the special purpose vehicle establishes a company with as the name implies, only one function, only one purpose which is the project, so it's a company established to deliver and manage the project and that is the only thing it does, this creates security for some of the investors, it creates security for the public sector in terms of limiting any effects of bankruptcy or financial difficulty faced by the project. It also creates more transparency because with only the revenues and costs of the project going through this entity, it's easier to analyze those financial flows and to understand where there may be problems. Again, from a management perspective, comparing this to let's say corporate management, the SPV managers really have very little discretion in what to do with their funds and in terms of investing in new projects because they're really focused on just one project. The contracts reflect these arrangements so any risks that are supposed to be transferred to the private sector, this is done through the main project agreement between the public sector and the SPV. The SPV of course is really just a shell, so any risk transferred to the SPV ultimately typically are transferred to another party, it may transfer some financial risks to let's say SWAP providers, it will construction risks to the design-build subcontractor, it will transfer operational risk down to the operation and maintenance subcontractor. So the SPV is really kind of a shell that then transfers these risks onto other entities involved in the project. This is one representation of a typical risk allocation on a P3 project, you see the different entities, public sector, SPV and subcontractors with much of the construction operation phase risks pushed down to the subcontractor level. Of course a lot of the regulatory and political risk staying with the public sector and the SPV assigned some of these risks in the middle but ultimately they will look to other entities to mitigate those risks for the most part. Here's a more detailed diagram of the one Patrick discussed earlier showing some of these arrangements. My fault for not catching this, in the upper right corner here, this should really be private sponsors, these are the equity investors who may invest through a holding company and then into the SPV, you've got from the SPV construction, subcontract or design-build subcontract and then an O&M or operations and maintenance subcontract. This of course is with the actual firms doing the work. These are often some of the same firms that are up here as private equity investors, you typically want to see these subcontractors also have an equity stake in the SPV. They will typically have an interface agreement between these two just to make sure that the handover let's say the construction period to the operation period is smooth and that considerations for operations are incorporated into design and construction. You've got financial agreements between the basically the debt providers on this side whether they're banks or bondholders and the concessionaire. You've got the public authority with the project agreement or concession agreement and then you have any number of side agreements between the parties sort of outside the realm of the SPV. Any questions on this section?

Brien Desilets: Okay, we can move into the Financial Structure. So P3 project finance as we've mentioned is really an approach to work toward self financing projects. As we'll see, really none of these projects especially recent projects have been self financing in a true sense, they've had subsidies and other supports to them. But the idea of project finance is to isolate project revenues, finances and depending on the arrangements, the cost as well so that these things are insulated. Sources of financing, a lot of the numbers in this presentation are really just indicative or illustrative, particularly since the book was written a couple of years ago or some of the data is a couple of years old, the market changes, you can always find exceptions to the rules and you can always challenge some of the numbers. But to give a general sense of different types of financing, their tenors and rates we put this graph together. So typically you have developer equity as the most expensive because essentially it's taking on the most risk which is the construction risk, a lot of risk particularly where construction costs are very high on some complex projects. Then you've got longer term equity which may be from pension funds or insurance companies looking at sort of stable returns that are higher than they might get from a debt instrument. Subordinate debt would be priced somewhere between senior debt and equity and typically has a shorter term although there again, you can find exceptions to the rule. Senior bank loans would price in at less than subordinate debt and typically have longer terms although this is perhaps optimistic or assuming availability projects here having this tenor up to 20 years. Private activity bonds are a unique feature of the U.S. muni market, they have very long terms and very low rates and then you have TIFIA, the USDOT's subordinate loan program or really flexible loan program I call it with very low rates, very long terms and a lot of flexibility to go along with that. As Patrick alluded to there is a cash flow waterfall from this, or in these projects, you have revenues coming in and then they go to fill up different reserve funds which ultimately pay for these different activities such as operations and maintenance. That's a priority obviously for the project to keep the project up and running. Major maintenance, some reserves and then equity distributions, the point here being that since equity is in this bottom position on the cash flow water fall, it has every incentive to sort of maximize or maintain project revenues and then keep these other costs under control so that it continues to receive its equity distributions. The other implication of the waterfall here is that if there's not enough funding or water to fill the rest of these buckets, there's nothing left to pay the equity dividends. So again, this gives an incentive to the equity investors to keep the project running smoothly. Senior debt we say is relatively conservative or risk averse, it requires a high debt service coverage ratio which is indicated by this formula here. So you have cash available for debt service divided by debt service gives you your debt service coverage ratio. And you may have a debt service coverage ratio of anywhere typically north of 2.0, it could be 3.0 or higher on some of these senior debt instruments. Tax-exempt or muni bonds, these are fairly unique for the U.S. market, the U.S. muni market is about four trillion dollars, it's a major capital market on its own, very few local governments or agencies do not have access to the muni market through some vehicle or another. And it's one thing to say that these are government bonds but it's another to understand what these bonds are actually about. About two-thirds of them are revenue bonds which is really a type of project financing but that means that the repayment, the promise of repayment is based on revenue from a specific activity. You can think of toll revenue bonds, you can think of utility bonds where the revenue coming in from the service, from the project is used to repay those bonds, they are not backed by full faith in credit of the government as are General Obligation bonds or probably what most people think of when they think of government bonds. Private Activity bonds are a bit of a hybrid and because of their nature their main feature of the U.S. P3 market, so just as the name implies, they are allowed to support Private Activity bonds, most muni bonds are limited in how much they can support private projects but Private Activity bonds are available for private projects and in transportation at least, what we're looking at are these 2005 SAFETEA-LU Private Activity bonds, 15 billion dollar allocation of which about six and a half billion has been issued. Other Private Activity bonds are included for what they call exempt facilities and these are facilities where traditionally there has been a large private sector role such as in ports or airports or in affordable housing so they're allowed to be used for that type of private activity. Midtown Tunnel of course is one of the major P3s done recently in the U.S., this shows the Private Equity Bond schedule for that project. As you can see, it's not simply one bond issued that's then due in 30 years, it's a whole series of bonds issued at roughly the same time with the maturities staggered out over the whole project term. So in fact it's a type of sculpting to project revenues, also sculpting to different yields. Typically you have a lower yield or price of debt for lower term, in this case, this is a ten year bond issued in 2012, has a yield of 4.45, the 30 year bond has a yield of 5.5. So you've got a whole series of bonds issued to support the project and this is just one piece of the financing for Midtown Tunnel, it also had equity and other sources of financing. We can compare bonds to bank financing and there are pros and cons of each. So on bank financing, the advantages are a more flexible drawdown schedule, this is especially important if you have a long construction period, let's say a five year construction period. With bonds, you issue those bonds typically at the beginning of that construction period and then you're sort of holding those proceeds in reserve for five years or let's say an average of two and half years, not being used and also still requiring payment on the interest. So with bank financing, you can draw down as you need it, as the construction schedule requires. You can negotiate modifications because typically there's a small group of banks in the bank financing whereas with bondholders you may have thousands of bondholders or certainly hundreds that you would need to negotiate with for any changes. There may be some expertise on the lender's side in terms of managing projects or managing construction, you have some more monitoring oversight than you typically would have with bondholders. Disadvantages, I mean recently let's say especially since the financial crisis in 2008, we've got fairly short tenors on bank financing, seven years or so, that's gone out for, let's say on availability payments you may have 20 year tenors or on certain types of projects but for revenue risk projects it's typically much shorter or not available at all. So what we've seen in the U.S. is that these bank financing packages are typically used in essence for construction financing and then they're either taken out with a milestone payment or expect it to be refinanced fairly early in the project term. Whereas you can see the Midtown Tunnel bonds go out 30 years, we have some toll revenue bonds in the U.S. going out for 40 years and of course bank financing typically is not tax exempt. Subordinate debt is a type of debt that really takes on a bit more risk than the senior debt, it's willing to accept lower debt service coverage ratios, there may be some flexibility in terms of repayment, missing some payments and then catching up later or cash seeps and other scenarios. TIFIA is one form of subordinate debt although since it's subsidized it does not charge a higher rate as most commercial subordinate debt would but it does offer more flexibility and accept lower debt service coverage ratios. TIFIA's been involved in pretty much all of the U.S. Highway P3s certainly in the past ten years or so and as I've been stressing, it's really the flexibility and the tenor, out to 35 years that makes TIFIA attractive. Here's an example of some of the TIFIA loans on U.S. P3 highway projects, the amount of the loan in millions, the rate charged and the tenor. Any questions on this section?

Patrick DeCorla-Souza: We've had a couple of questions. The first one is from New York. Can you please go over the substitution agreement again?

Brien Desilets: Sure, so the procuring authority just wants to have the ability to-- well, actually the funders want to have the ability to replace the management if the project runs into trouble and they'll have this side agreement with the public authority. Essentially this is what we often refer to as step-in rights where the funders can step in or the lenders can step in to replace the management of the concessionaire.

Patrick DeCorla-Souza: All right, thanks. Now another question from Dan is what's the source for the rate and tenor projections?

Brien Desilets: So as I mentioned, this is really an attempt to illustrate the different types of financing. It's a composite of, honestly it's a composite of somewhat dated information and it really depends on a case by case basis. I mean developers may get a 25 percent return but that would be, my presumption is that would be on a sort of total return basis, in other words, after they sold their stake in the project, they're not typically going to get let's say 25 percent return during the construction period. The subordinate debt at ten percent I think is fairly accurate, the senior bank loan somewhere under ten is normal for the past, since the financial crisis I'd say halves at about five percent sounds right, if you're lower than that. Long term equity I would think maybe that's a bit lower these days and sort of closer to senior bank loan rates. But again, all of this depends on the market, it depends on the specific deal and a lot of other issues, some of which we'll talk about in the next section here.

Patrick DeCorla-Souza: All right, I don't see any further questions so you can keep going. I see some just arrived. How about if the forecast fund is not sufficient?

Brien Desilets: Oh that's a great question that I guess we didn't address in the contracts. One of the features of these projects if you look back to the beginning at slide six here where Patrick talked about different models of P3 starting with design-bid-build and as you move towards DBFOM, these are different types of contracts that basically transfer risk to the private sector. Even in the first stage, design-build, that's where the public sector is really trying to lock in a price there, a fixed price or a maximum price on the construction and that's what the private sector signs up for. So if there is a cost overrun, that typically is absorbed by the private sector and as we can see on the cash flow waterfall, that will result in lower returns for the equity investor. And there are often agreements for contingent equity or additional equity to be invested if there is a cost overrun or there are typically also parent guarantees from the construction firms where if based on their performance they've incurred a cost overrun, the parent company will have to cover that cost. So there are a lot of different controls on these costs on these projects.

Patrick DeCorla-Souza: All right, we have one more question. Any expectations for more TIFIA funding in the near future?

Brien Desilets: Well, I'm not sure I'm the one to ask.

Patrick DeCorla-Souza: Well I guess I could say yes there are TIFIA funds available, they're obviously not yet exhausted, the allocations from Congress have been sufficient so far so nobody that's been credit worthy has been turned back because of lack of funding. So I think I can say the answer is yes. So I don't see any further questions in the chat box, why don't we move forward with the next segment, Brien?

Brien Desilets: Okay, I think I've covered most of the material or information on this slide in terms of the role of equity, since they're in a subordinate position, they are encouraged or they have the incentive to control cost and keep the project moving. There are different types of equity investors as I mentioned before, you typically want to have your subcontractors have an equity stake in the project, this helps to provide to give them the incentive to control costs on the project. And here's an example from Midtown Tunnel where Skanska is a 50 percent equity investor in the SPV as well as a member of the design-build contract team. We were discussing before the call about whether this was the right term to have here but you've got developer equity typically I think we're talking about private equity financial institutions here that provide some of this-- they're let's say experts at managing risks and at managing projects or at least arranging some of these legal documents and risk sharing arrangements that we discussed earlier and so they're comfortable putting equity up front into some of these deals and then selling out once the project is up and running. Or there's some extreme cases especially from during the crisis about firms who are selling out before the project was even built. Then you've got what I mentioned before, these pension funds and insurance companies looking at long term investment, they're not typically interested in construction risk, they're not construction managers, they're not going to go out and make sure the bulldozers are in the right place on a given day and that kind of thing but they may be looking for a safe investment that offers a return higher than let's say buying treasury bond. So we saw Florida I-595 TIAA-CREF acquired a stake basically after it was built and we see in other countries, pension funds taking on a larger role in infrastructure investing. Because they have long term liabilities, you know, pensions, they're looking for long term assets to invest in and infrastructure often provides those types of opportunities. Looking at equity investors in U.S. P3s, this is a summary of projects, maybe not the most recent projects but the major projects over the past ten years or so and you see the different types of investors we mentioned previously, there are construction firms like Fluor, like Bouygues, there are pension funds like Dallas Police and Fire, there are longer term equity investors like Meridiam, there's some developer equity, there's private equity firms, so you've got the sort of full range here. Equity returns for different project phases and this is somewhat related to the graph we showed earlier looking at different terms and tenors. So you expect a premium for equity returns that invest during construction phase then during ramp up phase, there's also maybe a premium and then on longer term operation, you'd expect a lower rate I think. This is from a 2007 book so these are sort of pre-crisis returns, these are, my guess is that these are bit lower now, but it's on a project by project basis and it will depend on specific transactions. We have an nascent secondary equity market in the U.S., there are a few cases where we've seen ownership in these projects change hands, two of these are really sort of out of crisis or distressed asset mode where they changed hands as a result of some financial difficulty but this is a growing market not only in the U.S. but globally. We look at equity shares on U.S. transportation projects, these are as a percentage of total cost and you can see different levels of equity for different projects. We would guess that the equity share would be less on projects with lower risk let's say particularly revenue risk and that in fact is the case because here we have the availability payment projects that have overall a lower level of equity invested with a lower level of revenue risk and then we have sort of projects that could be considered more risky from a revenue point of view, have a larger percentage of equity so that conforms to what the theory might tell us. Capital subsidies or grants have been a major feature of U.S. P3s lately, this shows grants as a percentage of total cost, so that's a main feature of these projects and these are just the upfront grants, they do include milestone payments which have been another feature of some projects in the U.S., P3 projects so there are still government contributions to these projects, they're not purely self-financing and that's just a fact of the market here. So operation phase contributions we're looking at sort of mixing availability payments and user fees, these are more common in other sectors depending on the asset. There was an expectation of a mixed sort of operational payment and toll revenue on I-77. This is also, in developing countries, they talk about viability gap funding and there may be sort of capital VGF or operational VGF so this is one option, we haven't seen too much of it in the U.S. but it's something that could become a feature. As we talk about all these risks, we've talked about the legal arrangements that helped to codify the risk transfer on these P3s and we talked about the role of equity investors in managing risks, but there are many other parties and many other financial instruments that help to manage risk and these are some of them, cash reserves, lines of credit, parental guarantees which I mentioned, performance bonds and insurance. This table is roughly ordered from most liquid to least liquid in terms of availability of the funds. And they show some of the other ways to share and spread risk on these projects. So many of these are used on traditional construction projects and public finance projects but they are also a main feature of P3 projects.

Patrick DeCorla-Souza: All right, so we have one question from Kevin and he asks what implications may occur in terms of the future of the P3 market if Congress decides to move forward with one of the proposals to decrease or eliminate the muni bond tax exemptions?

Brien Desilets: Yeah, it's a great question, I mean there's been talk I think for decades about eliminating a muni bond tax exemption, it's a very interesting question and I'm not sure it's been studied enough. Personally I've always wanted to see and maybe it's out there, I just haven't looked hard enough but I always wanted to see a study that would estimate the rates on muni bonds if the tax emption was removed because as I mentioned pension funds are looking for long term investments but pension funds in the U.S. are already tax exempt so they don't necessarily have an interest in tax exempt municipal debt. There's the notion that international investors aren't interested in tax exempt muni debt because they don't have a U.S. tax liability so they don't need a tax exempt return. There's some debate around that but in any case it would be interesting to see if that exemption were lifted whether the inflow of funds into the muni market from pension funds and from international investors might counter some of the expected rise in the rates. So it's a great question and it's one that's I'd say is up for debate.

Patrick DeCorla-Souza: All right. Thanks Brien. I don't see any further questions. Folks, you can put your questions in the chat box. So let's move on and we'll take the rest of the questions at the end. So Chapter 4 of the guidebook talks about financial modeling and what we are showing here in a few slides is why do you need financial modeling, so right in the project development phase, if you want to figure out whether your project would be viable as a P3, you would need to do financial modeling, if you want to assess whether a P3 option is preferable to conventional delivery, you can do a value for money analysis which also requires financial modeling. Now when you get the procurement stage you would need to do financial modeling in order to design a project that would be viable and would-- that bidders would be interested in, so this would be at the RFP stage. And bidders of course test a variety of financial structures, debt equity, different kinds of debt in order to bring down the financing cost as much as possible, and the way they do that is through financial modeling. Of course, if they want to win the bid, they have to try and present the lowest financial cost possible. And then of course the public agency uses financial modeling to evaluate bids that it receives. At financial close, lenders of course are looking at financial modeling to make sure that the revenues are adequate to pay the debt under a variety of scenarios, pessimistic scenarios. Financial modeling is used to negotiate between the concessionaire and public agency in terms of value of risk and things of that type. Finally, after financial close, during the concession period the project is monitored and financial modeling is used for that purpose, if there are compensation events, financial modeling would be used occasionally to estimate the amount of compensation that would need to be made to the concessionaire. And if there's a refinancing, usually there's some sharing of the refinancing gains and again, the financial model would be used to estimate the share that the public agency would need to be receiving. If there are excess revenues and if there's a revenue sharing provision, again financial model assists in estimating the amount of revenue that is owed to the public agency. Now if you want to understand and dive a little deeper into financial modeling, I suggest you take a look at FHWA's P3-Value 2.0 tool, it's available on our website, it shows you how to do value for money analysis as well as financial viability analysis and if you are interested you can also do benefit cost analysis which compares P3 delivery option with conventional delivery. So this P3-Value tool shows you how to calculate the financial value of various risks to conduct viability assessment, that is to make sure that the revenues and the funds you have available in terms of public funding in your budget are adequate to pay for the project and bonds or availability payments of public contributions if it's a toll concession, value for money analysis compares the P3 option, so it estimates the financial cost of the P3 to the public agency, estimates the financial cost of conventional delivery to the agency and makes a comparison of the two to figure out which one might be better. And then project delivery benefit cost analysis which is more an economic and social analysis rather than a technical analysis. The tool is available on our website and it's a spreadsheet model, it has a user guide and several supporting primers and guidebooks that you can avail of. So let me stop here and see if there are questions for either myself or Brien. And I don't see any in the chat box so feel free to-- operator, can you tell the listeners how to dial in and speak their question on the phone?

Kayla: Thank you. If you would like to ask a question over the phone lines, please signal by pressing star one on your telephone keypad and please make sure your mute function is turned off to allow your signal to reach our equipment. Again, that's star one for phone questions.

Brien Desilets: I'm not sure if I answered the question completely on muni bonds, I mean what would happen to the P3 market if that exemption were removed, and I think to follow up, we can say that I would say the trend even internationally is toward bond financing rather than bank financing and I'd say it's not because of the subsidy here in the U.S., the tax exemption on these bonds, it's for other reasons, bank balance sheet issues, spreading risk, I mean that's what bonds do. I mean you have a bank deal typically with ten banks financing a project, the reason you have that is because the banks don't want to lend on their own, they want to spread risk over ten different financial institutions, when you issue a bond, you're spreading that risk even further so that helps with risk transfer from a financing perspective. It looks like there's another...

Patrick DeCorla-Souza: Yeah, there's another question from Ahmed Abdel Aziz and the question is, the guide is great in its coverage of financing, thank you, but why limiting the discussion in the guide to toll and availability payments, there are a number of other payments that public agencies could combine to achieve particular objectives and risk transfer? For example, capital milestone payment, safety payment, user satisfaction and end of term payment.

Brien Desilets: Well we did address capital subsidies or capital paid grants and I mentioned milestone payments, we did not include-- I think in the guidebook, it does show a graph of at least one example of the milestone payments, so certainly those are in use in the U.S. I'm not sure what safety payment is. User satisfaction, I guess you're talking about performance, we also, maybe we didn't mention enough the performance based contracting that's typically a feature of these P3s because we're focused here mostly on financing, but most of the P3s also feature performance based contracting which is somewhat related to user satisfaction I guess. There are a lot of other varieties, I mean there's the least present value approach to concessioning that they've used I think in Chile, I mean there certainly are a number of different types of payments. This is really an empirical work that is looking at the projects that have been done in the U.S. and how they've been structure and what their financing has entailed, so it's not a theoretical piece proposing new models or potential models, it's really looking at what has been done, it's a state of the practice I guess piece.

Patrick DeCorla-Souza: All right, we've got one more question from Porter Wheeler. He asks what is the need for separate financing models for sponsor and developer or could they use one model?

Brien Desilets: Well I guess they can use one model as long as they're auditing it and understanding what's going into it and what's coming out of it, they may be interested in different outputs so they may structure their models differently. And even the equity investors and the lenders are interested in different things, they have different perspectives and they're trying to get different things out of these projects so folks tend to trust their own models more than other people's models so that's why they have different models I'd say.

Patrick DeCorla-Souza: Okay. So Greg Novak is asking, have any P3s been tied to adjacent real estate developments?

Brien Desilets: Yeah, I'd say on highways less so but certainly transit in the U.S. has relied on financing that's based on property values, I mean we have some very innovative public finance tools in the U.S. like tax increment financing and other similar approaches, transportation district financing. So those have been used although not so much on the highway projects, more on let's say probably local roads and transit.

Patrick DeCorla-Souza: All right, so we have one last question, is there a trend towards availability models away from revenue risk for VFM financing reasons?

Brien Desilets: You know, there are so few major P3 projects in the U.S., I think it's difficult to spot any trends. I mean certainly there's been risk aversion since the crisis and the recession and so even where there's revenue risk, it's typically sort of a brownfield, greenfield combination, there's very little sort of appetite for greenfield projects, toll based greenfield projects and as we've mentioned, there's subsidies involved in all of these projects, whether they're availability payment or revenue based. So I don't know if you can say there's a trend toward availability payments or not, we've had both and...

Patrick DeCorla-Souza: So there are a couple of examples that people have provided in the chat box, I won't go over them, but let's move on due to lack of time here. But operator, before we move on, was there any question on the phone?

Kayla: Not at this time.

Patrick DeCorla-Souza: Okay, good. So let's move on. I just want to wrap up by pointing out that we have a variety of resources, if you want further training in these concepts, we've got introductory training and advanced training and we do provide to states, we can come out to your state and do a course on any of these topics or a combination of these topics. We have a couple of upcoming P3 webinars just like this one. On February 9th we've got Use of Performance Measures in Public-Private Partnerships and February 16th, we've got a review of P3 projects in the U.S., a little more information on the 30 projects that have been implemented in the United States since 1992. And there's registration information there. I also want to introduce you to our P3 toolkit and the web address for that and its contents are shown in this slide, feel free to download these at any time. And that's the contact information for Brien and my contact information here at the USDOT. So with that, I think we are a couple of minutes overtime, so I apologize for that. Are there any closing evaluations, DJ?

DJ Mason: Yes, I'll put up a poll right now. Folks, before you leave if you could just please take this one question poll about your feelings about this webinar that you just watched. I'll give you just a couple of seconds to do that.

Patrick DeCorla-Souza: So while you're doing that, I just want to thank Brien Desilets for assisting us +with this presentation and of course DJ and our operator Kayla who has been very helpful throughout the presentation. So with that, I want to thank you, the audience for joining us today and we hope to see you next week, February 9th.

Brien Desilets: Thanks everyone.

Patrick DeCorla-Souza: Thank you so much.

Kayla: That concludes today's conference. We thank you for your participation. You may now disconnect.