The financing for the $1.678 billion I-595 toll road, sponsored by ACS and awarded by the Florida Department of Transportation (FDOT), removes the politics and accusations of privatization via the back door from US PPP. The availability payment structure employed on the deal allows FDOT to continue to own the assets, whilst transferring the construction and operating risk to third parties.

While the availability-based structure is very familiar in the European toll road market, particularly since bank liquidity became tight, the I-595 deal is the first of its kind in the US market. The 35-year concession enables FDOT to pass on the risk of operating and maintaining the road for the entire concession term for a fixed price.

The deal also matches construction and availability payments to the senior bank debt while TIFIA provides longer-based payments over the concession term, thus making it eminently bankable – only $255 million of the senior debt is exposed to the concession's operating risk.

The financing comprises $207 million in equity from ACS, $607 million of debt from the Federal Highway Administration's TIFIA programme (plus $71 million in capitalised interest) and $781 million of commercial bank debt. The bank debt breaks down into a $255 million 10-year tranche to be repaid with availability payments from FDOT, with around an 80% balloon at maturity; and a $526 million 9.5-year tranche to be repaid with final acceptance payments from FDOT for the work's completion.

The $685 million in acceptance payments are a large part of FDOT's obligation, though small next to the $1.3 billion (in real terms) in total availability payments, the size of which indicates that the concession could support additional debt. The public sector did not have to make substantial changes to the concession structure to close it and although it did increase the payments by $2 million to $67 million per year, its affordability limit was $71 million per year.

FDOT chose an availability payment structure because it wanted to set tolls to minimise congestion rather than maximise revenue. It subcontracts the toll collection to Florida Turnpike, while ACS is responsible for the operation and maintenance of the road. There is no traffic-related element to the concession's revenues.

The project involves reconstruction and addition of auxiliary lanes and resurfacing of the I-595 mainline (including associated improvements to frontage roads and ramps), and a new reversible express lanes system in the I-595 median. Key elements of the project include tolled reversible ground level express lanes, to be known as 595Express, serving express traffic between the I-75/Sawgrass Expressway and the east of SR 7; and a direct connection to the median of Florida's Turnpike.

FDOT agreed to assume the risk related to some contentious elements – hazardous materials, permit delays, and unforeseen land issues – up to a cap. But ACS is responsible for both the operation of the road and its construction, and is providing a guarantee of 40% of the value of the work.
ACS won the concession in October 2008 as the best value proposition after a 9-month short-listing, and planned to finance the $700 million senior debt requirement through an issue of private activity bonds, which would have benefited from a letter of credit of around $150 million from Santander.

Like the TIFIA loan, the project was submitted to the US Department of Transportation as a PAB candidate in April 2007 under SEP-15 authorisation, before the preferred bidder was chosen. But the interest payments on the bonds are subject to the alternative minimum tax, and investors with the appetite but not subject to the tax were scarce in November 2008, when RBC and Bank of America sounded out the market about a bond issue.

Consequently, ACS rejigged the project for a bank market financing, although it ran a competition between the PABS and a bank group of Santander, BBVA, SG, Calyon, RBC, Lloyds, RBS and Fortis before and after the selection. The last four banks, however, pulled out of the financing – in Fortis' case shortly before financial close, when the vagaries of its proposed merger with BNP Paribas made it too difficult to make a large commitment.

The final bank line-up comprised Santander, Dexia, SG, and Credit Agricole CIB, as bookrunners, with Dexia as administrative agent and Santander as documentation agent, Banco Popular Español, La Caixa, Caixanova, Caja Madrid, BBVA, Banco de Sabadell, WestLB and National Australia Bank as initial mandated lead arrangers.

The pricing on the debt starts at 300bp over Libor for the first five years rising to 325bp in years 6 and 7, 350bp for the next two years and 400bp in the final year. The debt's market disruption clause makes it a little vulnerable to funding difficulties at a third of the lenders, but its interest rate is hedged for 22.5 years, to match the debt's underlying amortisation profile.

TIFIA continues to demonstrate its willingness to bend its mandate in support of needy projects. It is limited to financing 33% of the cost of a project's cost, a limit it only kept to by counting the state's predevelopment costs in the total. Its principal will not be repaid until after most of the bank debt has been paid in 2017, and it is subordinated to the bank debt unless the project defaults. The concession's PAB debt was rated A+ (Standard & Poor's), with the benefit of the letter of credit. That rating will have slipped a little under the bank structure, but after construction is complete, and credit markets permitting, ACS will likely be refinancing.

I-595 Express LLC
Status: Closed 3 March 2009
Size: $1.678 billion
Location: Florida
Description: Variable rate reversible toll road, to be operated under a 35-year availability-based PPP concession
Concession grantor: Florida Department of Transportation
Equity: $207 million
Debt: $1.388 billion
Sponsor: ACS Development
Lead arrangers: Santander, BBVA, Dexia, Societe Generale, Calyon, Banco Popular Español, La Caixa, Caixanova, Caja Madrid, WestLB, National Australia Bank, Banco de Sabadell
FDOT advisers: Nossaman (legal), Jeffrey Parker (financial), Reynolds Smith & Hills (engineering), Wilbur Smith (traffic)
Sponsor advisers: Dewey LeBoeuf (legal – project), Hunton & Williams (legal – Florida and bond option) Macquarie (financial)
Lender legal adviser: Simpson Thacher & Bartlett
TIFIA financial advisers: Taylor DeJongh (financial), Hawkins Delafield (legal)
Insurance advisers: Marsh (lenders), Allied (sponsors)
Independent engineer: Scott Wilson
EPC Contractor: Dragados USA Inc