The $1.062 billion Port of Miami Tunnel financing would be noteworthy and influential even without the most gripping back-story of any project to close in 2009. No deal came so close to death and survived, no deal dealt with such a complex set of risks, and no deal – in the end – had so few detractors in the bank market.

The tunnel financing was meant to be the first availability payment-based deal in the US, and the first PPP deal in Florida. The demise of Babcock & Brown put paid to that, allowing ACS' I-595 financing to squeak in and take both titles. But if I-595 looked like a less arduous process (though it richly deserves its firsts), it dealt with a less complex feat of engineering.

The Florida Department of Transportation started work on the tunnel first, learned to navigate the demands of the bank market with both deals, and thanks to both has arguably the best-regarded PPP programme in the US. With the tunnel it took along Miami-Dade County and the City of Miami for the ride. Both of these partners were key to reviving the deal.

The tunnel will run for 1.2km under Biscayne Bay between Watson and Dodge Islands. It is designed to carry heavy goods and cruise traffic from the interstate highway system to the port of Miami, on Dodge Island without a detour through Miami's downtown. Like many ambitious US engineering projects, it has been under study for decades.

Bill Thorp, then the chief financial officer of Florida's Turnpike Enterprise, and subsequently the acting CFO of FDOT, though now retired, first came to Project Finance's US infrastructure forum in 2006, soliciting sponsor and lender feedback about the state's first PPP deal. Several market participants were sceptical that it could transfer the risk of such an undertaking to the private sector.

The first and smartest move that FDOT made was to move traffic risk out of the equation. If the department wanted to move traffic out of downtown, it could not let a private operator set tolls in the tunnel. The record of financings for tolled urban tunnels has suggested it was right to do so.

The department wanted – needed – a contractor capable of and willing to build a tunnel under the bay on time and on budget. It got three responses to its request for proposals, from Babcock & Brown/Bouygues, Morgan Stanley/FCC and Dragados/Odebrecht. Babcock & Brown, which had replaced ABN Amro after the shortlist stage, and Bouygues came in with the lowest bid, and their consortium, Miami Access Tunnel, was named preferred bidder in February 2008.

The department wanted to use a monoline-wrapped private activity bond to finance the tunnel, hoping to free up TIFIA loan capacity for other projects. The sponsors engaged Lehman Brothers to underwrite the bond. As the monolines weakened, the deal had to be reconfigured to account for a bank option, and progress on this front was slow into the middle of 2008.

The implosion of Babcock & Brown was a near-fatal blow. Whether mindful of the earlier switch of bidders or despairing at closing anything in the debt market of late 2008, FDOT cancelled the deal.

It was revived thanks to a combination of sustained pressure from state, county and city politicians, the ability of the department to line up a TIFIA loan at short notice, and the attractiveness of the Bouygues design-build contract. Bouygues stuck coolly by the PPP deal, probably realising that a conventional procurement was not an alternative.

In May 2009, the department acceded to Meridiam taking over from Babcock & Brown, and a month later the Meridiam/ Bouygues consortium reached commercial close. After blowing only slightly a 30 September 2009 deadline, banks, sponsors and government reached financial close on 15 October.

The $341 million 35-year TIFIA loan, which has an interest rate of 4.31%, performs the same function as a bond tranche on PPP deals elsewhere, as the primary financing for the operational part of the concession. A club of ten commercial banks, which provided subscriptions sufficient to cover the debt three times, is mostly exposed to construction risk.

The bank piece breaks down into a $314 million 5-year loan that will be repaid at completion with acceptance payments from the grantor, and a small $28 million 6-year loan to be repaid with the first of the availability payments. The debt is priced at 300bp over Libor, and swapped to a fixed rate of 6.63%The ten banks are BBVA (documentation agent), BNP Paribas (administrative agent), Calyon, Dexia Credit Local, ING, RBS, Santander, Societe Generale, UniCredit and WestLB.

Banks' biggest concerns were appropriations risk and construction risk. The I-595 reassured them about Florida's willingness to back its obligations to PPP deals, although FDOT staff spent considerable amounts of time making sure that city and county obligations to it were strong enough, because FDOT was sole counterparty to the 35-year concession.

The construction risk took a little more time to resolve, because it was unique to the tunnel. State and contractor have come up with a contingency for cost overruns resulting from unexpected geological conditions that places an initial small burden on Bouygues, then a larger chunk on the state and then a final smaller amount on Bouygues. Banks' ability to work creatively around these two issues would have made the Port of Miami Tunnel a landmark deal regardless of the context.

There will be no second act in the Port of Miami Tunnel financing – the TIFIA debt will stay until the end of the concession, and thanks to the acceptance payments there will be no slack left to refinance post-completion. But the deal demonstrated the value of banks in understanding complex construction risks, and the two Florida deals demonstrated the centrality of TIFIA to the US PPP market. If TIFIA financing becomes less plentiful, and sponsors have to work out how to coordinate bank and bond tranches, these two deals will serve as a good starting point.

Miami Access Tunnel
Status: Closed 15 October
Size: $1.062 billion
Location: Miami, Florida
Description: 35-year DBFO concession to build a 1.2km tunnel and associated access roads
Sponsors: Meridiam (90%), Bouygues (10%)
Equity: $80 million
Debt: $322 million in five-year commercial bank debt, $22 million six-year loan and $341 million 35-year TIFIA loan, $40 million in capitalized TIFIA interest
Lead arrangers: BBVA (documentation agent), BNP Paribas (administrative agent), Calyon, Dexia Credit Local, ING, RBS, Santander, Societe Generale, UniCredit and WestLB
EPC contractor: Bouygues
O&M contractor: Transfield
Sponsor advisers: Davies Ward Phillips & Vineberg (legal – transaction), Greenberg Traurig (legal – Florida), Macquarie (financial), Barclays Capital (financial)
Lenders' advisers: Arup (engineer), Willis (insurance)
Banks' legal advisers: Milbank Tweed; Rogers Towers
TIFIA advisers: Hawkins, Delafield & Wood (legal), Scully Capital (financial)
FDOT advisers: Jeffrey Parker & Associates (financial) Nossaman (legal), Parsons Brinckerhoff and TY Lin (technical) and Marsh (insurance)