The $364.7 million second phase of the Presidio Parkway in San Francisco had to overcome several obstacles, not the least of them a November 2010 legal challenge.

The Professional Engineers in California Government (PECG) launched a lawsuit against the California Department of Transportation’s decision to award the concession to Golden Link Concessionaire, a 50:50 joint venture of Hochtief PPP Solutions and Meridiam Infrastructure North America. A ruling against the award wouldn’t just cancel California’s first availability-based transport PPP, it would potentially prevent Californian governments awarding any other any other concessions, including at least five pending Los Angeles Metropolitan Transportation Authority PPPs.

But a series of 2011 court rulings sided with Golden Link, affirmed California’s use of availability-based concessions, broke the legal logjam and allowed the two sponsors to reach financial close in June 2012, roughly three years after Caltrans first floated the PPP concession.

Caltrans and the San Francisco County Transportation (SFCTA) are grantors for the project, which is being funded with a mix of equity, commercial bank debt and a federal loan.

Scotiabank (also financial adviser), Bank of Tokyo-Mitsubishi UFJ, BBVA, BMO and Santander led the $166.6 million bank piece. The construction loan has a tenor of 3.5-4 years and is priced under 200bp over Libor. The Federal Highway Administration, part of the US Department of Transportation, is providing two loans under its TIFIA programme, of $150 million in total, plus another $2.5 million in capitalised interest. One of the TIFIA loans, of $60.2 million, has a 30-year tenor and an all-in rate of 2.71%, while the remaining $89.8 million is a short- term construction loan with a 0.46% rate.

The two equity sponsors are each providing half of $45.6 million in equity towards the cost of the second phase. Golden Link was one of three consortiums to submit statements of qualification for the Presidio PPP.Infinalbidding,itbeatoutGoldenGate Access Group, comprised of ACS, CH2M Hill and CC Meyers, for a 30-year design-build- finance-maintain concession. The consortium also includes non-equity contractors HTNB, Kiewit and Flatiron.

The financing had to take account of the state and county’s ability to meet its obligations to the concession. California is investment grade, though its budget is a long-standing source of market concern. Caltrans agreed to issue annual certificates to ensure that it had sufficient state funds to repay TIFIA. The two grantors also had to scramble to identify new funding sources to fill a $54 million shortfall in the funding that they had to provide to the phase two concession. Hochtief and Meridiam had to close the deal by June 30. Caltrans was responsible for covering both interest base rate risk and potential movements in the credit spread from commercial close, in January 2011, until financial close.

Caltrans and SFCTA decided to provide an additional $10 million each, while the Metropolitan Transportation Commission, the transportation planning body for the Bay Area, allocated $34 million in unused federal funds from other projects. The grantors will provide $276 million in milestone payments during construction and at completion and an annual $22 million availability payment.

Originally, the sponsors planned to ask Barclays, Bank of America Merrill Lynch and Scotiabank to underwrite a private activity bond issue. Golden Link would probably have committed to the bonds had it not snagged a larger TIFIA loan than it initially expected, says a source familiar with the deal. Since the sponsors needed less private debt – and only needed it to cover the construction period – the sponsors decided that bank debt would be cheaper. Hochtief and Meridiam went out to potential lenders and received 18 proposals. They settled on a six-bank club, but one unnamed bank then left the deal because it felt its ticket was too small.

In November 2010, PEGC sued Caltrans, SFCTA and the California Transportation Commission, alleging that the Presidio Parkway project didn’t qualify as a public- private partnership (PPP) road concession under the California Streets and Highways Code, section 143. The suit said that Presidio did not qualify because it is not a tolled highway and would replace (without adding capacity to) an existing road.

Three months later, in February 2011, the Alameda County Superior Court rejected PEGC’s lawsuit. Judge Wynne Carvill ruled that availability payments were essentially implied in revisions made to section 143 in 2009. PECG appealed the decision to the state’s 1st District Court of Appeals, which dismissed the suit in August 2011. The state Supreme Court, in November 2011, also rejected the lawsuit.

The Presidio Parkway will help replace the 2.6km Doyle Drive, the southern approach to the Golden Gate Bridge, which links California’s San Francisco and Marin counties. Hochtief expects phase two to be operational by December 2015.

Golden Link Concessionaire LLC
STATUS: Closed 13 June 2012
SIZE: $364.7 million
DESCRIPTION: DBFO concession for 2.6km of road replacing Doyle Drive, in San Francisco, California
GRANTORS: Caltrans, SFCTA
SPONSORS: Hochtief (50%) and Meridiam (50%)
EQUITY: $45 million
DEBT: $170 million
BANK LENDERS: Scotiabank, BBVA, BTMU, BMO, Santander
TIFIA LENDER: US Department of Transportation
TIFIA LEGAL ADVISER: Bryant Miller Olive
TIFIA FINANCIAL ADVISER: Montague DeRose and Associates
SPONSOR FINANCIAL ADVISER: Scotiabank
SPONSOR LEGAL COUNSEL: Milbank
LENDER LEGAL COUNSEL: Orrick
GRANTOR LEGAL COUNSEL: Nossaman
GRANTOR FINANCIAL ADVISERS: KPMG, Sperry Capital
LENDER TECHNICAL ADVISER: Leigh Fisher
LENDER INSURANCE ADVISER: Moore-McNeil
SPONSOR INSURANCE ADVISER: TSIB