Financing infrastructureCalls Come for 'Programmatic' P3 Approach

Market participants are pushing for states or the federal government to take a “programmatic” rather than a piecemeal or project-by-project approach to financing infrastructure through public-private partnerships. Audrey Dutton writes that states, however, may be better equipped than the federal government to assemble a P3 program, and the Georgia Department of Transportation’s newly launched multi-project P3 initiative could provide a case study, some said last week at the Bond Buyer’s 10th annual Transportation Finance/P3 conference in Dallas.

“Right now it’s too fractured” in the P3-financed infrastructure sector, Chee Mee Hu, managing director for Moody’s Investors Service, said during an interview last week, adding, “It’s almost opportunistic rather than programmatic” how P3s are evolving now in the United States.

State departments of transportation currently have to do “a lot of footwork” to put together P3 deals and are essentially reinventing the wheel for each project-based partnership, she said. “One thing we don’t have in a rational way are P3 proponents,” Hu said. “In Canada, they have provincial groups” that focus on P3 programs. The U.S. needs “some agency at the state or federal level” to act as a clearinghouse or design a centralized program for P3s, she said.

Hu cited as an example of a programmatic, state-administered P3 the multi-project P3 initiative, unveiled by the Georgia DOT last week, under which 18 individual projects would be financed through P3s, including managed lanes, high-speed rail and intercity passenger rail, and welcome centers.

Former U.S. Department of Transportation official D. J. Gribbin, who is currently managing director for Macquarie Capital, said he sees “movement away from P3s as an asset-by-asset” way of financing infrastructure, noting that in other countries, if a project cost runs high enough, it is “presumed to be a P3.”

Currently, there are a number of tolling and P3-related programs administered by the Federal Highway Administration. One is the Special Experimental Project Number 15, or SEP-15, which gives the transportation secretary the ability to waive certain rules of the current transportation law on a case-by-case basis. The program allows the FHWA “to experiment in four major areas of project delivery” including project finance, and one of its goals is to promote P3s, according to the FHWA.

The program, however, is intended not for massive programmatic change but to allow FHWA to identify which laws and practices inhibit P3 investment in transportation. Among the projects under SEP-15 are the Oregon Innovative Partnership Program, the “Connecting Idaho” Garvee bond program, and several projects using a low-interest federal loan program.

The multi-year surface transportation reauthorization bill sponsored by House Transportation Committee James Oberstar (D-Minnesota), would create an Office of Public Benefit that would function as a one-stop shop for P3s — providing technical assistance as well as holding authority to approve or reject toll rates, toll increases, or other provisions in a P3 agreement.

Despite proposing a centralized place for P3s to be developed, market participants have criticized the plan for giving too much authority to the federal government and potentially adding bureaucracy to the already lengthy process.

Meanwhile, Moody’s yesterday published its first historical analysis of the project finance debt obligations that it rates. The debts under the “project finance” umbrella include long-term infrastructure, industrial, or public service investments that use limited-recourse long-term contractual debt. The sector, which began with three rated debts in 1992, had expanded to almost 600 rated debts as of January. Most of the rated projects are in North America, Moody’s said.

“The cycle of infrastructure investment is ongoing since aging toll roads, hospitals, airports, and energy facilities need to be maintained and eventually replaced,” said Jennifer Tennant, assistant vice president for Moody’s.

The agency said its ratings for public finance debt have been about as accurate in predicting defaults as ratings it has applied to corporate issuers. It found that 87.2 percent of Baa-rated project finance debts and 84.3 percent of Baa-rated corporate debts remained stable during a one-year period. Baa-rated project finance debts defaulted more often than corporate debts, but their senior secured bonds also had a higher recovery rate, Moody’s said.