Preliminary Financial Analyses

February 2011

Presented by: David C. Miller

Managing DirectorThe PFM Group

I-95 (Rest Area) Access Project

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Overview

PFM analyzed the financial feasibility of developing the I-95 Connector as a

Public and a P3 project.

In both Public and P3 model, different combinations of financing components

were explored to examine their effect in closing/reducing upfront funding gaps.

Funding gaps exist in all the scenarios while the Public model generates

relatively better results. An additional source of funding such as grants or

appropriations should be sought to achieve financial feasibility.

Risk transfer, a primary advantage of the P3 model, should be factored into the

decision process:

Public: Non-recourse bonds partially shift revenue risks.

P3 Concession: Construction, O&M, maintenance, and revenue risks are transferred to the private partner.

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Typical Start-up Toll Facility Debt Structure

Debt financing, either public or P3 model, is costly and inefficient for start-up toll facilities with project toll revenues as the only repayment for bonds and loans.

The most difficult period for toll facilities are the beginning “ramp-up” stages.

Debt Structure Often Incorporates:

• Capitalized Interest

• Capital Appreciation Bonds (public only)

• Senior and Subordinate Lien Debt Structure

• Ascending Debt Service

• Debt Service Reserve Fund

• Net Revenue Pledge after payment of O&M

• R&R and O&M Reserve Funding After Debt Service

• Marginal Investment Grade Credit Ratings

• High Cost of Capital

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Illustrative Pro Forma Financial Cash Flow

$0

$10,000,000

$20,000,000

$30,000,000

$40,000,000

$50,000,000

$60,000,000

$70,000,000

Available Equity Repayment TIFIA PAB Gross Revenue Net Revenue

Capitalized Interest Period

TIFIA repayment subject to cash sweep. Interest payment deferred for 5 years and partially repaid from 2017 to 2022.

Construction ends on 12/1/2015 and the Project starts to generate revenue on 1/1/2016

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Bond Financing Assumptions

The preliminary financing plan assumes “BBB” credit ratings for toll

revenue bonds which will require:

Verified traffic & revenue forecast via an investment grade report

Verified capital cost estimates via an engineer’s report and/or construction contract

Verified toll collection, operations & maintenance estimates coordinated with the T&R and Engineer’s reports

Documented federal TIFIA and/or VTIB loan, as applicable

Development of market-standard bond financing documents

The preliminary financing plan assumes current market interest rates

which are subject to change.

Adverse changes in the credit rating factors and/or market interest rates

will increase funding gaps.

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Financing StructureGeneral Assumptions

Capital Costs Total $349M Construction/Financing Start Date 1/1/2012Gross Revenues $1,149M Construction End Date 12/1/2015O&M $155M Open to Traffic 1/1/2016R&R $36M

Public Model P3 Model

Amortization

Revenue Pledged

Tax Status TE PAB (subject to AMT)

Average Coverage 2.39x 3.05x

Scale Current uninsured market rate Current uninsured TE market rates + 70 bps (AMT premium)

Amount

Credit Charge

Loan Maturity

Cash Sweep

Interest Repayment Deferred for 5 years Deferred for 5 years and partially paid from Yr 6 to Yr 10

Rate

Amount Net present value of the cash flows to/from the General Reserve Fund

Target IRR 13%

Lease Term 50 Yr

Depreciation 20-Yr straight-line depreciation

Tax Rate 35% corporate income tax rate and 6% State income tax rate

6%

N/A

Net revenue after O&M and R&R

40 Yr

33% of of eligible costs, which include construction costs, capitalized interest costs and debt service reserve fund costs

10%

35 Yr after substantial construction completion

60% of available annual revenues after senior debt service

Financing Component

Senior Lien Toll Revenue Bond

TIFIA

VTIB Loan

Equity

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Preliminary Financing Results

Scenario Upfront Funding Gap

Senior TE Toll Bonds $271MSenior TE Toll Bonds + TIFIA $141MSenior TE Toll Bonds + TIFIA + VTIB Loan $92M

Scenario Upfront Funding Gap

Senior PAB Toll Bonds $334MSenior PAB Toll Bonds + TIFIA $200MSenior PAB Toll Bonds + TIFIA + Equity $179M

Public Model

P3 Model

Funding gaps exist in each scenario, which is typical for projects like this.

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Preliminary Financing Observations In either Public or P3 model, toll revenues after accounting for O&M and R&R expenditures

are not enough to support debt, loans and/or equity adequate to pay for the construction costs and additional financing costs.

The upfront funding gap is expected as new toll roads outside of a system (i.e. existing toll roads with excess cash flow in place) rarely if ever completely pay for themselves. Public funds are significant components of recent greenfield toll projects’ financing plans.

Public & P3 Financing of Greenfield Toll ProjectsPrivate Instruments

State Funds

Revenue Bonds/ PABs TIFIA

Bank Sr. Debt

Private Equity Total

NCTA Triangle Express $352.7 $270.1 $390.3 $1,013.1I-495 HOT Lanes $409.0 $589.0 $589.0 $350.0 $1,937.0North Tarrant Express $573.0 $398.0 $650.0 $426.0 $2,047.0LBJ-635 Corridor $479.5 $400.0 $800.0 $598.5 $2,278.0SH-130 Segment V-VI $2.3 $430.0 $685.8 $209.8 $1,327.9I-595* $232.0 $603.0 $781.1 $207.7 $1,823.8Total $2,048.5 $1,657.1 $3,462.3 $1,466.9 $1,792.0 $10,426.8 * All financing secured by Availability Payments from FDOT, not by toll revenues

Grants Public Instruments

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Potential Plan of Finance Alternatives

Our experience says that project sponsors should pursue all reasonable

financing structures and funding sources until a decision on a financially

feasible plan is made:

Additional government funds or grants during construction

Pledge of supplemental non-toll revenues

Subordinate R&R in the flow of funds

Subordinate O&M with a government backstop

Virginia’s proposed Transportation Infrastructure Bank

TIFIA Program – Letters of Interest are currently being accepted through March 1st for the next round of loans