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Response to Mercator Report

Response to Mercator Report. Widen I-77. July 20, 2017. Agenda. SC vs NC Overview County Overview Project Overview Report Response Q&A. SC Investments. Tolls & Congestion. GSP Expansion $115M. I26 Widening ~20 Miles $300M. I26 Widening (Proposed) ~6 Miles $480M.

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Response to Mercator Report

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  1. Response to Mercator Report Widen I-77 July 20, 2017

  2. Agenda • SC vs NC Overview • County Overview • Project Overview • Report Response • Q&A

  3. SC Investments Tolls & Congestion GSP Expansion $115M I26 Widening~20 Miles $300M I26 Widening (Proposed)~6 Miles $480M “Carolina Crossroads”14 miles19 bridges 12 interchanges 134K AADT $1.3B Charleston Harbor Deepening (52’)$525M I26 Widening~21 Miles Port Access Road Source: SCDOT Billions invested in non-tolled infrastructure

  4. Truck Traffic in NC Source: John Locke Foundation; WI77 analysis I-77: A vital economic artery

  5. SC vs NC on Infrastructure • “Several modes of transit were considered in developing the preliminary alternatives. While mass transit provides some relief to traffic, it does not solve the issues today as a standalone solution.” • “We’re in a period that’s going to last for a while (with more toll roads) while we’re seeking transformational funding changes.” --NCDOT Chair Source: State DOT Chief Questions Toll Critics’ Goals, CBJ, June 9, 2015; SCDOT

  6. NC Investments Source: CRRA & REBIC Presentation, Jan 14, 2016Ned Curran, Warren Cooksey, Jean Leier; Fast Lanes Phase II Report, July 2009 The “managed lanes strategy for the region”

  7. NC vs SC County Comparison HOT Lane4 Lanes Tax Comparison 6 Lanes 8 Lanes 6 Lanes 6 Lanes 8 Lanes Basically tax neutral, but infrastructure disadvantaged

  8. SH 130 Bankruptcy Settlement Original Capital Structure ($M) Outstanding Debt($M) $1.3B $1.5B ? ? ? Source: SH 130 Second Amended Plan of Reorganization, May 2017 What happens to the creditors?

  9. Three Questions • What happens to the senior debt? • What happens to the taxpayer money? • What happens to the equity?

  10. SH 130 Settlement Outstanding Debt($M) $1.5B Question #1: Senior Debt Holders get ~$0.17 -0.35 on the dollar Buyout price: $260M What happens to the taxpayer?

  11. NCDOT Position on Bankruptcy • “Look, (bankruptcy) is a toxic word.  But it’s overblown.” NC Secretary of TransportationMar 4, 2016 (WSOC) • “We (North Carolina) would essentially be getting the project for pennies on the dollar.” NCDOT Director of Transportation Program ManagementLKN Citizen, May 30, 2013 Bankruptcy could be a favorable development…

  12. SH130 Bankruptcy Lawyer • "One of the criticisms that you hear periodically about public-private partnerships is that they somehow put the public at risk of having to cover private sector obligations.” • "The fact is, if the agreements are structured correctly — and this is an example of one that was — then that risk to the public sector doesn't really exist." Source: Texas Tribune, June 28th, 2017 But is the public no longer at risk?

  13. SH 130 Bankruptcy • Sold to Strategic Value Partners • Cintra wipes $1.4B debt off balance sheet • Private Tolls until 2062 • TIFIA Lien not discharged A reasonable conclusion…

  14. SH 130 Settlement ? Question #3: Equity holders get ???? X Question #2: Taxpayers lose $400M Question #1: Senior Debt Holders get ~$0.17- 0.35 on the dollar $$ What happens private equity?

  15. SH 130 Legal Structure Source: “The End of the Road”, San Antonio Express News, Sept 16, 2016 ~40 separate legal entities to build a road

  16. Equity Recovery • “To extend its existence, Transurban must buy or build new roads, requiring ongoing equity issues or increased financial leverage, given that the firm currently pays out all free cash flow as distributions to investors.” Source: “Transurban’s high quality core motorways attract, but new project introduce forecasting risk”, Morningstar, Nov 26, 2015

  17. Equity is paid back first… Source: DBRS Credit Rating Agency Confirms “Equity Out First” Strategy

  18. …and invested last Source: Ferrovial Q1 2017 Financial Report 32% Complete; $1.1M Invested…

  19. I-77 Legal Structure Ferrovial International (?) Ferrovial Holding US Corp Cintra Holding US Corp Cintra I77 Mobility Partners, LLC I-77 Mobility Partners Holding, LLC Source: Ferrovial 2016 Annual Report I-77 Mobility Partners, LLC A 50 year contract with a shell corporation

  20. SH 130 Lessons Learned • Bankruptcy used as a financial strategy • May not be the end of private tolling • Taxpayer shoulders material portion of the loss • In addition to NCDOT credit support • Equity recovery is deliberately opaque • Similar structure in place for I77

  21. Conclusions • I-77 tolls hamper NC’s competitivess vs SC • Bankruptcy may not solve our problem

  22. Mercator Report • Reasons for Concern • Reasons for Optimism • Qualitative Assessment of Options • Next Steps

  23. Concern #1 • Mercator misunderstands the scope of the solution • WI77 has been explaining the difference for four years… Memo #1: We don’t need tunnels in Charlotte to move traffic through LKN

  24. Concern #2 • Mercator doesn’t understand the financial playbook • Longest project in operation <5 years “Public confuses toll roads with toll lane projects”

  25. Concern #2 (con’t) • I-495 • 80 year term • 8-10 lanes • $230 million loss through 2014 • Revenues increasing Source: “I-495 Express Lanes Endure Big Losses Early on Way to Potential Profit”, WAMU, Feb 20, 2015; TIFIA

  26. Concern #2 (con’t) • I77 (toll lane) vs SH 130 (toll road) • The same law firm wrote the same type of contracts for the same type of projects for the same company and • Similar capital structure • Similar loan deferral terms • The same company booked a $46M gain on an earlier default • The same company has sold 49.9% their interest in I77 a month into construction… Memo #2: I-77 is just another page out of the same playbook

  27. Optimism #1 We were never given a choice

  28. Optimism #2 • “The NCDOT can cancel the contract at any time if the Transportation Secretary determines it is in the public interest.” Finally

  29. Optimism #3 • Dec 2015 • Penalty: $300M • Construction work: $0 • July 2017 • Buyout: $289M • Construction work: $289M A buyout, not a penalty

  30. Qualitative Assessment

  31. Next Step

  32. Thank YouWidenI77PO Box 792Cornelius, NC 28031wideni77@hotmail.comwideni77.org

  33. Appendix

  34. Source: NCDOT I-77 Express Lanes Response

  35. CA

  36. “Cintra has a track record of success on a global basis. They’re one of the largest providers of this type of infrastructure in the world. There are managed-lane projects in Texas that are successful.”NCDOT Chairman Ned CurranWBTV, March 4, 2016

  37. Source: I77 Managed Lanes Update, Sept 9, 2014

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