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BWXT Y-12 Alternative Financing Project Development

BWXT Y-12 Alternative Financing Project Development. Cynthia Woodward BWXT Y-12 Alternate Financing EFCOG “Partnerships for Success” June 9, 2005. Y-12’s Role in NWC. Unique in NWC Only source of secondaries, cases, and other weapons components

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BWXT Y-12 Alternative Financing Project Development

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  1. BWXT Y-12 Alternative Financing Project Development Cynthia Woodward BWXT Y-12 Alternate Financing EFCOG “Partnerships for Success” June 9, 2005

  2. Y-12’s Role in NWC • Unique in NWC • Only source of secondaries, cases, and other weapons components • Leader in materials science and precision manufacturing • Main storage for HEU YGG 04-0540

  3. Y-12’s Master Plan 2005 Alternative Financing Project is a major component of long-term reduction in site size and operating cost YGG 04-0543

  4. Planned Modernization Initiatives • DOE/NNSA Funding ($M) HEU Materials Facility Under construction $313 Purification Facility Completed in FY 2004 $50 Beryllium Project Preliminary Design $47 Enriched Uranium Modernization Conceptual Design $600–1,000 QE Relocation Planned $15–25 DU/Binary Consolidation Project Planned $70 Utility Improvement Projects 4 approved projects $100 TOTAL $1195–1605 • Private Sector Financing • Operating Lease Project YGG 04-0545

  5. Alternative Financing Project • Modernization of Administrative/Technical Facilities • provide modern, competitive, high-quality space to attract and retain top science and engineering talent • consolidate technical and support functions for optimal efficiency • reduce NNSA facility and occupancy costs

  6. Mission Need • NNSA approved Mission Need based on existing facilities being: • over 50-years old on average • temporary structures on third and fourth generation of reuse • noncompliant with current building codes • burdened by years of deferred maintenance • increasingly costly to maintain • difficult to maintain because of asbestos, PCBs, and other environmental issues • failed in basic building systems

  7. Funding for Consolidation • Government funds limited • Mission-critical facilities take precedence in prioritization • Timing is critical • Public sector offers opportunities (e.g., use of operating lease) YGG 04-0550

  8. Two Sites OF 550,000 ft2 • Production Interface Facility • 413,000 ft2 on ~8 acres • Public Interface Facility • 137,000 ft2 on ~8 acres YGG 04-0552

  9. PRODUCTION INTERFACE FACILITY • 1200 employees • Technical and administrative offices • Light laboratories • Food service • Training and conferencing • Occupational Health YGG 04-0553 YGG 04-0553

  10. PUBLIC INTERFACE FACILITY • 300 employees • Visitor Center with exhibit space • Auditorium • Badging office • Human Resources • Procurement • User laboratories YGG 04-0554

  11. Chronology of NNSA / DOE Review

  12. Environmental • Environmental Assessment complete • EPA and TDEC have signed Covenant Deferral Request • Risk Analysis indicates no problems YGG 04-0561

  13. Quitclaim Deed • Atomic Energy Act of 1954 allows transfers of excess DOE lands • Defined parcels quitclaim deeded to Oak Ridge Project • Quitclaim deed contains some covenants and restrictions—for example: • Government remains responsible for any future cleanup • Limits use to industrial development • No use of groundwater YGG 04-0559 YGG 04-0560

  14. Life Cycle Cost Analysis 25 Year Life Cycle Cost Scenario 1 Scenario 2 Scenario 3 Stay in Place Line Item Op Lease Total Project Cost $887.3M $710.4M $730.0M NPV @ 5.28% $506.5M $450.6M $410.1MSavings($96.5) ($40.5M) Based on: • Total project cost of about $116 million • Base rent (no FFE) $18.78/gross square foot • At 540,000 square feet equals $11.6 million lease payment (with FF&E, operating and variable pass through expenses) • NNSA has been told that lease will be paid out of current operating budget

  15. Lease Cost and Projected Savings Estimated Annual Lease Payments : $11.6M Estimated Annual Cost Savings: Utilities -- Gas and Electric $ 4.0M Routine maintenance 5.0 Offsite leases 2.0 Total Annual Savings $11.0M

  16. OMB A-11 Criteria for operating lease • OMB Criteria BWXT Y-12 Transaction • Ownership remains with lessor Limited reversionary provisions • No bargain price purchase Repurchase for just compensation • Lease term < 75% of economic life 20-year lease 50% of 40-year life • Present value < 90% of FMV NPV is 74% of FMV (LI) • General purpose asset Typical commercial office space • Private sector market Local RE market has comparables • Risk of ownership No government guarantees

  17. Lease Terms • Maximum 20 year lease [5 + 3(5)], with renewal option (5) if mutually agreed • One year cancellation for convenience • Lease and M&O contract stipulate lease assigned to successors of Y-12 contract • NNSA will “approve” lease as required by M&O contract and agree lease payments are allowable cost • If “default” prior to lease term, ownership of buildings and land stays with developer (with easements for access)

  18. Trustee / Investors Design-Build Team Oak Ridge IDB Issuer Development Agreement Trust Indenture Construction Contract Loan Agrmt. Preconstruction Agreement Lawler-Wood Developer Transaction Structure Rent BWXT Y-12 M&O Contractor Oak Ridge Project LLC Owner M&O Contract NNSA Lease Quitclaim Deed

  19. Owner / Lessor • City of Oak Ridge Industrial Development Board has passed resolution to form Oak Ridge Project, LLC, to: • own property • Enter into construction agreement with developer • Enter into loan agreement with IDB • Oak Ridge Project, LLC is: • Bankruptcy remote • Single purpose entity • IDB will issue bonds

  20. TDEC GC Project Organization Private Sector Public Sector Bechtel Inter’l BWX Tech Owner’s Counsel Bass Berry Simms Counsel Gentry Tipton McLemore AL Service Center Oak Ridge Ops M&O BWXT Y-12 Developer Lawler-Wood Owner OR Project LLC OMB DOE YSO NNSA Issuer City of OR IDB Engineering IG Turner Universal Banc of America EPA Reg 4 Environmental OECM Counsel Patton Boggs Bond Insurer AMBAC STG Tetra Tech CFO Security BWSC Trustees / Investors Finance Legal Bond Rating S&P Bond Market

  21. Project Status • Design • at 60%+ completion with GMP developed (project is design-build) • Legal • Deed and lease agreement drafted and approved by NNSA realty and OGC • Environmental • Environmental Assessment and Covenant Deferral Request (CDR) completed • CDR signed by EPA and TN Governor • Financial • Bond insurance by Ambac – lowers bond rate • S&P ready to issue rating – probably AAA

  22. Project Status NNSA / DOE Reviews and Approvals • NNSA has approved Mission Need • NNSA Realty Specialist reviewed Quitclaim Deed and Lease and concurred • OECM issued final report supporting project • IG has issued final report • OGC has issued approval

  23. Remaining Actions • OMB review and concurrence • DOE 60-day notice to Congress (which can be waived) • Execute Quitclaim Deed

  24. Production Support Facility

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