I-95 (Rest Area) Access Project

1. I-95 (Rest Area) Access Project Preliminary Financial AnalysesFebruary 2011Presented by: David C. MillerManaging DirectorThe PFM Group

2. 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.

3. 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

4. Illustrative Pro Forma Financial Cash Flow

5. 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.

6. Financing Structure

7. Preliminary Financing Results Funding gaps exist in each scenario, which is typical for projects like this.

8. 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.

9. 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