Dallas LBJ/I-635 toll lanes go to financial close at last - $2.7b raised
The TX/I-635 LBJ Freeway toll lanes has gone to financial close, so - at last - construction can begin. Good news that a very large project, not without its risks, can still be financed in today's economy. It is the first major private sector road financing this year. Construction is due to begin early 2011 for completion by 2016.
About $2.7b was financed in the LBJ close last week, making it probably the largest toll investor concession in the US since the Indiana Toll Road and the largest new-construction concession.
One account called it the largest "greenfields" financing, stretching the term. Not a green field within miles, this is located in a dense established freeway corridor, in a heavily built environment. This is just 10 miles, 16km north of downtown Dallas - in a metro area that extends over 30 miles, 50km from the center.
Travel lanes go from 8 to 14
But the LBJ/635 toll lanes certainly involve construction of new capacity.
And this is investment that is dependent on selling congestion relief in competition with free lanes.
In the LBJ/635 Corridor an 8 lane free expressway will become a 14 lane complex of free and priced travel.
Capacity will probably be at least doubled from the existing traffic of 270k vehicles/day, because the six lanes managed for free flow with variable toll rates will be able to carry greater volumes than the eight unpriced, unmanaged lanes.
The addition is 'managed' or dynamically tolled lanes - mostly 3+3 new lanes depressed below or elevated above existing free lanes (mostly 4+4 lanes) along some 20km, 13 miles.
The I-635 (LBJ) portion runs from just west of I-35E (near Luna Road) to just east of US75 (near Greenville Av), and on I-35E south through I-635 interchange to Loop 12.
Just under 10 miles or by our measurement 15.4km is on the I-635 LBJ, while about 4 miles or 6km+ is on the I-35E including work through the I-635/35E interchange measured on both routes. That way it totals 13.7 miles, 22km.
Almost all the construction is challenging, occurring in confined space, and to be conducted under heavy daytime traffic. As well as substantially structured mainlanes, the additions of toll roadways involves slip lanes, direct connector ramps, and connections to three full-blown expressways at already complex expressway/expressway interchanges. Some improvements are also bein g amde to the untolled lanes.
On and off
The project has been over a decade in development, moving forward in fits and starts, amended in response to difficulties and opportunities, and put out for proposals in 2008. Two groups proposed, each led by major Spain-based toll operators Cintra and ACS.
To accommodate the toll lanes on I-635, ACS proposed long tunneled segments, whereas Cintra proposed partially covered, structured roadway. The I-35E work has the toll lanes elevated.
The Cintra team was judged best value by TxDOT. A master concession contract or Comprehensive Development Agreement was signed in Sept 2009 with the Cintra team named LBJ Infastructure Group.
#2 equity investor in the concession is Paris France based Meridiam Infrastructure.
Local cops and firemen fill in for missing Mac
Cintra brought in the Dallas police and firemen's pension fund as a third partner after Macquarie dropped out. It is the first time a major US pension fund has taken a large direct position in a toll concession.
Capital cost to the concessionaire of the project is estimated to be around $2.7b. Along with the similar project called North Tarrant Express (NTE) of $1.8b the Dallas area will have the largest and most elaborate toll-managed lanes in the country in 2012 or 2013.
The three investor companies Cintra, Meridiam and Dallas Police & Fire pension funds contributed $665m in equity, TxDOT put up $496m and there was borrowing of $615m in private activity and $850m in TIFIA bonds that the investors have to service and repay.
Brian Papernick of Nossman, a law firm acting for TxDOT in the transaction wrote after the deal: "The I-635 and NTE validate toll concession P3s as a viable method for delivering needed transportation projects in the United States....with the I-635 (concession), Texas DOT was able to leverage $496 million in public funds to deliver a project worth over $4 billion including costs for design, construction, operations and maintenance. If past is prologue, the P3 market can expect more P3 toll concessions, as well as managed lanes projects, in the future."
In a statement after the closing Nicolas Rubio, president of Austin, Texas-based Cintra US, the lead partner in LBJ Infrastructure Group (LBJIG) was quoted: "On behalf of the LBJ Infrastructure Group, we are proud to work with visionary state and local leaders to make this much-anticipated project a reality. With this public-private approach, the state is able to leverage limited tax dollars to create billions of dollars in congestion-relieving roadway benefits for local drivers, while also creating new jobs for Texans."
Joe Aiello, CEO for Meridiam Infrastructure North America the second biggest equity holder int he concession was quoted: "This public-private partnership will get traffic moving and provide drivers with greater roadway choices, without waiting for limited taxpayer resources to become available. This project also will generate much-needed jobs for all types of businesses and boost the local economy."
Major features of the concession
The deal with investors (CDA or concession contract) has some features of note:
- term 52 years
- all vehicles tolled in peakhours in the toll lanes, HOV2+ getting a 50% discount, free other times
- no restriction on competing capacity but compensation due to the concessionaire for capacity beyond present plans or other works that reduce concessionaire revenues
- TxDOT entitled to earn compensation if TxDOT works, such as improved connections or adjacent capacity imcreases are shown to increase concessionaire toll revenues
- some profit sharing with TxDOT beyond a specified rate of return
- fixed schedule toll rates for first six months (180 days), dynamic toll rates after that
- tolls to be varied so as to maintain average speeds of 50mph, 80km/hr
- "termination for convenience" allows concession to be ended by TxDOT at any time without cause but with compensation, the principles of compensation being spelled out and the amount determined by an independent appraiser
- initial toll rates are expected to range between 9c and 53c/mile for cars, 6c to 33c/km
- the initial toll rate will be capped at 75c/mile, 47c/km and this will be adjusted with CPI
- toll rate changes may not occur more frequently than at 5 minute intervals
Improvements to untolled lanes
As well as constructing new tolled lanes, the project will make improvements to the untolled lanes. These are presently 11ft, 3.35m and they will be widened a foot, 30cm to 12ft, 3.65m. These untold roadways will also get improved and extra shoulders.
Also the project will improve frontage roads - outside roadways taking on and off traffic and providing frontage to businesses and other properties.
WSA has done traffic and revenue studies suggesting toil revenues in the following spread:
2015 $24.7m to $28.2m
2025 $47.7m to $79.2m
2040 $79.9m to $132.6m
Nossaman lawyers advised TxDOT on the contract and Bracewell & Giuliani advised the Cintra group.
COMMENT: this has been a long slog, eleven years so far and a likely 17 years to opening. Only Maryland can beat that with the Inter County Connector. Congratulations to all who persisted and have managed in the end to make it happen. Dallas will have an amazing facility for east-west movement from 2016. And a start on a similar treatment of north-south I-35E.