Northwest Parkway in Colorado concessioned to Brisa for $603m - lease signed today, closing by Oct
By Peter Samuel
The Northwest Parkway Public Highway Authority (NWPPHA) today signed a $603m 99 year lease concession agreement with Portugal-based toll operator Brisa and its Brazil partner CCR. The agreement due to go to financial close within a month will defease all the authority's longterm debt and provide some money for the three constituent municipalities while transferring financial risk and rewards to the private operators.
NWPPHA had seen traffic and revenue at only about half the forecasts that were the basis for their financial plan, and lacking any equity they faced problems not many years off in servicing their nearly $500m in debt. The concession avoids a possible default by the public highway authority.
Board chairman and mayor of Broomfield Karen Stuart said in a statement: "The board believes this milestone agreement that retires all bonded debt, provides a mechanism for future expansion of the road, and turns over operations to a well qualified and globally respected professional team in Brisa/CCR is in the best interests of the communities that make up the authority."
In a conference call today Chris Berry, vice-chair of the three person board and mayor of the city of Lafayette said the deal was excellent. Lafayette and the surrounding area had been an "island" before the Parkway's construction, isolated by the lack of quality road connections. The three municipalities had banded together to get the Parkway built "because no one else would do it."
With the parkway operating, Berry said, "we are no longer landlocked" and the people have access to "thousands of jobs" and other opportunities they were previously denied stranded between I-25 to the east and US36 to the west.
"This deal removes the debt we incurred. It pays all our bills. And it brings onto the Parkway a very experienced tollroad operator which is making a longterm commitment to the area. There is no negative to this. It is a win-win deal. We are very pleased and expect a positive impact."
Unlike some other states, but like Chicago and Virginia investor operation of tollroads has not been controversial in the case of the NW Parkway (NWP).
Joao Azevedo Coutinho, director of the international division of Brisa said the agreement today "is a big first step." He looked forward to "forging local aprtnerships with commuters and the surrounding communities along the Parkway", according to a statement.
Price/revenue last year ratio of 90
Brisa is paying a staggering multiple of almost 90 times revenue for the concession - $603m/$6.7m tolls in 2006. The cost of the NW Parkway is very similar to the Pocahontas Parkway concession in Richmond Virginia which closed June 29 2006. Transurban paid $611m for that tollroad which had revenue in the year it was sold of $11m, making a multiple of about 56. The Chicago Skyway and Indiana Toll Road both had price/revenue ratios of about 40.
Brisa and partner CCR are obviously investing in the expectation of huge growth in traffic and revenues with a strong probability of the Parkway becoming part of a busy belt expressway around the Denver area. At present the NW Parkway is something of an east-west link across the northwestern fringe of the metro area and an extension east of the E470 tollroad. It has the potential to add a role serving the western fringe of the Denver metro area as part of an extension southwest eventually linking to I-70/C-470 near Golden and becoming part of a full belt route with E470.
Extensions to add $100m to concession fees
The agreement reflects to a small degree the the dependence of the NW Parkway on being part of a longer route.
Under the agreement signed today $503m will be paid on close with another $100m conditioned on extensions of the 15km (9 mile) tollroad to the southwest. Tuesday night in a 9 to 1 vote the City of Broomfield agreed to make its best efforts to facilitate extensions to the tollway which presently fizzles out in a signalized arterial short of US36.
On close $40m is put in escrow earning interest and is paid to the Public Highway Authority if the Parkway is extended south over US36 to SH128 in Broomfield, near the Rocky Mountains regional airport by a prescribed date. If the extension is not approved and built by that time Brisa gets the proceeds including interst. That is only a 3.7km (2.3mi) distance.
If the tollroad is extended by the same date to 64th Av and SH93 at the northern boundary of Golden then Brisa is obligated to pay another $60m to NWPPHA. That is another 24km (15 miles). These extension payments kick in if a notice to proceed with construction has been issued by the end of 2018 or the extensions are completed by the end of 2020.
An official statement by the NWPPHA described the agreement: "Pursuant to the Agreement, the Authority continues to own the Northwest Parkway (the "Parkway") and grants to the Concessionaire a leasehold interest in the land on which the Parkway is located and the exclusive right to use, possess, operate, manage, maintain, rehabilitate and toll the Parkway for a term of 99 years."
The authority has now posted the concession and lease agreement here:
We have not yet read the concession but a summary plus accounts by authority staff suggest:
The $543m to be paid comprises will leave $503m which will be used at closing to defease the Authority's longterm debt which is about $480m to $485m depending on interst rate movements between now and then. The authority estimates it will have about $20m cash at closing which it will use to pay down debt of about $30.5m to its three constituent muncipalities.
$50m of the payments are being called upfront rent, but that is just semantics. It is part of the $503m.
$40m is put in interest earning escrow for the first extension. $60m is pledged to be paid for the second extension.
In addition the concessionaire has to pay an average of just over $2m a year over 99 years (totaling $200m) to help cover the Authority's ongoing costs as owner of the tollroad and administrator of the lease concession. The authority is responsible for its own costs and keeps any surplus and has to make up any deficit.
(REVISED AFTER CLARIFICATION BY NWPPHA 2007-08-30 14:30)
The summary says that the concession agreement provides for an independent engineer approved by the authority to report on operations and their compliance with the concession standards. Capital improvements such as lane widening has to be built at the concessionaire's expense when traffic reaches specified capacity.
The concessionaire has to contract with local police and emergency services to provide specified levels of policing and response.
Toll rate controls
From closing to the end of 2009 the maximum toll will be $3.00 for 2-axle vehicles and $3 per additional axles. From Jan 1 2010 the maximum annual increase in toll rates will be the greater of:
- inflation index
- percapita GDP
Lower toll rates and discounts are permitted.
Time of day, variable or congestion pricing is permitted so long as the average toll charged remains within the maximum through the year.
The concessionaire is entitled to toll and penalty revenues and will be responsible for all costs.
The concessionaire is required to interview all current Authority employees with the exception of the Authority's executive director (an understandable exception - TRnews) and if they aren't offered at least their present pay to pay them 12 months salary and benefits. The authority has only seven employees.
Maintenance is currently contracted out to a private firm and toll collection and other toll operations to the E470 Public Highway Authority. E470PHA also does area electronic tolling maintaining accounts and issuing transponders for E470, NW Parkway (NWP) and I-25 HOT lanes.
Brisa will have to honor those contracts through to their termination.
If the NWP authority or specified government entities act to diminish the value of the concession the concessionaire is entitled to compensation from the authority. Compensation will take the form of cash to the extent it has cash, or the concessionaire may seek compensation in toll increases beyond those otherwise allowed, or in extension of the term of the concession. The compensation must restore the concessionaire to the same economic position it was before the damage.
No government entity is limited in its right to build a competing facility. However the authority is required to compensate the concessionaire if specified competing facilities can be shown to have reduced toll revenues.
In the case of the Authority defaulting on its responsibilities the concessionaire may decide to terminate the concession and is entitled to termination damages.
Lawyers for the PHA were Icenogle Norton Smith & Blieszner of Denver and Mayer Brown Rowe & Maw of Chicago.
Documents are posted on the Authority's website at http://www.northwestparkway.org
BACKGROUND: Planning for the NWP began in 1995 when local governments identified a corridor on landuse and zoning maps. A not-for-profit was formed to develop the project in 1998. In 1999 the joint powers agency NWP Public Highway Authority was formed by the city and county of Broomfield, Weld County and Lafayette, and took over the work done by the not-for-profit. $415m in bonds were successfully sold in 2001 and later that year work started under a design-build contract. The road opened Nov 24 2003. Traffic started at about 7k/day and is now 15k average on weekdays, a strong annual increase but still well below forecasts.
The road is 15km (9 miles) long 2x2 lanes with one mainline toll plaza with open road tolling through the middle and cash on the sides and two ramp plazas at intermediate interchanges. It's most unusual feature perhaps is the architecture of the toll structures which are hefty stone faced piers that soar above gantry and canopy structures which are then cable stayed below them (see pictures nearby).
TOLLROADSnews 2007-08-29 REVISED 2007-08-30 14:30