Public Finance in a Sea of Challenge: A Look at What Has Come and What Is to Come Commercial Real Estate Women, Los Angeles (CREW-LA) February 13, 2013 2013 Goodwin Procter LLP 1
Panel Member Biographies Stephen E. Heaney Stifel Nicolaus & Company, Incorporated Managing Director Stephen Heaney has over 35 years of municipal finance experience including both tax exempt and taxable financings totaling billions of dollars in public offerings for a wide variety of capital improvement projects for local governments throughout California and Nevada. Mr. Heaney has been a leader in creating public financing techniques to address the infrastructure needs of both large and small development and redevelopment projects, and is a frequent speaker on infrastructure and finance issues. Mr. Heaney is currently the Vice Chair of the Board of the Municipal Securities Rulemaking Board and is a former Chairman of the California Public Securities Association as well as a former member of the Board of Trustees for the California City Management Foundation. 2
Panel Member Biographies Barbara Lloyd KPMG Corporate Finance LLC Managing Director Barbara Lloyd is a member of KPMG s Infrastructure Advisory group and has over 25 years of experience in government and public finance. Previously, Ms. Lloyd has served as the chief deputy treasurer and deputy treasurer for public finance for the California State Treasurer s Office, where she was instrumental in the largest and most complex transactions issued by the State. Barbara also served as the treasury manager for the City of Oakland, and a financial advisor to California local governments. In her current position Barbara leads her firm s work for Caltrans Public-Private Partnership (P3) Program, including for the first transaction under new state P3 authority, the Presidio Parkway P3 Project, which reached financial close on June 14, 2012. Barbara also works with the California High-Speed Rail Authority, the University of California, and Riverside County Transportation Commission, among others. 3
Panel Member Biographies Marla Bleavins Los Angeles World Airports Project Manager Marla Bleavins currently serves as the Project Manager for the Chief Operating Officer at Los Angeles World Airports (LAWA), the agency that owns and operates Los Angeles International Airport (LAX) and two other airports in Southern California and is responsible for managing projects of strategic importance to the organization. In this capacity she brings to bear her considerable experience, first as an analyst in the Office of the City Administrative Officer for the City of Los Angeles where she oversaw general obligation bond, revenue bond and land secured financings totaling $2.8 billion and then served as LAWA s Debt and Treasury Manager where she managed teams of public finance professionals to facilitate the legislative approval, marketing and sale of $3 billion in municipal bonds to support LAX s capital improvement program. 4
Panel Member Biographies Andréa Caruso Townsend, Esq. Squire Sanders Of Counsel Andréa Caruso Townsend focuses her practice on capital project finance matters with an emphasis on tax exempt bond and tax credit financings for public and private projects including public facilities, affordable multifamily housing, nonprofit educational, senior housing and healthcare facilities, renewable energy projects. Andréa has more than 15 years of public finance experience including serving as bond, underwriters, investor and borrower counsel on a wide variety of public, nonprofit and redevelopment projects. 5
Public Finance in a Sea of Challenge: A Look at What Has Come and What Is to Come Stephen E. Heaney Stifel Nicolaus & Company, Incorporated Managing Director 6
6.50% 6.00% 5.50% 5.00% 4.50% 4.00% 3.50% 3.00% 2.50% 2.00% Interest Rate Trends 30-Year MMD 30-Year Treasury Rate Source: TM3 Thomson Reuters. Data reflect rates from July 1, 1999 through February 6, 2013. 7
Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Muni Fund Flows ($ Billions) Muni Fund Assets ($ Billions) 3 Municipal Mutual Fund Flows and Assets 600 2 1 Muni Fund Assets 500 0-1 -2-3 -4-5 $16 billion in outflows (4Q 2008) $85.billion in inflows (1Q 2009-1Q 2010) $45 billion in outflows (Nov. 2010 - May 2011) $57 billion in inflows (since Sep. 2011) 400 300 200 100-6 0 8
Community Facilities District No. 2008-1 (Bay Meadows), San Mateo, California Community Goal: Community Facilities District No. 2008-1 (Bay Meadows) (San Mateo, CA) $26,000,000 Special Tax Bonds, Series 2013 $31,800,000 Special Tax Bonds, Series 2012 Create a new community that combines residential, office, retail and commercial spaces, within walking or biking distance of its gateway Caltrain station Location: Former Bay Meadows thoroughbred racetrack; 20 miles southeast of San Francisco, located along Hwy. 101 Development: 50 taxable acres 1,006 homes, 5 class A offices of about 770k sq. ft., Nueva HS, 200k sq. ft. commercial/retail Developer: Stockbridge/ Wilson Meany Use of Proceeds: Finance acquisition and construction of certain public improvements and to pay for certain development fees Development Status: Infrastructure installation about 64% complete Value-to-Lien = 4.7:1 Shea Homes w/ 2 acre with 43 town homes; TRI Pointe w/ 3 acres with 63 town homes; Nueva w/ 2.75 acres for high school (soon to close) 9
Public Finance in a Sea of Challenge: A Look at What Has Come and What Is to Come Innovative Project Delivery and Financing Options Barbara A. Lloyd, Managing Director KPMG Corporate Finance LLC 10
Overview Governments are experiencing fiscal stress This can translate to funding and financing challenges for vital infrastructure projects Governments also are looking for opportunities to improve performance and reduce exposure to risk on complex infrastructure projects Applies both during construction and over the life of the projects Innovative project delivery and financing tools have a role to play Public-private partnerships can address these challenges and opportunities in some cases There are some common benefits and valuable lessons from successful PPP transactions Even unsuccessful transactions are source of valuable insights 11
P3 transactions have common elements P3 transactions specify the rights and responsibilities of the parties in connection with the delivery, financing, operation, and/or maintenance of a project. PUBLIC PARTNERSHIP PRIVATE Government Entity Developer OR Project Company (Concessionaire) Operator Investors Users Lenders 12
Innovative financing and procurement options are diverse there is no one size fits all answer Delivery Method Design-Bid- Build Design-Build Engineer- Procure- Construct Design-Build- Operate- Maintain Design-Build- Finance Design-Build- Finance- Operate- Maintain Full Concession / Development Rights Risk Allocation Public Responsibility Private Responsibility Payment Mechanism Milestone Payment Availability Payment User fees Volume based payments Financial Tools Public Funds PABs Taxable bonds Bank Debt Private Equity These approaches provide a wide range of potential benefits 13
These transactions use diverse funding and financing sources Active market for both public delivery and P3 structures Debt capital available for well-structured projects Significant equity capital on sidelines, and increased competition for quality investments Evolution of public/private risk-sharing strategies Capital Structure Breakdown for Illustrated Transactions Public Grant 27% ($ million in USD) Tax-exempt Bonds 2% PABs 23% KPMG has advised on over $13 billion Capital Beltway I-495 (VA) (June 2008) $589 million PABs $589 million TIFIA $470 million VDOT grant $350 million equity IH 635/LBJ (TX) (June 2010) $615 million PABs $850 million TIFIA $496 million TxDOT grant $665 million equity Midtown Tunnel (VA) (April 2012) US transactions closed since 2008 North Tarrant Express (TX) (December 2009) $400 million PABs $650 million TIFIA $573 million TxDOT grant $427 million equity Long Beach Courthouse (CA) (December 2010) $442 million bank debt $49 million equity Presidio Parkway (CA) (June 2012 ) $664 million PABs $422 million TIFIA $310 million VDOT grant $272 million equity $150 million PABs $150 million TIFIA $45 million equity Equity 18% Bank 4% TIFIA 26% I-95 HOT/HOV Lanes (VA) (July 2012 ) $245 million PABs $300 million TIFIA $330 million equity $64 million VDOT grant Route 460 (VA) (December 2012) $903 million VDOT grant $250 million Port Authority Grant $243 million 460 tax-exempt bonds 14
Presidio Parkway P3 Project used phased procurement Phase I Construction: 2009 2012 Procurement) Phase II Construction: 2012 2015 (Design-Bid-Build (P3 Procurement DBFOM) Presidio Parkway P3 Project includes: Design, construction and financing of Phase II Future operation and maintenance of both Phase I and Phase II of the completed Presidio Parkway facility 15
Presidio Parkway P3 Project illustrates diverse sources Multi-tranche financing structure is tailored to Presidio Parkway s funding sources and P3 Agreement structure Construction Bank Loans Amount (millions) $166.6 Short-Term TIFIA Loan $89.8 Funding Source for Repayment State Federal Aid Local Transportation Funds Local Transportation Funds Long-Term TIFIA Loan $60.2 State Hwy Funds Private Equity $45.6 State Hwy Funds State Federal Aid Comments 3+ Year Bank Loan Repaid w/milestone Pmt 1 3+ Year TIFIA Loan Repaid w/milestone Pmt 2 30-Year TIFIA Loan Repaid with APs Hochtief & Meridiam Repaid with MP & APs Total Financing $362.2 16
Presidio Parkway P3 Project illustrates benefits A PPP solution offered multiple benefits: The high potential for cost and schedule control A shift from the traditional construction price approach to a holistic project present value, life-cycle approach The ability to gain increased leverage over private sector performance by having the private sector responsible for project financing Shift from a build culture to a build/asset management culture 17
Successful P3 projects share common factors Favorable and Transparent Statutory and Political Environment Organized Structure Output Specification Requirements Business Case with Clear Goals and Strong Project Justification Revenue Stream / Funding Source Stakeholder Support Pick Partners Carefully Value for Money must be demonstrated for any expenditure by the public sector, and the private sector must genuinely assume risk. 18
Public Finance in a Sea of Challenge: A Look at What Has Come and What Is to Come Marla Bleavins Los Angeles World Airports Project Manager for Chief Operating Officer at Los Angeles World Airports 19
Bond Financing is Critical to LAX Capital Program LAX is the nation s 3 rd busiest airport and the world s 6 th busiest airport LAWA is executing a multibillion capital program to modernize the airport In the midst of a dynamic market, LAX has issued over $3.5 billion in bonds to support its capital program 20
Facility Enhancements Enable LAX to Accommodate Next Generation Aircraft 21
Capital Program Addresses Critical Infrastructure Needs 22
Bradley West Project is Centerpiece of Capital Program Nov. 2010 Dec. 2012 23
Bradley West Project is Centerpiece of Capital Program 24