The $363 million financing for the second phase of the Presidio Parkway in San Francisco is the first transport project in California to be procured on an availability basis. The project sponsors had to endure a lengthy legal battle, which led to changes to the financing structure and a redrafting of its documentation.

“We had to deal with the consequences of the lawsuit, which caused a delay of a year and half between commercial and financial close”, says Jad Hreibe, investment director at Meridiam. “What that did was to stress many of the clauses in the project documents, and to impact the assumptions that we had made for the financing.”

The sponsors mitigated this delay by restructuring the first amendment to the project agreement, which allowed for design work to be carried out before financial close. The sponsors then decided against using a bond, which required lengthy discussions with the grantors in order to get them comfortable with the new financial model.

The project entails the complete reconstruction of a section of the 2.6km Doyle Drive, the southern approach to the Golden Gate bridge, under a 30-year design, build, finance, maintain and operate concession. The first section was procured using a design-bid-build structure under four separate contracts, and is substantially complete. The newest section includes the demolition of an existing viaduct and the building of a new interchange.

The California Department of Tranportation (Caltrans) and the San Francisco County Transportation (SFCTA) tendered the project in 2009 and pulled in three bids. The three bidders were ACS; GlobalVia, Parsons, FCC and Tutor Perini; and Hochtief and Meridiam. Bidders submitted offers in October that year, although the GlobalVia-led consortium pulled out shortly before bids were due. The grantor named the Hochtief and Meridiam pairing preferred bidder in the same month.

The sponsors reached commercial close on the project in January 2011, but the deal was soon attracted a legal challenge from the Professional Engineers in California Government – PECG. The lawsuit hinged on the basis that Presidio should not qualify as a PPP concession since it was not a tolled highway and would not involve adding additional capacity, although courts rejected this argument in a series of rulings.

An adverse ruling would have cancelled the contract and could have potentially prevented California governments from awarding any other concessions, including at least five PPPs that the Los Angeles Metropolitan Transport Authority has in the works. The delay also had an impact on the sponsors, which forced them to readdress the funding structure that they had in place.

One benefit of the delay was that the sponsors managed to win a larger loan from the US Department of Transportation's TIFIA programme than they expected. The loan from TIFIA meant that the sponsors only faced a small funding gap during the construction period, and they decided to fill that with a bank tranche, because of the advantages that it offered in pricing and flexibility on drawdown. The sponsors went out to potential lenders and received eighteen proposals before settling on a bank club of six, though one unnamed bank dropped out of the process.

The deal closed in June last year as $318 million in debt, split between two TIFIA facilities – a $91 million construction loan and a $60 million 28-year term loan – and a $167 million bridge facility from the five banks – BBVA, BMO, BTMU, Santander and Scotiabank.

The sponsors wanted to maximise the amount of funding they could obtain from the federal lender partly because of the advantages in pricing. The pricing on the TIFIA loan is 0.46% for the construction facility and 2.71% for the long-term facility. The pricing on the bank loan is 185bp, including the credit swap margin.

One drawback of TIFIA funding, however, was the fact that the sponsors had to spend longer getting the federal authorities comfortable with the counterparty risk. Caltrans and the SFCTA will make two milestone payments of $185 million and $91 million upon completion of construction to the concessionaire, which will be used to repay banks and the federal government for the short-term bridge facilities.

The Federal Highway Administration, part of USDOT, which is providing both loans under the TIFIA programme, also wanted assurances that the grantors would be able to meet their availability payment obligations during operations. The department required a two-year debt service account, as opposed to a traditional one-year account, to cover any possible delay in the budget cycle of California.

Construction on the project has already started, after the project met its final conditions precedent, and is expected to take 41 months, so the project should be fully operational by the end of 2015. The sponsors have been funding the first stage of construction through equity, $46 million roughly in total, and will draw on both short-term facilities before drawing on the long-term TIFIA facility. 

Golden Link Concessionaire LLC
STATUS
Closed 14 June 2012
SIZE
$364 million
DESCRIPTION
Construction of a new 2.6km of road, which will replace Doyle Drive, in San Francisco, California
GRANTORS
Caltrans, SFCTA
SPONSORS
Hochtief (50%) and Meridiam (50%)
MLAS
Scotiabank, BBVA, BTMU, BMO, Santander
TIFIA LENDER
USDOT
AGENT BANK
Deutsche
GRANTORS’ FINANCIAL ADVISERS
KPMG, Sperry Capital
GRANTORS’ LEGAL ADVISER
Nossaman
GRANTORS’ TECHNICAL ADVISERS
Arup, Parsons Brinckerhoff
SPONSORS’ FINANCIAL ADVISER
Scotia Capital
SPONSORS’ LEGAL ADVISER
Milbank, Tweed, Hadley & McCloy
SPONSORS’ TECHNICAL ADVISERS
AECOM, Transtec, Warfield Consulting
SPONSORS’ INSURANCE ADVISER
Turner Surety Insurance Brokerage
LENDERS’ LEGAL ADVISER
Orrick, Herrington & Sutcliffe
LENDERS’ TECHNICAL ADVISER
LeighFisher
LENDERS’ INSURANCE ADVISER
Moore McNeill
TIFIA LEGAL ADVISER
Bryant Miller Olive
TIFIA FINANCIAL ADVISER
Montague DeRose and Associates
EPC CONTRACTORS
Flatiron West,
Kiewit Infrastructure West
O+M CONTRACTOR
Transfield Services Infrastructure