The close of financing on the Port of Miami Tunnel concluded one of the most challenging procurement processes undertaken in the US, delivering the second greenfield, availability-based P3 transaction to the market in the region.

Although pipped to the post by the less complicated I-595 highway concession [Projects Database] that closed earlier in the year, Port of Miami Tunnel [Projects Database]  is a stand-out deal - proving that despite the many challenges, P3 can be done effectively stateside.

The successful MAT (Miami Access Tunnel) Concessionaire LLC's financial plan combined private bank and federal Transportation Infrastructure Finance and Innovation Act (TIFIA) loans - pulling together a 10-strong commercial bank club - with their own equity to finance the project's construction.

While it is unlikely that POMT could have happened without the Federal Highway Administration's TIFIA in this market, indeed, it may have also gone some way to softening up the TIFIA office for future availability concessions.

Background

In October 1981 the Dade County MPO Transportation Planning Committee established the Port of Miami Access Task Force.

P3s have been talked about in Florida for 20 years, and by 2005 the P3 process was finally underway with an industry forum and in March 2006 an RFQ was issued for the POMT deal. After decades of planning, Florida's tunnel would finally see the light of day.

By the end of April the department had shortlisted the following three teams and by 16 February 2007 the full bidding consortia were revealed.

They were:

• Miami Access Tunnel - Babcock & Brown Infrastructure Group and Bouygues Travaux Publics and Transfield Services
• Miami Mobility Group - ACS Infrastructure Development (Dragados USA), Odebrecht Infrastructure Investments, Parsons Transportation Group, DMJM & Harris and IRIDIUM Concesiones de Infraestructuras
• FCC Construction - along with Morgan Stanley, Hatch Mott McDonald Florida and Edwards & Kelcey

By the end of April 2007 FDOT had selected the Miami Access Tunnel consortium - under a Notice of Intent - for the DBFOM deal, as best value proposer.

By February 2008 the POMT deal passed a significant hurdle as FDOT formally announced it had awarded the 35-year concession to the Miami Access Tunnel consortium.

In September that year IJ News revealed that the project had been given the greenlight to close financing before the end of this year, despite the collapse of Lehman Brothers. Lehman Brothers was to work on the structuring of the bond but the buck was then passed to Barclays which acquired Lehmans' capital markets arm.

However, by December FDOT released a statement saying its private partners were 'overwhelmed by the effects of the financial market', after the collapse of Babcock & Brown - which was to provide 90 per cent of the equity.

By April 2009 the MAT consortium - which now comprised Bouygues and Meridiam - was reinstated in negotiations to complete the project, and by June the deal had remarkably reached commercial close.

The Project

The new tunnel is expected to improve access to the Port, free-up congested downtown Miami streets and provide thousands of new jobs in Florida.

Construction, which is expected to start in May 2010, includes a tunnel under Government Cut, roadway work on Dodge and Watson Islands and MacArthur Causeway Bridge widening.

The tunnel will comprise twin tubes, 3,900 feet long and 41 feet wide, reaching 120 feet below Miami's cruise ship terminal. It is expected to be open to traffic by 2014 and will link the I-95 and the Port of Miami, reducing traffic through Miami's revitalised Downtown and add jobs to the local economy.

As one of the first projects of its kind, POMT raised a number of complex legal issues. P3 projects are relatively new in Florida, but the wealth of experience on board from key law firms in the P3 market meant that critical tax, environmental, real estate and state law issues were identified and addressed.

The project will improve access to and from the Port of Miami, serving as a dedicated roadway connector linking the Port with the MacArthur Causeway (State Road A1A) and I-395.

Financing

The financial agreement with the concessionaire, MAT, is designed to transfer the responsibility for the DBFOM to the private sector. MAT's financial plan combines private bank and federal TIFIA loans in addition to equity contributions to finance the project's construction.

Under the concession contract, FDOT will pay MAT milestone payments at various stages of project development. In addition, the department will provide availability payments to the concessionaire that start at the completion of construction and will occur annually for 30 years.

The total cost of design and construction of the tunnel is set at US$607 million. The state has agreed to pay for 50 per cent of the capital costs (design, construction) and all of the operations and maintenance, while the remaining 50 per cent of the capital costs will be provided by the local governments.

The debt comprises two tranches of commercial bank loans and a subordinated TIFIA loan.

The US$313 million "milestone tranche" is drawn on a pro-rata basis with the TIFIA loan between the end of 2009 (after the main equity injection) and the end of 2013, and is repaid by a large portion of the final milestone payment upon final acceptance of the works late 2014.

During the construction period, interest is paid throughout and not capitalised.

The US$28 million "MAP tranche" is also used on a pro-rata basis with the TIFIA loan between the end of 2013 and substantial completion in April 2014, and then amortised through September 2015.

During the construction period, interest is paid throughout and not capitalised.

A club of 10 banks participated in the financing of the two senior debt tranches:

• Bayerische Hypo (UniCredit Group)
• BBVA
• BNP Paribas
• Calyon
• Dexia
• Grupo Santander
• ING Capital
• RBS
• Société Générale
• WestLB

Both tranches are structured with the same credit spreads of 300bp over a fixed swapped Libor rate of 3.38 per cent (including a swap margin or 0.25 per cent), giving an all-in rate of 663bp.

The loans have been assigned a Baa3 investment-grade rating by Moody's and the upfront loan establishment fees are 300bps.

A US$341 million subordinated TIFIA loan completes the debt financing and is drawn on a pro-rata basis with the senior debt during the entire construction period through April 2014.

The loan is rated Ba1 by Moody's. The loan fixed rate is 4.30 per cent, plus a 0.01 per cent spread.

During the construction period interest is capitalised and amounts to an US$40 million increase in the loan balance.

Between construction completion and the start of the loan amortisation in 2023, interest is fully paid and not capitalised. The principal amortisation period runs from 2023 to 2043.

To complement the debt finance and meet the concession agreement requirements, MAT concessionaire shareholders will inject an US$80 million equity investment, with an upfront US$72 million injection for Meridiam and a delayed US$8 million contribution for Bouygues, whose equity commitment is guaranteed until the actual cash is injected by a letter of credit issued upon closing up.

The equity IRR is 11.33 per cent, with a US$37 million dividend paid from the final milestone payment and the remaining return paid-out from 2016 through 2045.

Meridiam Infrastructure Finance (Luxembourg) is contributing 90 per cent of equity under Meridiam Infrastructure Miami (Delaware) and Bouygues Travaux Publics is contributing 10 per cent of equity under Dragages Concession Florida.

The county is paying FDOT for half the capital cost, but only FDOT is a party the contract.  The county’s contribution (and the city’s smaller US$50 million one) are separate arrangements between those entities and FDOT. Ironing out those commitments to pay FDOT is also what led to some delays.

Separately, there is a geotech reserve structure for unexpected geotech conditions.  MAT and FDOT both bear some exposure.  FDOT has US$150m of that exposure, which, in turn the county separately agreed with FDOT to split pro rata.

Milestone payments totalling US$100 million are used to reduce the construction period funding requirements upon the occurrence of specific construction events:

• US$20 million - completion and FDOT approval of the design work for the tunnel bore and linings, excluding mechanical, electrical and plumbing design
• US$40 million - tunnel boring machine at work in the first bore
• US$25 million - tunnel boring machine at work in the second bore, but in no event prior to completion of the tunnel and lining of the first bore
• US$15 million - substantial completion of construction work on MacArthur Causeway
• In addition, a US$350 million completion milestone payment is due upon final acceptance of the works - September 2014

Availability payments are used during the operations phase to fund O&M and renewal and replacement costs, to service the debt interest and principal payments and lastly to fund dividend distributions to equity holders.

The availability payments (US$32.479 million per year in 2009 dollars) will start at substantial completion and are escalated annually according to a composite formula in the concession agreement using CPI for 31.6 per cent and at a fixed 3.00 per cent rate for 68.4 per cent.

This is the annual amount FDOT will pay to the concessionaire based on the availability of the road.

This payment will not start until after construction is completed at the end of April 2014. Construction will cost US$607 million and is scheduled to take 55 months.

The scheme reached financial close on 15 October 2009.

Conclusion

Despite the economic downturn and the many other challenges facing P3 projects, the Port of Miami Tunnel project validates the P3 model for US infrastructure projects. It spanned the demise of two sponsors, the administrations of two governors, and suffered from the collapse of Lehman Brothers.

Financial close of the deal brings to an end one of the most tangled PPP procurement processes in the US, but also proves that P3 is a good fit for certain projects and that there is a strong appetite in the US for availability-based transactions.

Further P3s in Florida are expected to come to market, with the next big deal being the First Outer Beltway that is currently going through the approvals process.

FDOT achieved two P3 financial closes this year - proving to the naysayers that P3 can be brought to fruition.

Florida's approach to P3 stands testament to commitment - sometimes lapsed - but eventually resulted in financial close on a challenging deal in a challenging financial market.

The project at a glance