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May 25, 2010

Introduction to Public Private Partnerships

2

Table of Contents

SECTION 1 Introduction to UBS 2

SECTION 2 Addressing the Infrastructure Problem 5

SECTION 3 Overview of Public-Private Partnerships 10

SECTION 4 PFI/PPP in the UK 28

SECTION 5 Implementing PPP in Florida 32

SECTION 6 Case Studies 37

APPENDIX A Pending US PPP 43

APPENDIX B Biographies 45

SECTION 1

Introduction to UBS

4

UBS Infrastructure Advisory Group— Broad-based Global Experience

Advisory

Advisory

2006-2008

Financial advisor to the State of New Jersey with regard to potential PPP initiatives

2007-2009

Financial advisor to the State of Illinois for its proposed long-term lease of the Illinois lottery

2007-2009

Financial advisor to the Commonwealth of Puerto Rico with regard to concession of the parking facility at LMM Airport

2008

Financial advisor to Abertis, Citi Infrastructure Investors and Criteria CaixaCorp on its $12.8bn winning bid for the long-term lease of the Pennsylvania Turnpike

2006

Sole financial advisor to Orient Overseas (International) Limited on its US$2.4 billion divestiture of four North American container terminals to Ontario Teachers' Pension Plan

2006

Exclusive financial advisor to RREEF on its acquisition of a 49.9% stake in Peel Ports valuing Peel Ports at approximately £1.6 billion

2006Joint financial advisor and corporate broker to BAA on the recommended

£15.9 billion cash offer from a consortium led by Ferrovial





2009

Sole financial advisor to LCR in relation to its £5.2 billion debt restructuring

Joint adviser to MTR Corporation

merger with the Kowloon-Canton RailwayCorporation

2007Joint adviser to MTR Corporation

merger with the Kowloon-Canton RailwayCorporation

on its US$8.8 billion proposed

Pending

Joint financial advisor to the Kingdom of Saudi Arabia in relation to the Saudi Landbridge Rail Link BOT project

Debt

Equity

DebtDebt

2004Arranger, joint lead manager and joint

book runner of the €5 billion issuance for the financing of the new Italian high-speed rail network. The bond comprised

three tranches: a 10y fixed rate, a 20y fixed rate and a 15y inflation-linked
















2004–2006Global coordinator and financial advisor

of Network Rail’s.£20 billion multicurrency debt

issuanceprogramme



issuanceprogramme



issuanceprogramme

2003Underwriter and joint lead manager of

a £1.03 monolinewrapped bond issue for Metronet

its bid for the concession to provide

of the London Underground


a £1.03 monolinewrapped bond issue for Metronetin relation to

of the BCV and SSL networks of the London Underground

infrastructure services in respect

















2005Sole bookrunner on SNCF’s

CHF600 million bond issue, maturing in 2012. UBS also arranged the CHR to EUR, fixed to floating swap

2005Sole bookrunner on SNCF’s

2012. UBS also arranged the CHR to EUR, fixed to floating swap

2009Joint bookrunner on a €1 billion 10-year fixed-rate bond forDeutsche Bahn Finance B.V.(guarantor: Deutsche Bahn AG)

The Ministry of Railway(MOR) of the People’sRepublic of China

2008 Joint lead manager for the Ministry of Railway of the People’s Republic of China’s RMB 20 billion (US$2.9 billion)Enterprise Bond Offering

2005Joint global coordinator and joint bookrunner of the US$4.3 billion secondaryoffering

2005Joint global coordinator and joint bookrunner of the US$4.3 billion secondaryoffering

Joint bookrunner for Vinci’s €2.5 billion 2 for 11 rights offering

2006Joint bookrunner for Vinci’s €2.5 billion 2 for 11 rights offering

2006Joint bookrunner for Vinci’s €2.5 billion 2 for 11 rights offering

20062005

Financial advisor to Sanef(and joint bookrunner) in relation to its

€900 million IPO

2005Financial advisor to Sanef(and joint bookrunner) in relation to its

€900 million IPO


€900 million IPO


€900 million IPO

Sole financial advisor to Beijing Capital Airport on the acquisition of Beijing Airport Terminal 3 Assets for RMB26.9 billion (US$3.7 billion) including A share issue on Shanghai Stock Exchange raising RMB4 billion

2008Joint lead manager and joint underwriter for an entitlement offer and multiple placements for Asciano to raise A$2.35 billion

2009Joint bookrunner on a R$1,099 million (US$630mm) follow-on equity offering

2009

5

UBS: A Leading Infrastructure / PPP Advisory Group Globally

Infrastructure M&A – Worldwide1 Bookrunner of Infrastructure Funds2

Infrastructure Equity Issuance – Worldwide1 Infrastructure Debt Issuance – Worldwide1

Adviser

Amount

(US$mm) No. (%)

1 Goldman Sachs 131,415 41 28.5

2 UBS 99,947 44 21.7

3 Citi 94,972 45 20.6

4 Lazard 74,586 38 16.2

5 Rothschild 72,011 46 15.6

Underwriter

Amount

(US$mm) No. (%)

1 UBS 10,999 33 12.0

2 Nomura 9,147 10 10.0

3 Morgan Stanley 6,537 25 7.2

4 Citi 6,117 21 6.7

5 HSBC 4,606 11 5.0

6 Bank of America Merrill Lynch 4,065 15 4.5

Underwriter

Amount

(US$mm) No. (%)

1 Mizuho 61,475 334 12.4

2 Nomura 27,389 172 5.5

3 Group 21,907 173 4.4

4 Daiwa Capital Markets 21,681 174 4.4

5 Credit Suisse 19,866 107 4.0

6 UBS 19,835 109 4.0

Bookrunner

Deal value

(US$m) No. (%)

1 UBS 4,653 35 21.0

2 Deutsche Bank 1,548 14 7.0

3 Bank of America—Merrill Lynch 1,411 8 6.4

4 ABN AMRO 1,393 12 6.3

5 Citi 1,205 11 5.4

UBS advised 4 out of the 6 biggest transportation infrastructure M&A transactions of all times

2006Joint financial adviser and corporate broker to BAA on the recommended £15.9 billion cash offer from a consortium led by Ferrovial

2005Financial adviser to Vinci on its €19 billion acquisition of Autoroutes du Sud de la France (ASF)

2008Financial adviser and manager on North American infrastructure fund raising with total commitments of US$1.913 billion

2009Joint lead manager and joint underwriter for an entitlement offer and placement for Hastings Diversified Utilities Fund to raise A$250 million

2009Joint lead manager and joint underwriter for an entitlement offer and multiple placements for Asciano Group to raise A$2.35 billion

2009Joint bookrunner on a R$1,099 million (US$630 million) follow-on equity offering

2009Joint Head Manager for JPY40 billion two tranche (10 & 20 year) straight bond issuance for JR central

2009Joint bookrunner on a €1 billion 10-year fixed-rate bond for Deutsche Bahn Finance B.V. (guarantor: Deutsche Bahn AG)

Source: DealogicNoteS:1 January 1999–March 20102 Includes all deals since 1996, excluding self managed funds

SECTION 2

Addressing the Infrastructure Problem

7

0

200

400

600

800

1,000

Roads andBridges

Transit Drinking Waterand Wastewater

Schools Aviation Public Parks Hazardous andSolid Waste

Energy Rail InlandWaterways

Levees Dams

$ Bi

llion

5-Year Need Estimated Actual Spending

The US Infrastructure Problem

The American Society of Civil Engineers (ASCE) assigned a “D” rating for the current state of US infrastructure – ASCE estimates that $2.2 trillion needs to be

invested over 5 years to bring the condition of the nation’s infrastructure to “good”

– Current size of the entire municipal bond market is approximately $2.8 trillion

The federal budget deficit tripled to a record $1.4 trillion for FY 2009– in FY 2010 it is projected 48 states will face budget

short falls– state and local governments account for about 75%

of public infrastructure spending– new methods of financing infrastructure projects

without increasing debt or raising taxes are essential

The poor state of US national infrastructure continues to merit

significant concern

Unprecedented state and federal budget constraints are limiting investment into infrastructure

Estimated US Infrastructure 5-yr Capital Requirement 2009–20141

Note:1 American Society of Civil Engineers, 2009

8

PPPs Address the Infrastructure Problem

Private capital in infrastructure has the potential to provide a number of benefits

Financial innovation from the private sector can be utilized to address critical infrastructure issues

Municipal bond issuance, the traditional mainstay of infrastructure funding, cannot on its own fund the investment gap

2 Key factors are limiting municipal issuers’ flexibility to fund infrastructure projects

I. Weakening credit profile of muni-bond issuers

II. Challenging and uncertain market conditions

PPPs can be a key driver in relieving capital budget constraints and generating operational and economic growth

Private investment in infrastructure will free government dollars and create much needed jobs

Private investment has been proven to generate positive economic growth and can act as a stimulus by providing investment-grade projects in which to invest

As of 2009, the total equity private capital committed to infrastructure is in excess of $150 billion – this translates to a leveraged purchasing power of more than $300 billion

1

2

3

9

Challenges Facing the Traditional Municipal Financing Market

Traditional bond issuance alone will be insufficient to fund future infrastructure investment needs

Municipal bond issuers are facing weaker credit profiles

Budget deficits are ballooning, with 46 states currently facing budget shortfalls1

– Most states have addressed or still face gaps in their budgets totaling $196 billion for fiscal year 2010

– Although improved from Q1 2009, $35bn (approx 34% of entire municipal issuance) of municipal issues have been downgraded in Q1 2010

States face a limited ability to raise taxes in a weak economy with rising unemployment

There have been recent meaningful changes in traditional municipal issuance A flight to quality resulting from a lower risk appetite led to weakened

investor demand– The disappearance of monoline insurance to enhance the credit quality

of new issues fueled declining investor perception

There has been Federal intervention to support municipal access to bond market funding through implementation of such programs as Build America Bonds (BABs)– Of the $104bn municipal issuance in Q1 2010, 26% has been BABs

issues– President Obama’s fiscal 2011 budget proposes to permanently extend

the BABs program at a reduced subsidy rate of 28% compared to the current 35% rate

1 Source: Wall Street Journal, May 2010Source: Moodys

Q1 Municipal Issuer Upgrades and

Downgrades 2007-10

28 27

621

3 8

7535

0

10

20

30

40

50

60

70

80

90

07Q1 08Q1 09Q1 10Q1

$ (b

n)

Upgrade Volume Downgrade Volume

10

Denver RTD (proposed)

Chicago Downtown Parking ($563mm, 2006)

Illinois Lottery (proposed)

Midway Airport ($2.5bn, 2008, abandoned)

O’Hare Cargo Project (proposed)

Roads Airports Parking Multiple OtherPorts

Capital Beltway HOT Lanes ($1.5bn, 2008)

TTC-69 (proposed)

Port of Oakland ($700mm, 2009)

Chicago Skyway ($1.8bn, 2004)

SH-130 ($1.4bn, 2008)

Pennsylvania Turnpike ($12.8bn, on hold)

Harrisburg Parking ($215mm, 2008)

Indiana Toll Road ($3.8bn, 2005)

PPP is Increasingly Viewed as a Viable Alternative

Port of Portland

New Jersey PPP Program (proposed)

Philadelphia Ports (proposed)

Chicago Metered Parking ($1.2bn 2008)

Pocahontas Parkway ($611mmm, 2006)

Northwest Parkway ($603mm, 2007)

Transit / RailEnacted State PPP Legislation

LBJ Expressway ($2.7bn, 2009)

North Tarrant Expressway ($2bn, 2009)

Alligator Alley (proposed)

I-595 ($1.8bn, 2008)

Miami Tunnel ($889mm, 2007)

First Coast Outer Beltway (proposed)

Jacksonville Parkway (proposed)

Bold indicates projects completed in 2009

Port of Baltimore ($750mm, 2009)

Port of Virginia (unsolicited offer)

South Bay Expressway ($635mm, 2007)

Doyle Drive (proposed)

Grand Texas Parkway (proposed)

Pittsburgh Parking System (proposed)

Georgia PPP Program (proposed)

New Orleans Airport (proposed)

LA Parking (proposed)

Indianapolis Airport Parking (proposed)

Goethals Bridge (proposed)

SECTION 3

Overview of Public-Private Partnerships

12

What is a Public-Private Partnership?

Description of a Public-Private Partnership (PPP)

An arrangement in which essential, public infrastructure assets are designed, built, financed and/or operated through a partnership of a public sector entity and one or more private sector companies

The private sector provides a public service and assumes substantial financial, technical, construction and operational risk in the project

Typical PPP structure

A typical PPP is structured as a long-term agreement (Long-Term Concession), in which the public sector assigns to a private sector company the right to design, build, finance and/or operate the infrastructure asset for a defined period of time and per a financial arrangement

Typical PPP Structure – Contractual Diagram

Notes:1 May be part of the consortium awarded the concession2 Organized by the sponsors3 If/as necessary

Construction Company(ies)1

Operating Company(ies)1

Sub Contractor3

Sub Contractor3

Sub Contractor3

Sub Contractor3

Public Sector Authority

Bank/Bond Financing2

Concession Company/SPV

Equity Sponsors

Availability Payment3

ConcessionContract

ConstructionContract

Operating and Maintenance Contract

Project Revenue

Upfront Payment3

13

Why Pursue PPPs?To satisfy demand for new infrastructure and maintain existing facilities, many state and local governments are evaluating PPPs

Advantages of PPPs Bring new sources of capital for investment in the public sector

infrastructure

Bring operating / maintenance cost benefits from private sector operation

Transfer risks from the public sector to the private sector

Increase accountability for the delivery and operation of an asset

New Source of Capital

Cost Benefits

Risk Transfer

Accountability

14

What Types of Assets may be Suitable for PPPs?

Roads and Bridges Airports Ports Transit / Rail Parking

Transportation Infrastructure

Healthcare

Education

Correctional Facilities

Judicial Court Buildings

Social Infrastructure

Power Water

Utilities

Lotteries

Others

Data Centers Communication Towers

Communication

15

Alternative PPP Structures

Service / Management Contracts Long-Term Concession Not-For-Dividend Company

Structure Description State enters contract with private sector to manage the entire business

State assigns (for a fee) the right to operate for a defined period of time

to a private sector concessionaire

State assigns (for a fee) the right to operate to a stakeholder-controlled entity for the benefit of the State

Main Objective of PPP Improve efficiency Mobilize private sector capital and efficiency

Mobilize private sector capital and efficiency

Source of Payment to State Revenue generated by asset

Upfront / ongoing payments paid by private

sector

Upfront and potential ongoing payments based on revenue

generated by asset

Duration (Years) 1–5 20-99 20-99 or Indefinite

Enforcing Public Policy Contract / Public sector control Contract / State Regulatory System Contract / State Regulatory System

Source of Revenue to Private Sector

Work done / Cost-plus and productivity bonus

Revenue generated by asset / Availability payments /

Shadow Tolls NA

Ownership Public sector Public sector Public sector

Source of Financing NA Private sector taxable debt and

equity Private sector taxable and potentially

tax-exempt debt

Management Private sector Private sector Private sector

Commercial Risk Public sector Private sector Public sector

16

Myths vs Reality: Overcoming Common Misconceptions About P3s

Cost of Capital for P3 is Substantially Higher than for Traditional Municipal Financing

MYTH

Concession Length is Unreasonably Long

Public will Lose Control of Asset

Focusing on cost of capital alone fails to consider the many other risks and costs

P3s with availability payments drive down the private sector investors’ required returns by providing a more certain revenue stream

Value-for-Money analysis based on whole-life project costs is a better measure

Length of a concession can be structured to fit the needs of the asset and government

Government will set the operations and maintenance standards and continue to monitor the asset

Regulations governing toll increases are set out in the concession agreement

There are several common misconceptions about P3s that can be addressed through a well-structured concession

MYTH

MYTH

REALITY

REALITY

REALITY

17

Myths vs Reality: Overcoming Common Misconceptions About P3s

Large Upfront Proceeds from P3 will be Squandered

Excessive Profits will be Enjoyed by Private Sector Operator

Jobs will be Lost

Concessions can be structured to include revenue- or profit-sharing mechanisms and caps on windfall profits to the private sector

Proceeds can be reinvested in new capital projects

The use of shorter concessions, revenue sharing mechanisms and greenfield projects substantially reduces the risk of the misappropriation of upfront proceeds

Concessions can be structured to ensure the retention of jobs for current employees

Transactions can also include relevant procurement and employment standards such as Buy America and living wage provisions

There are several common misconceptions about P3s that can be addressed through a well-structured concession

MYTH

MYTH

MYTH

REALITY

REALITY

REALITY

18

Common Concession Agreement Provisions

The public sector authority will enter into a concession contract with a concession company under which the company is typically granted a long-term concession to design, build, finance, operate, maintain and transfer an asset

Terms of the concession are negotiated between the public and private sector and vary depending on the objectives of the government and the assets/services to be provided

For services which are not self-sustainable, the concession company receives financial support from the government (i.e. “an availability payment”); the terms of such support are negotiated in the agreement– the payment is often conditioned on the performance of the concession

company

In Greenfield projects, shareholders of the concession company are usually composed of construction, facility management, and supplier companies

The concession agreement outlines unique risks of the project and documents ways in which those risks are to be allocated amongst the various project participants

– The concession company is responsible for the construction of the asset and may subcontract some construction work

– The concession company is responsible for operating and maintaining the asset and may outsource such activities through fixed-price contracts to 3rd party operators– Tariff regimes as well as performance metrics / requirements are

outlined in the agreement– The concession company is responsible for arranging the financing of the

project– sources of funding will usually include equity sponsors and bank/bond

financing– external financing may be lent via a financing vehicle

Construction

Operation

Financing

19

Common Concession Agreement Provisions

Performance Metric/ Penalty

Clear, achievable performance metric including life and condition of asset on expiry

Conditionality of subsidy to be within the concessionaire’s control

Asset Hand-back The Hand-back arrangements will be designed to preserve the condition of the asset(s)

Condition of the asset on expiry needs to be clear and achievable

Tariff Regime Regulated toll-setting mechanism that enables the concessionaire to set tariffs within a clear framework

A private sector operator will prefer a degree of flexibility to manage tariffs

Termination Events Termination events, if applicable, should include appropriate cure periods and materiality thresholds

Compensation on Termination

Market standard compensation on termination

Force Majeure Force majeure events are those that are likely to have a catastrophic effect on either party’s ability to fulfill its obligations

The purpose of the force majeure provisions is to give the party affected relief from liability and to give the parties an opportunity to terminate the concession

Non-Competition The concessionaire may require a non-competition undertaking to ensure that its forecast revenues are not impacted by competing assets or government policy changes

Policy Changes and Certain Changes in Law

The concessionaire may be protected from policy changes or certain changes of law by being in a “no better or no worse” position post the change

Lender Step-in Rights

If project cash flows are unable to meet debt obligations, the project lenders may step in and take control of the asset from the concession company

20

Assessing P3 Projects: Value-for-Money

Value for Money analysis is used by government agencies to determine if a PPP project provides an optimum combination of whole-of-life costs and quality compared to the traditional public sector procurement

Background

Value for Money (VfM) analysis is a tool used by governments as a basis for the implementation of PPPs– It provides a comprehensive set of procedures to evaluate a range of project

delivery options and identifies the best outcome for the government and community

– It represents the optimum combination of whole-of-life costs and quality (or fitness for purpose) of the project

VfM Process Overview

While agencies differ on their specific approaches to carrying out VfM analysis, a number of fundamental principles guide the procedure

Program Level Assessment– Ensures that a PPP is only considered for use in those projects where it is

appropriate and is likely to represent good VfM– This assessment will determine whether the private sector is better equipped

to handle the risks associated with the project

Project Level Assessment– Requires an upfront procurement appraisal based on a public sector

comparator– Determines whether the PPP provides a better ratio of value to net life cycle

cost than the best feasible public sector strategy– This assessment determines whether the amount of capital and resources is

sufficient to attract private sector interest

Procurement Level Assessment– Ongoing assessment during the procurement phase of a project to ensure

that the desired project can be delivered in view of, for example, the competitive interest and market capacity

Source: UK Treasury

21

Financial Justification for P3s – Value for Money

Source: Infra-Americas, ARUP, California PIAC

Presidio Parkway Value for Money Illustration Presidio Parkway is a 1.9-mile road that serves as an access route to the Golden Gate Bridge

along Route 101 and was built 73 years ago

January 21, 2010, the California Public Infrastructure Advisory Committee (PIAC) recommended a P3 procurement for a portion of the Presidio Parkway replacement project in San Francisco

Project is valued at over $1.0 billion; funding will come from both private and public sources including:

The PIAC performed a value-for-money analysis and determined that a P3 procurement would result in a 15% cost reduction for the project

Value-for-Money Findings

631 (55)

(22) 1623 16 (77)

532

300

350

400

450

500

550

600

650

700

Traditional

Procurement

DBFOM

Efficiencies

Design

Contingencies

Private

Transaction

Costs

Construction Risk

Priced by

Contractor

Public Costs Public Retained

Risk Reserve

DBFOM

Const

ruct

ion C

ost

($

mm

)

22

Why are Investors Attracted to Infrastructure/PPP Assets?

Essential, stable assets

Assets provide “essential services” and therefore, very stable, predictable returns

Low demand elasticity

Low correlation to stocks and bonds

0.25 - 0.30 correlation with equities

0.00 - 0.20 correlation with bonds

Inflation hedge

Price/revenue formulas allow for inflation adjustments

Limited competition often enable business to pass on inflation to user

High cash yields

Long physical asset life

High margin businesses

23

Who Invests Equity in Infrastructure Assets through P3s?

CompanyMain Infrastructure Sectors

Roads, Airports, Car Parks, Telecom Infrastructure

Roads, Social Infrastructure, Water

Roads, Rail, Social Infrastructure

Roads

Roads, Social Infrastructure



Roads

Airports, Roads, Car Parks

CompanyMain Infrastructure Sectors

Roads, Ports, Social Infrastructure, Rail


Roads, Power

Roads



Roads

Roads, Car Parks, Airports, Social Infrastructure

HQ

Spain

Spain

Spain

Italy

UK

Germany

France

Portugal

Spain


HQ

Spain

Germany

Spain

Spain

Sweden

Canada

Australia

France

Spain

Equity Value (US$m)13,294

7,080

14,016

13,217

2,879

2,909

16,341

4,819

6,477

Equity Value (US$m)Private

4,939

Private

2,213

7,088

7,036

6,085

27,437

2,485

Note: Equity values from FactSet as of March 1, 2010

Airports, Roads, PowerIndia 4,359

Transportation, Oil & Gas

US 7,653 Transport, Energy, Water, Aviation, Ports

US Private

Greenfield or Brownfield P3

Diverse Infrastructure Sectors

Global Operational and Construction Expertise

Long-term Investor

US Power, Transportation, Water

3,323

Selected Infrastructure Construction / Concession Companies

Roads, Rail, Ports, Oil & Gas, Power

US Private

24

Who Invests Equity in Infrastructure Assets through P3s?

Infrastructure funds

Pension funds

Generally Prefer Brownfield Assets

Diverse Infrastructure Sectors

Partner with Construction/Concession Companies

Long-term Investor

Often Target Low- to Mid-teen Equity Returns

Selected Infrastructure and Pension Funds

25

Several potential debt sources should be considered for greenfield P3s

Traditional funding methods can be combined with alternative funding sources – administrators should be open to new methods of financing

Private Activity Bonds (PABs)

Bond market is becoming more favorable for project financing– North Tarrant Express project awarded to Cintra/Meridiam for $2bn included the first

major P3 bond issue in several months, with $400mm of tax-exempt PABs with a BBB-/Baa2 rating (Dec 2009)

– The IH-635 (Lyndon B Johnson Freeway) Managed Lanes P3 project in Texas will be the largest P3 financing in US history at nearly US$3 billion. PABs are expected to make up to US$500-800 million of the private financing, potentially alongside commercial bank debt in the mix

A number of deals have sold with A or triple-B ratings in the past several months, and project financings in the triple-B category in the $500mm range are becoming possible

Transportation Infrastructure Finance and Innovation Act (TIFIA) TIFIA loans have been a portion of all the major greenfield road projects

undertaken since 2008– I-595: $678mm TIFIA loan– Port of Miami Tunnel: $587mm TIFIA loan– North Tarrant Express: $650mm TIFIA loan

TIFIA loans have been issued for several highway concessions totaling over $5.2bn

Recent indications from the TIFIA directors imply that going forward the focus of the program will be towards projects that improve livability and sustainability

The bank loan market is available for properly structured transactions, though all major greenfield road transactions financed in the bank market since 2008 have been availability-payment based– I-595 transaction priced at L+300bps with step ups to L+400 using a club of 12

banks– Port of Miami Tunnel transaction priced at L+325 using a club of 10 banks

Bank Loan Market

Infrastructure Debt Financing Considerations

Source: USDOT FHWA website, The Bond Buyer, Dec 2009

26

Infrastructure Debt Financing Considerations

Lenders will require robust project economics and security package to fund any infrastructure project

Lender’s Requirements for Financing Infrastructure Projects

Lenders’ requirements will depend on the credit quality of the project cashflows– Lenders will include ratio tests in loan documentation to either:

– restrict distributions in period of actual or forecast underperformance– trigger a default

– In evaluating project credit, funders will require base case ratios comfortably to exceed specified levels and to maintain a margin above default levels under a number of extreme stress scenarios

Lenders require a security package which may include some of the following:– 1st ranking pledge over all shares in the concession company– 1st ranking pledge over project accounts / reserves held by the concession company– assignments of all insurance and re-insurance policies and proceeds

Lenders may also seek certain project reserve accounts:– maintenance reserve account, usually funded on a look forward basis – debt service reserve account, usually covers next six months’ debt service

Lenders may request indirect credit support:– parent company guarantee from contractor’s parent– liquidated damages for delayed construction– 3rd party performance bond during construction

27

§4(2) Private Placement

The §4(2) market offers a more discreet funding source on a negotiated basis with selected, sophisticated institutional investors (insurance, pension funds, etc.)

Precedent exists for structured parking and infrastructure transactions

The market offers a high degree of flexibility to tailor terms of a transactions

The §4(2) market can serve as an attractive source of investment-grade debt capital when public funding alternatives are not available

Funding Alternatives – §4(2) Private Placement

The §4(2) private placement market can offer unique structuring advantages

The §4(2) market has been successfully accessed for parking and infrastructure projects in the past Brandywine Equity Trust – 30th Street Post Office Philadelphia, PA

Ambassador Bridge – Detroit, MI

Examples:

28

Key to Successful Implementation of a PPP ProgramPPPs require the following key ingredients to ensure they garner the political and public support needed to be successful

Strong Senior Political Sponsorship Benefits of PPP must be persuasively

communicated to various stakeholders

Uncertainty surrounding political support for PPP transaction can be costly

1 Communications Strategy Essential to maintain a transparent,

open process

Educate the public and key stakeholders as to the risks, rewards and benefits to the State of a PPP transaction

4

Understand Government’s Economic and Policy Objectives for a PPP Key to determining correct choices in

trade-offs among value, speed and risk transfer

2

Protection of Public Interests Appropriate oversight to ensure safety,

environmental and social standards

Input from stakeholders

3

Asset has to be Suitable for PPP Risk / Return

Size

Ability to finance PPP transaction

5

Certainty, Clarity of Process, Terms of the Deal and Timetable Well organized and structured process will

give confidence to private sector PPP investors and ensure strongest execution

6

SECTION 4

PFI/PPP in the UK

30

The UK experience shows that PPP delivers price certainty for the public sector and timely delivery of good quality assets

Since the introduction of the Private Finance Initiative (PFI) in 1992, the UK has used PPP to procure projects involving the construction of assets needed to deliver public services

PFI contracts have been used across a wide range of sectors: transport, hospitals, schools, defense, leisure, culture, housing and waste

In 2003, a study by the UK National Audit Office found that PFI have consistently demonstrated good value for money

Following its success in the UK, the PFI model and guidance has been used as a reference globally

Construction projects where cost to the public sector exceeds the price agreed at contract

Construction projects delivered late to the public sector

73%

22%

0%

20%

40%

60%

80%

Traditionalprocurement

PFI projects

70%

24%

0%

20%

40%

60%

80%

Traditionalprocurement

PFI projects

Source: National Audit Office (“PFI: Construction Performance”, February 2003)

Notes:1 In only 8% of PFI projects surveyed was the delay more

than two months

1

PFI/PPP in the UK

31

Up to the end of 2008, the UK had signed a total of 935 PFI / PPP projects, with a capital value of £66bn– over 500 of these projects are now in operation– four sectors - transport, health, defense and education – have contributed three quarters of total projects

by value

The UK closed 59 infrastructure deals for US$13.1 billion in 2009; around 71 projects are currently seeking funding

At present, 43 projects are past the shortlist stage and 57 can be expected to name a preferred bidder in 2010 or 2011

The current UK government has laid out ambitious renewable energy plans that will see billions of pounds invested in offshore wind farms– Other sectors are also targeted such as healthcare, education, telecoms and waste management.

Overall, PFI / PPP has accounted for about 10-15% of infrastructure investment since 1996

Source: International Financial Services, PFI in the UK & PPP in Europe, Partnerships UK, IJOnline

The principal vehicle for delivering Public-Private Partnerships (PPP) in the UK is the Private Finance Initiative (PFI), which has been widely developed in the UK over the past decade

PFI/PPP in the UK

Source: “2007 Pre-Budget Report and Comprehensive Spending Review”, HMTNote:1 Signed PFI deals, according to HMT’s database of infrastructure projects. Excludes London PPP underground projects

0

1

2

3

4

5

6

7

8

1992199319941995199619971998199920002001200220032004200520062007

Cap

ital v

alue

(£bn

)

0

10

20

30

40

50

60

70

80

No. of deals

Capital value No. of deals¹

Number and value of UK PPP / PFI projects

32

Lessons learned from UK PPP/PFI experience

Government needs to take a leading role to attract investors and allow PPP/PFIs to develop effectively

Favorable PPP/PFI project characteristics

Source: Confederation of British Industry (“CBI”) Policy Brief

Lessons learned from PFI/PPP in the UK Value for money is maximized by

allocating risks to whoever is best able to handle it

Risk and control must go together; whoever is allocated risk must have freedom to choose how to handle it

Risk allocation must reflect what the market can bear. There is no point in aiming for tomorrow’s risk allocation in today’s market

Sharing rewards and risks provides a common focus on success, gives value for money and can help get more deals signed faster

Construction and operational risks, rightly allocated to the private sector under PPP/PFI concessions, are a sizeable slice of a project’s total risks

Taking account of and pricing all genuine risks at the outset is essential to allow flexibility through the life of the contract

Output/service-delivery driven

Substantial operating content within the project

Significant scope for additional/alternative uses of the asset

Scope for innovation in design

Long contract term available

Committed public sector management

Political sensitivities manageable

Risks primarily commercial in nature

Substantial deals (though mega-projects have their own difficulties)

Complete or stand-alone operations to allow maximum synergies

SECTION 5

Implementing PPP in Florida

34

Implementation of PPPs in Florida Florida has had statutory authority to enter into PPPs at the state and local level since 2002. Under Florida’s Home Rule1, cities and counties have jurisdiction over implementing their own PPP projects

Alligator Alley

Alligator Alley was constructed as a two-lane, controlled access, 78-mile toll facility

The Florida Department of Transportation (“FDOT”) sought a private sector party that would lease, maintain, operate, and collect tolls for the project in early 2009. However FDOT was unable to secure a private sector partner largely due to the global recession

FDOT may re-tender the project as a PPP, and an RFQ is expected to be issued in early 2010

Florida High Speed Rail

The construction of Florida's High Speed Rail will start in the Tampa-Orlando-Miami corridor, with eventual state-wide service

Part of the project may be procured via the PPP process

An RFQ for the process is expected to be issued in early 2010

Port of Miami Tunnel

I-595

The I-595 PPP project consists of the reconstruction and widening of I-595 mainline and adjacent roads

The private sector partner will finance, design and build additional lanes to the I-595 corridor by 2014, and operate and maintain the facility for an additional 30 years

FDOT will set and retain tolls for the facility and in exchange shall provide the private operator with a milestone payment upon construction completion and an annual fixed payments for its services throughout the operation period (“Availability Payment”)

The Port of Miami Tunnel PPP project consists of developing the tunnel itself as well as road improvements between the Seaport, I-395 and I-95

The private sector partner will finance, design and build the Port of Miami Tunnel project by 2014, and operate and maintain the facility for an additional 30 years

FDOT will set and retain tolls for the facility and in exchange shall provide the private operator with a milestone payment upon construction completion and an Availability Payment for its services throughout the operation period

1 Florida Constitution Article VIII, Section 2(b)

35

Considerations Regarding PPP Candidates in Florida

Florida has viable PPP candidates that could deliver meaningful value to the State and its constituents

Roads

Toll-road assets attract considerable investor interest

PPP projects have been undertaken by Florida Dept. of Transportation (FDOT) recently– $1.8bn I-595 Corridor Improvement Project – $889mm Port of Miami Tunnel Project – on-going long-term concession lease process for the Alligator Alley

Forthcoming PPP projects announced include the following:– upcoming PPP projects being contemplated by the Miami-Dade county– upcoming PPP projects being contemplated by the FDOT– Jacksonville Outer Beltway concession lease

PPP Feasibilit

y

Asset

Ports

Florida is an important maritime destination in the US– approximately 1,190 miles of coastline, representing ~10% of total US

coastline

Florida needs to invest around $3.5bn in ports assets through 2012– State has budgeted for only $2.2bn to be spent on these assets for the

period

Two major port authorities have already announced PPP plans for future expansion strategies– In 2008, Jacksonville Port Authority (JAXPORT) – Port Manatee – Other assets that might be viable PPP projects include Jacksonville Port,

future expansions at Port of Miami, Port of Tampa, and Port Everglades

36

Airports

Airport PPPs have started to gain momentum in the US

In September 1997, Congress established the Airport Privatization Pilot Program (Program)– Program allows for four regional airports and one major hub airport to be

privatized – all airport PPP procurements require consent of 65% of the carriers at the

airport

Investment opportunities outside of the current Program could also be potentially viable– airport assets at Miami, Fort Lauderdale, Tampa, Jacksonville and Orlando

would generate tremendous interest among potential investors– assets include long-term leases for cargo facilities, parking, car rentals,

and other non-aviation related businesses

Orlando Sanford International already has a long-term concession in place with a private operator - Abertis - for managing some terminals and car-park facilities

PPP Feasibilit

y

Asset


Water Management

?

Population growth is straining Florida’s vital water resources

State’s water infrastructure investment needs are estimated to be $15bn by 20221

Florida’s water systems industry is highly fragmented1

Public-sector water assets could qualify for potential PPP programs – private sector partnership can be secured in areas such as water

treatment, water distribution, water conservation

In addition, the State can also consider private sector partnership in the following fields:– exploring alternative sources of clean water– waste-water recycling and treatment

Notes:1. Source: American Society of Civil Engineers 2008 report card on infrastructure in

Florida2. Serving 5,000 people or more

37

Parking

Many municipalities across the US are currently exploring PPPs for their parking assets

Florida’s cities already have experience with PPPs– the Miami Parking Authority is working with private companies to

meet projected parking needs throughout the City of Miami

New parking technology has made equipment upgrades more desirable as it helps to relieve congestion, provides aesthetic improvements and offers users more efficient parking options– by mobilizing private capital, Florida’s cities can bring implement new

technology faster and more effectively– new parking options will need to be made available to accommodate

the growing population

PPP Feasibilit

y

Asset


Other Assets

Other State-owned assets that are emerging as viable targets for PPPs include:– urban infrastructure

– waste management and recycling facilities– social infrastructure assets

– hospitals and healthcare facilities– educational institutes and student accommodations (e.g. Florida

A&M University)– military housing– prisons and courthouses

?

SECTION 6

Case Studies

39

Port of Miami TunnelTransaction Overview

The PPP Project for the development of Port of Miami Tunnel was awarded to the Miami Access Tunnel (“MAT”) consortium in March 2007

The $903mm project is being financed through term loans, credit facilities and TIFIA loans with a debt to equity ratio of 81:19

The concession will last for 35 years

Asset Overview

35-year DBFOM project includes the development of the Port of Miami Tunnel as well as road improvements between the Seaport, I-395 and I-95 in Miami

The project will widen the MacArthur Causeway Bridge and construct a tunnel to provide a direct highway connection to the Port of Miami on Dodge Island from Watson Island

The payment structure comprises of:– Milestone payments during and at the end of

construction – Availability payments that start at completion of

construction and escalate annually for 30 years

The project is expected to commence operations in 2014

Currently, no tolling is anticipated for the use of the tunnels

About the Consortium

The Miami Access Tunnel consortium consists of Meridiam Infrastructure and Bouygues – Meridiam Infrastructure is financing 90% of the

equity contribution while the balance is provided by Bouygues

– Bouygues’ construction arm has been subcontracted by the consortium to construct the tunnel for $659mm

– Transfield has been subcontracted to provide operation and maintenance (“O&M”) services to the Port of Miami Tunnel project for $260mm

Project Map

Source: P3Americas, Factiva, Infrastructure Journal

40

Florida I-595

Florida I-595 is the first availability payment-based PPP project in the US

In October 2007, the Florida Department of Transport (“FDOT”) released a Request for Qualifications (“RFQ”) for the I-595 Corridor Roadway Improvements DBFOM project

By December 2007, FDOT short-listed four consortia:– Babcock and Brown-led group– ACS Dragados-Macquarie

Partnership– OHL and Goldman Sachs-led group– Skanska and Fluor-led group

In February 2008, Skanska and Fluor-led group withdrew due to uncertainties about the risk profile of the proposed concession agreement

In June 2008, FDOT allegedly reduced milestone payments for the project by a few hundred million dollars– however, interest from remaining

bidders continued to remain strong

FDOT received final proposals in September 2008 from two of the three consortia– OHL and Goldman Sachs-led group

declined to bid on concerns over the performance security bonds

In October 2008, the ACS Dragados-Macquarie Partnership was named the “Preferred Bidder” to undertake the project

Timeline

Project consists of the reconstruction and widening of I-595 mainline and adjacent roads– corridor has been divided and

prioritized into 18 independent project segments

Preferred Bidder will:– finance, design and build additions to

I-595 corridor by 2014– operate and maintain it for an

additional 30 years

Preferred bidder will receive:– lump-sum payment of $685 million

once construction is completed– availability payments of $64 million /

year for the life of the concession

Concession Details

Project is the first availability payment-based PPP in the US

FDOT will set and retain tolls, effectively taking on the toll risk

Transaction reached financial close in extremely turbulent market conditions

Strong interest in the deal reinforces Florida's status as an active PPP market, with many sponsors and developers touting the State as their focus for PPPs

Key Highlights

Source: P3 Americas

41

Chicago Downtown Parking Garages

Project Description

Morgan Stanley Investment Management and LAZ Parking won the concession in 2006– Entered into a 99-year lease with the City to

operate the Parking System and collect parking, advertising and retail concession revenue

– The concessionaire must carry out certain improvements, particularly the rehabilitation of the East Monroe Street garage within five years. The City’s estimate of the cost is US$65m

The parking system, located under the Grant and Millennium Parks in downtown Chicago, is the largest downtown underground public parking system in the US and believed to be the largest underground parking system in the world

Grant Park North Garage: three-level facility with two underground levels providing parking for 1,850 cars with 830,000 sq ft of garage space

The garages had an income of US$16m in 2005, which equates to an earnings multiple of 35x based on the bid price of US$563mm– Equates to an earnings multiple 39x based on

the bid price plus US$65mm needed to rehabilitate the East Monroe Street garage

The lease enabled the City to defease the bonds associated with the garages

Timeline

Source: Infra-News, P3Americas, Factiva, Analysis of long term leasing of Chicago Parking Meters System by the City of Chicago and University of Illinois

Financing Overview The syndication for the deal was carried on during

April ’07 and the following debt facilities were arranged:– US$402mm facility, with Société Générale as

the facility agent– DEPFA Bank and MCC each underwrote

US$100mm of the credit facility, which comprises a US$350mm term loan and US$52m capex tranche

The debt was arranged as a 10-year facility which is fully expected to be refinanced in years three or four

The deal marks the first privatization of a municipal parking system in the US

In May 2006, the City of Chicago kicked off the tender process for the concession and lease of the Chicago Downtown Public Parking System

In May 2006 RFQs were released by the City

In October 2006, the City received bids from four groups and named Morgan Stanley / LAZ Parking as the preferred bidder

In November 2006, the Chicago City Council approved the concession and lease

In December 2006, the deal reached financial close and made the upfront payment of US$563m to the City

42

Chicago Parking Meters

Project Description

Chicago Parking Meters LLC, led by Morgan Stanley Infrastructure Partners, won the concession in 2008

The project comprises the operation, maintenance and right to collect revenues on 34,760 on-street metered parking spaces– concession period is 75 years– City of Chicago received a one-time payment of

US$1.15bn

Chicago's metered parking system comprises:– 106 pay and display machines– 31,200 electronic and mechanized single-bay

parking meters– 1,420 electronic double-bay parking meters

These are capable of metering approximately 36,000 parking spaces on arterial streets and 1,215 spaces in 17 metered lots throughout the City

The system generated total operating revenue of US$22.9mm in 2007, with net income of US$18.9mm

The Concession Agreement allows for increases in meter rates over the next five years

Due to the nature of the current credit environment, market sources were expecting the deal to be 100% equity financed

Timeline

Source: Infra-News, P3Amerias, Factiva, Chicago Reader article (Apr-09)

Key provisions in Concession Agreement Limits parking operation by other parties in

downtown Chicago

Morgan Stanley Infrastructure Partners has the rights to set all parking rates without restrictions from the Government

Morgan Stanley Infrastructure Partners has opened many ancillary businesses such as car detailing, dry cleaning, and other services

This one of a kind deal follows as a continuation of the City’s strategy to balance its budget

In February 2008, the City of Chicago issued a request for qualifications (RFQ)

In March 2008, ten groups submitted RFQs including Morgan Stanley, JPMorgan, Lehman Brothers, the Carlyle Group, and partnerships led by Macquarie Capital Group and Cintra

In November 2008, the City received bids for the concession and lease

In December 2008, the procuring authority awarded the lease to Chicago Parking Meters LLC (Morgan Stanley led consortium)

The deal reached financial close in February 2009 and LAZ has assumed operation of the meters

43

New York Coordinated Street Furniture Franchise

Project Description

About Cemusa

In 2006, Cemusa (a subsidiary of FCC Group) was chosen as the concessionaire for New York City's Coordinated Street Furniture Franchise

Under the terms of the 20-year contract, Cemusa will build and maintain 3,300 bus shelters, 330 newsstands, 20 automated public toilets 37 Sheltered Bike Parking Structures and provide $1.4 billion in new revenue to New York City– Cemusa offered $924 million in guaranteed cash

and nearly $400 million in free advertising

In exchange for providing these facilities to the City, Cemusa is able to sell advertising space on these facilities and share in that revenue with the City

Founded in 1984, Cemusa represents 111 cities and municipalities throughout Europe and the Americas, and is quickly gaining a presence within the U.S. with secured contracts in New York, Miami-Dade County, San Antonio and Boston

Cemusa has designed, built, installed and maintained more than 100,000 urban furniture elements, which include bus shelters, clocks, public information panels, newsstands, automatic toilets, special trash containers and electronic panels

APPENDIX A

Pending US PPP

45

Selected Pending US PPPs

Project Name StateGreenfield/ Brownfield

Estiamted Value (US$ mil) Project Name State

Greenfield/ Brownfield

Estiamted Value (US$ mil)

Roads / Bridges Airports

First Coast Outer Beltway FL Greenfield 1,300-1,800 Louis Armstrong - New Orleans LA Brownfield TBD

Goethals Bridge NY Greenfield 1,500 Louis Munoz Marin - San Juan PR Brownfield TBD

I-75/ I-575 Northwest Corridor

Upgrade

GA Brownfield 1,500

Presidio Parkway CA Greenfield 1,000 Rail

Puerto Rican Toll Roads PR Brownfield 1,500 ARTIC CA Brownfield TBD

Tappan Zee Bridge NY Greenfield TBD Denver FasTracks Eagle P3 CO Greenfield 2,500

Florida HSR FL Greenfield 5,100

Parking Los Angeles Metro Transit

Authority (LAMTA)

CA Greenfield TBD

Hartford Downtown Parking CT Brownfield TBD

Indianapolis Airport Parking IN Brownfield TBD Ports

Indianapolis Downtown Parking IN Brownfield TBD Philadelphia Southport PA Greenfield TBD

Las Vegas Parking NV Brownfield TBD Port of Galveston TX Brownfield TBD

Los Angeles Parking Garages CA Brownfield 200-300 Port of New Orleans LA Brownfield TBD

New Jersey Transit Parking NJ Brownfield TBD

Pittsburgh Parking PA Brownfield 300-500 Water

Big Chino Water Delivery AZ Greenfield TBD

Social/Other Carlsbad Desalination Plant CA Greenfield 300

Long Beach Courthouse CA Greenfield 300

APPENDIX B

Biographies

47

Team Biographies

THOMAS R. OSBORNEManaging DirectorHead of Americas Infrastructure Group

Mr. Osborne has 23 years’ experience as an infrastructure investment banker. He is Head of the Americas Infrastructure/ Privatization Group and has worked on transactions with a total value exceeding $50 billion. Mr. Osborne has extensive experience in U.S. equity and fixed income capital markets and in structuring and advising on major M&A and strategic advisory transactions in the infrastructure (roads and ports) and utility & power sectors. His career experience includes 9 years in the Utilities Group at PaineWebber Incorporated, where he ultimately held the title of First Vice President, and 5 years as a Director in the Power and Energy Group at Credit Suisse First Boston. He joined UBS Investment Bank in 2001 as a Managing Director in the Power and Utilities Group, and was named Co-Head of the Infrastructure Group in July 2006, abd Americas Head of that group in 2008. He holds Series 7, 63 and 24 registrations, and a BA with honors from University of Virginia, Phi Beta Kappa.

(212)-821-2343299 Park Avenue

New York, NY [email protected]

STEPHEN PAINEManaging DirectorGlobal Head of Infrastructure Group

Mr. Paine joined UBS in 1994 to work in the Project Finance team and moved to the Infrastructure Group in 1999. He serves as Global Head of the Infrastructure Group. In the road sector, Mr. Paine advised Road Management Group on its financing in the capital markets of two shadow toll road projects, which was the first bond financing of a PFI project in the UK. He also led the team advising Scutvias on its successful bid for and the financing of the €800 million Beira Interior road project in Portugal. In the rail sector he was project director of Network Rail’s successful £9 billion bid for Railtrack in 2002 and has subsequently advised them in relation to their £20 billion debt issuance program. He also advised London & Continental Railways on the raising of finance for Section 2 of the Channel Tunnel Rail Link. In 2004, he advised Tube Lines on its £2.1 billion refinancing. In air transport, he advised Serco on its bid for the stake in National Air Traffic Control in 2001 and led the teams advising on the Istanbul airport terminal financing and the New Scottish Air Traffic Control Centre. Mr. Paine has worked on more than 40 PPI transactions. Mr. Paine has an M.A. in Law from Cambridge University and an M.B.A. from Insead. He is a qualified solicitor.

+44(20)7568-57632 Finsbury Avenue

London, UK [email protected]

48

Team Biographies

ALEX GREENBAUMAssociate DirectorAmericas Infrastructure Group

Alex Greenbaum joined UBS in 2005 and has covered municipal infrastructure and public-private partnerships since that time. He advises both public and private sector clients on a variety of infrastructure assignments, including the structuring and financing of public-private partnerships, and the acquisition, sale and financing of public and private infrastructure related companies. Mr. Greenbaum has worked with clients such as the Commonwealth of Puerto Rico, State of Illinois, and was a member of the State of New Jersey's Infrastructure Finance Study team. Previous to his tenure at UBS, Mr. Greenbaum worked in the US Supreme Court and US Congress. He holds a BA with honors from Harvard University.

(212)-821-6395299 Park Avenue

New York, NY [email protected]

49

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