One of the more salient features of the current economic crisis is access to capital. For many toll agencies and concessionaires, access to capital is a huge challenge, punctuated by the dramatic weakening or collapse of some of the largest lenders, insurers, brokers, and related financial institutions in the world. Aggravating the situation in the U.S. is a shift in policy affecting some governmental lending programs, such as the Transportation Infrastructure Finance and Innovation Act (TIFIA) and other credit enhancement programs.
Another aggravating factor is the way in which the toll industry may be perceived by capital markets today. Before 2008, many lenders saw the tolling sector as a safe haven because traffic seemed to grow regularly and at a higher rate than GDP. Now, lenders may perceive traffic forecasts as less reliable than before and tolling may appear to be as volatile as other sectors of the economy. Lenders are comparing the tolling business to other sectors, and parameters such as return on investment (ROI) and long-term stability will drive their choices.
What improvements would you like to see in access to capital? What changes should the federal government make to TIFIA and the Build America Bond programs that would help toll agencies have better access to capital? Looking internally, what changes should tolling agencies make to their own business models and practices to become more attractive to lenders? What other changes, external or internal to tolling, would make the capital markets more responsive to toll agencies?
Sunday, February 14, 2010
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Posted by Maurizio Rotondo, AISCAT
ReplyDeleteCapital markets search for attractive business opportunities. If the tolling sector finds it difficult to access capital, either lenders are mis-informed or our business is not attractive enough. If lenders are mis-informed the tolling sector should try to figure out what level and type of information could correct the situation. In the latter case, if markets are very or too well informed, then the sector has a big problem because it is not deemed sustainable or profitable enough.
Many other "configurations" can of course lay between these two extremes, also due to the differences among all those companies falling under the tolling concept umbrella (Agencies, private companies, long term perspective or not, brownfield or greenfield etc.). Political choices could indirectly affect profitability too. It would be appropriate for the sector to reflect on those basic issues.
Posted by David Lewis, HDR, Inc.
ReplyDeleteWith the TIFIA credit support program moving to a wider range of criteria, it is important for toll road authorities to recognize their natural advantages in the new context, particularly the sustainability and competitiveness context. Tolling is part of the environmental solution: This of course is because pricing has the effect of moderating congestion and encouraging the search for efficient travel alternatives. Becoming ever more creative with the pricing tools of the trade, including the use of time-of-day toll variations, toll authorities should be able to position themselves well for priority treatment under the new TIFIA framework. Toll roads authorities should also recognize their advantages in relation to competitiveness. In facilitating faster and more reliable transportation, tolls enable shippers to employ just-in-time supply chain management systems that improve their productivity and price competitiveness in national and international markets. While access to capital markets will always depend to a large extent on traffic and debt coverage ratios, attention to wider criteria and more comprehensive measures of return on investment will enable toll road authorities to play to their natural strengths as public policy seeks to nudge the markets towards more sustainable and competitive infrastructure investments.
Posted by Marty Stone, Tampa-Hillsborough Expressway Authority
ReplyDeleteAccess to capital is a critical element if one of our goals is to continue to build new transportation capacity. Partnering with other transportation organizations is one method for significantly enhancing access to capital for toll agencies. However, there are major policy hurdles for many of these partnerships. Instead of encouraging multi-modal partnerships to get the most “bang” for our buck, existing rules related to financial participation between FHWA and FTA for capital expenditures often act as a disincentive for agencies to work together.
The most glaring example of this type of impediment is the limits placed by FTA on the use of federal transit resources for the construction of the very highway capacity needed to make public transit a competitive travel choice. Also, the current FTA policies of equity partnerships between transit and toll agencies severely limits the ability of local transit and toll agencies to produce a revenue stream that could be used to create a more financially sustainable local public transportation system.
While it is important for us to improve the overall methods for funding transportation (replacing the gas tax, etc.), there should also be an imperative for breaking down the bureaucratic walls to partnering and a more efficient use of the resources we already have to better public transportation. For a more detailed discussion and some innovative ideas for transit-toll partnering, you can go to the current issue of IBTTA’s Tollways magazine.
Posted by Jim Johnson, Delaware River and Bay Authority
ReplyDeleteIn anticipation of our March Legislative Conferernce, the Government Affairs Committee developed four key legislative points and one of them dealt with TIFIA. We developed specific recommendations for TIFIA.
Bolster TIFIA resources
The Transportation Infrastructure Finance and Innovation Act of 1998 (TIFIA) established a Federal credit program for eligible transportation projects of national or regional significance under which the U.S. DOT may provide three forms of credit assistance – secured (direct) loans, loan guarantees, and standby lines of credit.
The program's fundamental goal is to leverage Federal funds by attracting substantial private and other non-Federal co-investment in critical improvements to the nation's surface transportation system.
This program has been successful in advancing new projects but has been underfunded. Many projects have been submitted for consideration including ones which rely on both toll revenues and federal credit assistance to make the project achievable. Recent changes proposed by the Federal Highway Administration would force reconsideration of already submitted projects subjecting them to a weighted competition system using newly established criteria. The new criteria would weigh projects according to projected impacts on safety, livability, sustainability, economic competitiveness and state of good repair. Some of these criteria are subjective and it is unclear how open and transparent the judgment process will be.
Therefore, we make the following recommendations:
• That the size of the TIFIA credit assistance should be increased from $122M to $400M (or the amount proposed in the House bill);
• Require that the evaluation and review of applications by the TIFIA Credit Council be open to the public;
• Provide that all TIFIA Letters of Interest, credit applications, funding balances and related information be posted on the program’s web site within 72 hours; and
• That the Program Administrators clarify to every extent possible exactly how Application will be evaluated and scored.
Editor’s Note
ReplyDeleteJim Johnson, who posted the previous comment, is a member of the Board of IBTTA and chairs the Government Affairs Committee. Jim and the committee developed the program for IBTTA’s Legislative Conference, March 22-23, 2010 in Washington, DC. You can learn more about this conference by clicking here: http://www.ibtta.org/Events/eventdetail3.cfm?ItemNumber=4380
This conference focuses on the fact that action on transportation authorization is halting and uncertain. But the toll industry is committed to improving mobility using the tools it knows well. Current conditions present an OPPORTUNITY for toll operators and associated industries to demonstrate their experience and know-how.
The Legislative Conference will focus on these key issues:
• Beefing up TIFIA and other credit enhancement programs (as Jim noted);
• Eliminating barriers that prevent states from implementing tolling;
• Assuring that decision-making about interoperability stays in the hands of our industry.
If you’re interested in the future of TIFIA and other programs designed to enhance access to capital, we encourage you to attend the Legislative Conference.
Posted by Richard Arce, Kapsch TrafficCom U.S. Corp.
ReplyDeleteAccess to capital has become even more difficult since the current financial crisis began in 2008. Even before the crisis, funding cost-intensive transportation and tolling projects was a challenge for policy makers, agencies and the transportation industry as well.
As members of the tolling industry, our success is tied to the success of tolling agencies, so we want to help to make the tolling sector more attractive for possible lenders. One step that hardware suppliers like us can take is to offer a performance guarantee to tolling agencies. Such a guarantee will secure our clients a reliable level of revenue—and, consequently, greater access to capital from lenders.
A tolling system performance guarantee means that the system supplier agrees to pay the agency for all tolls lost in case the system does not achieve a minimum level of performance. In other words, the system supplier guarantees that a minimum percentage of vehicles with will be captured by the system. If the system doesn’t meet this minimum level of performance the supplier will be liable for the difference between the agreed performance and the actual revenue. To ensure the accuracy of the performance an independent audit has to be conducted regularly to determine that the system has met the agreed requirements.
Implementing this performance guarantee will help agencies to access capital from government bodies as well as private lenders by increasing both the security of the investment and the level of efficiency of the system.
The firm I represent, Kapsch TrafficCom, offers such a guarantee among others to the government of the Czech Republic on the performance of their truck tolling system. This arrangement has been very successful for the Czech government, both financially and politically. We believe that this arrangement would have similar positive results if it were implemented in the US, and allow agencies who adopt it to have easier access to greater amounts of capital.
Posted by Neil Tolmie, Chief Executive Officer, N3 Toll Concession (Pty) Ltd., Johannesburg, South Africa
ReplyDeleteAccess to Capital: Lenders to reconsider their approach.
Lenders should not be so risk averse when considering the funding of a toll road. There is no reason why margins should be excessive or why there should be a requirement for more equity which increases the WACC, or a requirement for government guarantees, which has only a marginal positive impact on the cost of borrowing.
The financial crisis has made things worse. However, liquidity is seemingly not a problem, there is money but no one wants to borrow it because of the high cost of debt and future uncertainty. But why should the borrower be bearing all the risk? Why not an increase in the lender’s risk.
It is time for lenders to take more risk, especially where existing roads are to be tolled. The tolling of existing roads will become more and more of a reality in future. On existing roads the traffic patterns are established; yes, traffic patterns will change on introducing tolls but the change is more predictable than predicting the traffic on a green fields project. The point being made, is that tolling existing roads should lower traffic prediction risk which should be reflected in the cost of debt.
If debt is guaranteed by Government the risk reduction should be reflected by the Lenders, not sure it is?
It is known that Lenders favour annuity income generated by toll road projects and this should be reflected in the pricing.
Toll road failures and successes are known and these can be tested on new projects to reduce risk and hence lower the cost of borrowing.
Posted by Klaus Schierhackl, ASFINAG
ReplyDeleteFor ASFINAG, being responsible for the Austrian high-ranking road - infrastructure, the access to capital markets at very favourable costs is not a problem as funding is done with the Guarantee of the Republic of Austria (rated AAA).
However, ASFINAG is following an active marketing srategy towards its investor base and constantly tries to broaden it. Furthermore ASFINAG continuously works on its business model and makes substantial efforts to enhance its attractiveness to all stakeholders. ASFINAG's main focus is of course the long-lasting balance between the income-situation and new constuction programme, furthermore the permanent improvement of service, availibility and security on its network and the provision and develpment of information technologies.
Not many are aware of the many other advantages that countries can offer to investors. One of these is of course is easy access to capital, probably one of the world’s best.
ReplyDelete