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28 F I NA NC I NG S U R FA C E TR A NSPOR TA TION IN T HE U NIT ED ST A T ES bank-based investors have entered the market. Some are tors. Perhaps new tools can be developed to join credits interested in the water, energy, and telecommunication with public grants. markets as well as transportation, and often they look for shorter investment periods of about 10 years. Mr. Page observed that this is not a good match for the U.S. Questions and Comments private highway market and that many investors have stayed away. Question: When investors look for financing, they always Prospective investors are also requiring higher returns want to use robust revenue forecasts. How can we do a now, which makes implementation of greenfield P3 proj- better job of weeding out bias in travel demand forecasts? ects much harder. The monetization of existing assets Comment: There is no optimism bias with revenue also introduces political sensitivities. If investors have to forecasts. There is a range of possible outcomes. The increase the amount of equity they put into projects and real issue involves risk factors that cannot be quantified. their equity return expectations are higher, the number Negative outcomes arise when a preponderance of risk of potential P3 projects is reduced. Currently, to reduce factors tend to be lower rather than higher. There is no risk, investors are focused on hybrid, availability pay- offsetting force. We need to undertake sensitivity analy- ment, and some brownfield transactions. Over the past sis to quantify the range of outcomes and structure debt few years, pension funds and sovereign wealth funds have financings around the low end of the range. become investors in transportation P3 projects. Closed- Moderator Sale commented that the TIFIA program end funds are preferred, with coinvestment a potentially does not rely on the initial forecasts prepared by project rising option because of duration concerns, but institu- sponsors. Instead, as part of due diligence, a project's tions have been reluctant investors in the current market- credit structure is analyzed on the basis of the more con- place. Investors such as the California Public Employees' servative forecasts prepared for the lenders. There have Retirement System are interested in core projects with been instances where even the lower numbers have not returns of 3 to 4 percent over the consumer price index, been achieved in the early years of operations. but some of their portfolio is open to riskier opportuni- ties. Interestingly, some public toll authorities such as the Comment: State pension funds have a lot of pressure North Texas Turnpike Authority (NTTA) are investing to invest in their own states. In this way, pension fund equity on a project basis. This year, NTTA announced investment could offset xenophobia risk. The North Tar- that it will commit $400 million of equity raised from its rant Expressway and I-635 LBJ managed lane projects existing roads to fund new projects, including the last leg have involved direct pension fund investment. of SH-161 and potentially the Southwest and Chisholm Trail Parkways. This is similar to the approach that other Comment: In Denver, Colorado, sales taxbacked avail- toll authorities, including Florida's Turnpike Enterprise, ability payments are a unique risk structure. have taken by investing system revenues in new projects on a nonrecourse basis. Time will tell if this is a trend. Comment: If failed deals like the Las Vegas Monorail For now, other transport sectors, including high-speed and the Southern Connector had been backed by more rail and streetcars, have a poor track record of generat- equity, they might not have run into the problems that ing revenue and are not as likely to tempt private inves- they did.