Leveraging Private Capital for Infrastructure Renewal (2019) / Chapter Skim
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Pages 16-25
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From page 16... ...
16 C H A P T E R 3 P3 developers in the United States and internationally generally implement P3 projects through the establishment of an SPV. As previously described, an SPV is a private company formed with the special purpose of developing, operating, and maintaining the infrastructure asset in question under a long-term concession or other agreement.
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The Role of Private Equity in Public–Private Partnerships 17 with respect to debt repayment, lenders are generally unwilling to provide all the capital required to fund the projects. Lenders want to see that the P3 developer has an economic interest in ensuring project success through its equity that is at risk.
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18 Leveraging Private Capital for Infrastructure Renewal versus financing costs, which for a P3 are generally higher because of the higher cost of capital that P3s carry. This comparison is subject to policy debate and strong public discourse regarding the use of P3s for infrastructure projects.
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The Role of Private Equity in Public–Private Partnerships 19 between the project's bondholders and the state in 2010. The bondholders argued that the state did not live up to its agreement to increase toll rates sufficiently to service debt and was therefore responsible for some of the losses.
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20 Leveraging Private Capital for Infrastructure Renewal company is compensated by an AP. Toll revenue is the project company revenue source for 18 out of 28 projects in the data set.
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The Role of Private Equity in Public–Private Partnerships 21 to see a debt-to-equity ratio of 70:30. AP transactions have consistently shown approximately 10% to 15% equity compared to debt, as evidenced by the recent Central 70 project.
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22 Leveraging Private Capital for Infrastructure Renewal 3.5 The Nature and Evolution of Financial Investors in P3s As mentioned, the two main types of equity investors in transportation projects are strategic investors (tied to construction, development, or operations companies) and financial investors.
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The Role of Private Equity in Public–Private Partnerships 23 around construction and political risk and because of the potentially long delay between the commitment of funds and the completion of the project and start of payments (Belt 2013; Della Croce 2012)
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24 Leveraging Private Capital for Infrastructure Renewal arrangement, it is usually the fund manager or largest pension fund investor in the consortium that leads the transaction. A further development in the direct investing method for institutional investors has been the forming of a club or partnership model consisting of like-minded investors in an attempt to avoid conflicts of interest associated with the fund manager route.
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From page 25... ...
The Role of Private Equity in Public–Private Partnerships 25 and sovereign funds, the cost economics of using third-party managers has become higher and higher, which has led several funds to move toward the direct model of investing or the collaborative/partnerships model. [For more discussion on the shift toward the collaborative model of equity infrastructure investing, see Monk, Sharma, and Sinclair (2017)
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