After decades of planning and years of procurement and months of delay, the $903 million Port of Miami Tunnel project today finally received the money it needs to go forward.
FDOT and its partners, the US Department of Transportation, Miami-Dade County, the City of
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Jeffrey Parker |
The financial close comes despite a slew of obstacles – from escalation of construction costs that at one point made the project unaffordable, to the dropping out of Babcock & Brown, the project's original majority equity sponsor, and, at the last moment, the city of Miami's inability to provide a letter of credit before the 1 October financial close deadline.
“Even in this market, with the right team, we were able to deliver this project,” Stephanie Kopelousos, the Forida Secretary of Transportation, told InfrastructureInvestor.
“I think it demonstrates the importance of perseverance,” added Jeffrey Parker of Jeffrey Parker & Associates, the financial advisor to the Florida Department of Transportation (FDOT) on the deal.
The close brings to life the second availability payment-based transportation infrastructure project in the United States. Availability payments, or periodic payments made from the government to the private sector partner in exchange for meeting certain levels of service provision, are also being implemented in the $1.68 billion I-595 corridor improvement project in Florida’s Broward County – also an FDOT-sponsored project.
“The fact that the state of Florida, in this economy, has closed two effectively billion-dollar-plus deals is extraordinary,” said Patrick Harder, a partner at law firm Nossaman, which advised FDOT on the deal.
Miami Access Tunnel, a group composed of European infrastructure investor Meridiam and French construction company Bouygues Travaux Publics, will begin construction on the tunnel next year. The tunnel will connect downtown Miami with the Port of Miami via a set of twin tubes, each 3,900 feet long and 41 feet in diameter, 120 feet below the Biscayne Bay.
The tunnel is meant to divert the port's cargo traffic away from the streets of downtown Miami. “It allows the streets of Miami to be free of trucks that drive literally through downtown Miami all day everyday. At the same time, it will allow the Port to become more competitive,” Harder said.
While the Miami Access Tunnel consortium is building the tunnel, they will receive two kinds of payments: $100 million across four milestone payments, which will be awarded in exchange for meeting certain construction milestones, and a $350 million final acceptance payment, which will be awarded once construction is finished in September 2014.
Thereafter, they will receive about $32.5 million annually in today’s dollars, adjusted for inflation, for 30 years in exchange for operating and maintaining the tunnel. These are known as availability payments, so named because the concessionaire receives them in exchange for making a project “available” to the public.
The cost for the design and construction of the tunnel is set at $607 million, FDOT said. The state will pay for 50 percent of the design and construction costs and all of the operations and maintenance. The remaining 50 percent will be provided by the local government partners, according to the press release.
The $903 million of financing for the project includes $341 million in the form of a low-cost (4.31 percent) loan from the US Department of Transportation’s TIFIA (Transportation Infrastructure Finance and Innovation Act) lending programme. Another $341 million will come from a group of 10 banks and will be structured in tranches of $313 million and $28 million. Miami Access Tunnel will contribute $80 million in equity, which will be split 90/10 between Meridiam and Bouygues, respectively.
The ten banks lending to the project include: Banco Bilbao Bizcaya Argentina, RBS Citizens, Banco Santander, Bayerische Hypo, Calyon, Dexia, ING Capital, Societe Generale and WestLB, according to a press release from Nossaman.
The interest rate benchmark for the debt is the London interbank offered rate (Libor), or the rate at which banks borrow from each other on the London money market. A swap agreement has been executed for the Libor rate such that it will be held constant at 3.38 percent, with a 25 basis point swap margin. The credit spread for all tranches of the senior debt is 300 basis points, according to a person familiar with the bank offering.
Each 100 basis points represents 1 percent.
The bank offering is said to have been oversubscribed. Parker said the oversubscription “not only demonstrates that there is a market but there is a very strong appetite” for these kinds of projects. He added that the Port of Miami Tunnel sets a “very important precedent” for similar projects in transportation infrastructure and mass transit.
Parsons Brinckerhoff and TY Lin were technical advisors to FDOT on the deal and Marsh was an insurance advisor.
Barclays Capital advised Meridiam on the TIFIA loan. Macquarie Capital advised Meridiam on the bank debt.
A full analysis of the factors behind the Port of Miami Tunnel financial close will appear in the November issue of Infrastructure Investor magazine.
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