Transport and Project Finance

Infrastructure Market Update: 24 July 2011

2011-07-24T22:08:00.001-04:00

Market Overview

With sovereign debt concerns “resolved” in Greece and the global infrastructure transaction pipeline piling up, I thought it prudent to resume the weekly update. So here we are, nearly two years into the sovereign debt troubles and the EU has acknowledged the problems in Greece may extend beyond realm of liquidity and into solvency. In the US, congressional leaders, having approving deficit spending in the current budget paid for with debt in excess of the existing debt cap, are have second thoughts about the efficacy of said spending and refusing to increase the aforementioned and self-imposed debt limit. While duly noting the latest Capitol Hill brinkmanship occurred after the market closed on Friday, news out from Europe assuaged immediate concerns. In the US, the S&P 500 finished the week with gains for the third time in four week with a gain of 29 points to finish at 1,345 -- an increase of +2.2% for the week. The S&P 500 is trading just 1.9% below its 52-week high and 14% below its all-time high registered in early October 2008. The domestic bond has remained resilient despite deliberations in Washington, aided in no small part by the ongoing turmoil in Europe and further afield. Last week, yields on the 10-year treasury backed up by 5 bps to close on Friday yielding 2.96%. The USD weakened somewhat last week as optimist in Europe and the money market yield differential aided the common currency. For the week, the USD/EUR cross strengthened by nearly three cents to finish the week at $1.435 to the EUR. Gold continued to benefit from haven buying with the GLD ETF trading above $156 per share. The front month price has eclipsed nominal record highs in recent weeks and retained the 1,600 level on Friday.

The macroeconomic news flow as of late has been somewhat mixed. Last week, housing data from the Census Bureau and Realtors continued the trend. On Tuesday, the Census Bureau reported a solid gain in housing starts at 629,000 SAAR versus 575,000 consensus and 560,000 last month. The June gain was added in no small part by a strong showing in multi-family housing up +30.4% sequentially from May. Building permits increased, as well, to 624,000 SAAR versus 612,000 in the prior month. Compared with the prior year, the building permit data has improved by +6.7%. On Wednesday, Realtors reported a somewhat weaker than expected 4.77 million SAAR existing home sales. From the prior month, existing home sales slipped by (0.8%) and (8.8%) from the prior year. On a more positive note, the median sales price at $183,000 advanced for the first time on a prior year basis for the first time in 2011. Unfortunately, inventories remain elevated at 9.5-months supply. On an encouraging note, the July Philadelphia FRB manufacturing index turned positive with a 3.2 reading after slipping into negative territory in June at (7.7). The activity index was somewhat weaker than expected, however, based on the consensus estimate at 5.0 and below the May headline at 3.9.

Transport Economics

West Coast port authorities published half-year operating results last week with most confirming the softer operating environment revealed in May. Indeed, June container volumes declined on a prior year basis as well as sequentially from May. Combined traffic for the eight largest West Coast ports declined by (4.11%) from June 2010 and (0.8%) sequentially from May. Container volumes declined in all ports except for the Ports of Long Beach (CA), which increased by +6.6% and Prince Rupert (BC wherein volume increased by +16.0% from the prior year. For the second quarter, US West Coast volumes declined by (0.2%), but were higher by +0.1% for the West Coast including Canada, wherein both Prince Rupert (BC) and Vancouver (BC) had gains. West Coast import/export volumes deteriorated somewhat in June, but remain fairly well-balanced by historical standards, as exemplified by LA/LB wherein the combined ratio of import to export volumes was 2.1 times in June 2011 compared with the long-term average of 2.4 times and 2.34 times in June 2010. Japanese disruptions would appear to be having some effect, but the top West Coast trading partner remains China, buy a wide margin -- at LA and Seattle, for example, China import volumes are over 4 times higher than Japan on a value-weighted basis.

Infrastructure Stocks

On 22 July 2011, ConnectEast Group (CEU: ASX) announced receipt of a de-listing bid from CP2 Ltd., the Australian specialty infrastructure investor for total consideration amounting to AUD $2.2 billion on an equity basis and over AUD 3.16 billion in enterprise value. CP2 would pay AUD 0.55 per share for CEU common -- a premium of +22.4% over the trailing 30-day VWAP. The offer values the toll road at over 26 times the AU$120 in EBITDA generated by the project on a trailing-twelve month basis. On a revenue basis, CP2 is offering to pay nearly 16 times the AUD 200 million in gross receipts. It is worth noting, the project is still in the ramp-up phase. Since opening in June 2008, traffic volume has increased by over 33% to June 2011 compared with the average volume during the first half-year of operations. Toll receipts increased by over +41% over the same time period. In 2011, average daily revenue amounted to AUD 625,199 versus AUD 567,462 in 2010 -- an increase of +10.2%. Even before the announcement, CP2 was the largest shareholder of CEU at 35% according to the press release and Bloomberg data. To pay for the acquisition, CP2 has established a subsidiary investment vehicle capitalized by CP2 with additional commitments amounting to AUD 1.4 billion from a long list of institutional investors (already invested in existing CP2 funds) including the Universities Superannuation Scheme (UK), ATP (Denmark), New Zealand Superannuation Fund, APG (Netherlands), National Pension Service (Korea), China Investment Corporation, Teachers Insurance and Annuity Association -- TIAA CREF (US) and the Teachers Credit Union (Korea). CEU was listed original in November 2004 through an initial public offering that raised roughly AUD 1.1billion from over 14,000 investors according to the website. The concession entitles CEU to operate the facility until 2043. The 39 kilometer facility features a three-by-three configuration for 33 KM and two-by-two for the remaining 9 KM. Travel time savings against competing facilities range from 18% to 31% depending on the various origin-destinations.

On 21 July 2011, Macquarie Atlas Roads (MQA: ASX) announced second quarter traffic and revenue statistics with mixed results. With its portfolio of core (including APPR, M6 Toll Road and Dulles Greenway) and the non-core assets (including Chicago Skyway, Indiana Toll Road and Warnow Tunnel), MQA reported mixed results for the quarter with five of six assets yielded continued revenue growth, but only one asset experiencing an increase in traffic volume compared against the prior year. Among the core assets, the M6 Toll Road suffered the worst decline in traffic at (13.0%) and a resulting revenue decline of (9.8%). The French portfolio, in APRR saw revenue increase by +2.6%, despite a traffic decline of (0.8%) for the quarter. Finally, the Dulles Toll Road achieved a relatively strong advance in revenue growth at +3.9%, despite the (5.9%) decline in traffic volume. Average daily revenue for Dulles totaled $189,748. The Chicago Skyway experienced a strong showing from a revenue perspective with average daily revenue increasing to $189,400 -- an increase of +14.0% as a result of the 16.7% toll increase effective 01 January 2011. Average daily trips fell (5.5%), however, implying a spot price elasticity of 33%. The Indiana Toll Road suffered a similar decline in daily traffic at (3.5%), but a strong showing on revenue with an increase of +9.5%. Cash toll rates were +10% above the prior year. The lone asset with both positive traffic volume and average daily revenue was the Warnow Tunnel in Germany with a traffic increase of +1.5% and toll revenue advance of +10.0%.

Infrastructure Deal Summary

1.1 Texas working on two toll road procurements in Dallas and Houston

On 21 July 2011, Texas DOT (TxDOT) published the names of respondents to its Request for Information for the IH-35E project. The IH-35E project involves the redevelopment of a 28-mile section of Interstate 35E (IH-35E) from IH-635 to US 380 between Dallas and Denton Counties. The project is split into three segments with overall construction costs estimated at $2.61 billion along with $1.253 billion in Right-of-Way (ROW) acquisition costs. Public funds committed to the project amount to just $592 million. TxDOT is in the midst of the environmental review process. In January 2011, TxDOT received a Finding of No Significant Impact (FONSI) from the Federal Highway Administration for the Middle Segment and is in the midst of holding public meetings for the remaining two segments. Based on the current schedule, TxDOT would complete environmental review in 2011 and begin ROW acquisition in 2012. Construction is scheduled tentatively to begin in 2013.

The full list of respondents to the I-35E project includes the following:

• Acciona S.A.

• ACS Infrastructure Development, Inc. with Dragados USA, Inc., Austin Bridge and Road L.P. and Lochner MMM Group, LLC

• CH2M Hill

• Cintra Infraestructuras S.A. with Ferrovial and Meridiam Infrastructure North America Corp.

• FCC Construction Inc. (USA)

• Fluor Enterprises, Inc. with Balfour Beatty Capital and Kiewit Infrastructure Group

• Macquarie Capital

• OHL Concesiones, S.L.

• Shikun & Binui Ltd.

• SNC-Lavalin Capital

• Zachry Construction Corporation

At this stage, TxDOT has not yet committed to a full concession framework for the transaction. Instead, TxDOT is considering not only a revenue-backed Comprehensive Development Agreement (CDA), but also an availability-payment structure or a traditional Design-Build or Design/Bid/Build with limited-recourse tax exempt financing. One-on-One meetings with RFI respondents are scheduled in Dallas on July 26-28, 2011. TxDOT then intends to issue a RFQ towards the end of August, 2011 with submission deadline in September, 2011. Depending on private sector feedback, TxDOT would announce a short-list of pre-qualified consortia with a formal RFP released towards the end of the year. Among the many uncertainties at this stage in the process, TxDOT published along with the other documents, a letter from the North Texas Toll Authority expressing an interest in re-considering the project. TxDOT responded with reference to a prior agreement ceding control from NTTA to TxDOT, but the point of contention relates to changes in the overall scope of work, which NTTA suggested negated the prior Market Valuation Waiver (MVW). Further information is available at:

http://www.txdot.gov/project_information/projects/dallas/i35e/rfi.htm

Concurrently, TxDOT is in the process of procuring portions of the SH 99/Grand Parkway project through a public-private partnership. The entire Grand Parkway is a 180-mile circumferential highway on the periphery of the Houston metropolitan area. The proposed corridor is broken down in several segments, like the IH-35E project, with each segment in varying stages of the planning process. In present, TxDOT is soliciting feedback on the viability of developing several segments and the assumption of operation and maintenance requirements for segments amounting to approximately 50 miles utilizing a public-private partnership and CDA. Once again, the RFI indicates TxDOT has not yet determined the CDA is the most appropriate method, however, and is considering all three methods as indicated in the IH-35E process. Depending on the final configuration, all segments included in the procurement may be tolled with revenues available to the concessionaire as compensation for construction works. Importantly, TxDOT has published a MVW signed by eight counties, which in contrast to IH-35E project, eliminates the risk of a public entity stepping in to take over project development.

The list of initial Grand Parkway respondents is presented hereafter:

• Acciona S.A.

• ACS Infrastructure Development, Inc.

• Balfour Beatty Capital

• BNY Mellon

• CDE Inc.

• CH2M Hill

• China Construction America, Inc.

• Cintra and Ferrovial with Meridiam Infrastructure

• Edgemoor Infrastructure with Clark Construction

• FCC Construction Inc. (USA)

• Fluor Enterprises, Inc.

• HOCHTIEF PPP Solutions

• Hunt Companies, Inc.

• I.S. Engineers, L.L.C

• Isolux Corsan Infraestructuras, SL

• Kiewit Infrastructure Group

• Macquarie Capital Inc.

• Odebrecht Development, Inc.

• OHL Concesiones, S.L.

• Shikun & Binui

• URS

• VINCI Concessions S.A.S.

• Zachry Construction Corporation

Additional information is available on the project website: http://www.gpprocurement.com/.

1.2 VDOT publishes business plan and details financial support for Midtown Tunnel

On 20 July 2011, the Virginia Office of Transportation Public-Private Partnerships (VTPPP) convened to review the plan of finance for the Midtown Tunnel Corridor Project in Norfolk and Portsmouth, VA. The headline terms for the project include a fixed-price, DB contract valued at $1.45 billion and a concession term of 58 years from financial close. The Elizabeth River Crossings (ERC) consortium will assume responsibility for upgrading and routine maintenance along the existing crossings and the construction of a new tunnel under the Elizabeth River adjacent to the existing Midtown Tunnel. In addition, the Governor confirmed FHWA through its TIFIA program has accept the initial Expression of Interest (EOI) and invited VDOT to submit a formal application for a Direct Loan. Targeted financial close is in Q4 2011.

Total capital investment amounts to approximately $1.6 billion during construction with an additional $1.3 billion estimated for operations and maintenance over the life of the concession. Overall, the project costs (including transaction and financing costs) is estimated at $1.9 billion. The Public Funds contribution amount to $395 million; VDOT will contribute $350 million with Hampton County providing the remaining $45 million. The Elizabeth River Crossings consortium will provide $318 in equity capital along with $495 million in private debt capital and $422 million in TIFIA Direct Loan commitments. Toll receipts will begin to contribute to funding sources following installation of tolling equipment at the existing crossings during the initial year of construction. While neither VDOT nor ERC confirmed the anticipated debt instrument, earlier documents detailing the plan of finance included both TIFIA and Private Activity Bonds (PABs). To date, US DOT has yet to formally announce an approved bond allocation for the project.

The agreed tolling regime establishes tariffs ranging from $1.59 to $1.84 per transaction during off-peak and peak periods. The consortium is entitled to collect tolls immediately following installation of equipment on the existing crossings. Tolling will commence by Q4 2012. Toll escalations are generous; set at the maximum of +3.5% or US CPI, but will not begin until the new Midtown Tunnel is completed. The rates are slightly higher as a result of the reduced size of the TIFIA facility (original TIFIA EOI request amounted to $586 million Direct Loan with toll rates set at $1.50 and $1.75, respectively). As of December 2010, the combined trips (VDOT data) in the existing tunnels were approximately 140,000, which would translate into $80 to $90 million in toll receipts (before accounting for elasticity or trip diversion impacts) off the existing traffic profile at the tunnels. Even if the tolls result in a 30% loss in market share, the tunnels could generate initial toll revenue in excess of $60 million. The $0.50 per transaction toll on the MLK Extension would contribute additional proceeds. Thus, the project on initial projects compares favorably with the two Texas deals form an initial yield on investment perspective.

1.3 Ontario Teachers and MAP agree to swap airport assets in a AUD 1.6 billion deal

On 20 July 2011, MAp Airports (MAP: ASX) announced the signing of a binding agreement between it and the Ontario Teachers’ Pension Plan (OTPP) for the previously announced asset swap. Under the terms of the agreement, MAP would exchange its equity interests in the two European airports, Copenhagen and Brussels for the OTPP minority stake in Sydney Airport and cash consideration amounting to AUD 791 million. The transaction was announced previously on 22 June 2011, MAP indicated it had received an indicative offer from Ontario Teachers’ Pension Plan (OTPP) to exchange existing MAP interests in Brussels and Copenhagen Airports (39% and 30.75% respectively) for an 11.02% stake in Sydney Airport and cash consideration of AUD 850 million. The cash consideration was reduced due to underlying strength of the Australian dollar.

The Sydney Airport stake would allow MAP to extend its interest in Sydney to 85% from its current 74% equity stake valued at AUD 5.4 billion or AUD 9.1 billion on an enterprise basis. Based on reported valuations in the most recent MAP filings, Sydney Airport on a 100% basis is worth AUD 12.3 billion or 15.81 times trailing-twelve month (TTM) EBITDA. On that basis, MAP would value the 11.02% stake implicitly at AUD 805 million. Coupled with the AUD 791 million in cash consideration, the combined transaction value for the equity interests in the two European airport (minority) would amount to AUD 1.596 billion or EUR 1.208 billion at current exchange rates (EUR/AUD = 1.3210). Taken on a proportionate basis, the transaction equates total consideration for the equity stake in Copenhagen at AUD 761.15 million (EUR 576.2 million) and for Brussels Airport at AUD 834.84 million (EUR 632.0 million). The transaction values the equity interests at 82% of the last reported valuations. On an enterprise basis, the Copenhagen Airport stake would trade at an implied 10.9 times TTM EBITDA, whereas Brussels would trade for 14.1 times EBITDA versus stated valuations at 12.5 and 15.2 times respectively on 31 December 2010. Based on its own internal analysis, MAP cited valuation multiples of 13.3 and 15.2 times EV/EBITDA for Brussels and Copenhagen Airports, respectively, which effectively flips the relative valuations assigned to each airport in the December 2010 valuation report.

Of course, total consideration assigned to each airport is a function of the prior valuation at Sydney Airport as reported by MAP. Were MAP to achieve stated value for its two European Airport interests, the residual value (consideration less cash paid) assigned to the Sydney Airport stake would amount to AUD 1.15 billion or a 42% premium to the December 2010 valuation. In all likelihood, the actual valuations for all three airports are somewhere in the middle. Nevertheless, OTPP doubtlessly values its 11.02% stake in Sydney at a lower level than the valuation MAP assigns to its controlling interest in the airport concession. Sell-side opinion, in fact, varied on the merits of the transaction, but most noted the differential growth potential at Sydney (aided by the strong Australian commodity linkage to China), the potential control premium and minority discount for each of the shareholdings as factors underlying the transaction. In addition, from a shareholder’s perspective, there is some long-run value in simplifying the portfolio holdings at MAP. For the year ending 31 December 2011, Sydney Airport experienced +7.8% in passenger volume growth to yield +9.1% in revenue growth and +12.6% in EBITDA. Copenhagen actually outperformed slightly in 2010 with FY passenger volume growth at +9.1% to yield +9.1% revenue growth and +12.6% EBITDA. Brussels was the laggard in the portfolio with +1.1% passenger growth yielding +0.4% revenue and +1.4% EBITDA growth (note: Brussels was the most directly affected by the volcanic ash clouds in April, 2010).

Infrastructure Market Update: 13 March 2011

2011-03-13T21:05:00.000-04:00

Market Overview

As tensions escalate in North Africa and the Middle East, global stock markets have struggled to sustain the upward momentum of the past few months. The tragic and devastating earthquake and Tsunami in Japan early Friday morning did nothing to bolster sentiment. Having suffered a precipitous drop on Thursday due in part to intensifying violence in Libya, the S&P500 managed to finish trading higher on Friday. The damage was done, however, with the S&P500 declining for the second time in three weeks. The S&P500 finished the week down 13 points to 1,304 -- a decline of (1.3%). The bond market benefited on the depressing news despite data revealing PIMCO bond kind Bill Gross had existed the treasury market altogether in February. Since peaking above 3.70% in mid-February, the 10-year has rallied back to 3.50% at the start of the week. Haven-buying say the 10-year trade back below 3.4% to finish the week yielding 3.39%. In case anyone thought the European debt crisis had subsided, Moody’s lent support to the USD following a round of rating downgrades for Greece and Spain. For the week, the USD rallied back below $1.40 on the EURO and finished the week at $1.39.

Adding to global anxieties, the light macroeconomic data releases in the past week contained a bit of discordance on the consumer confidence and trade fronts. The Commerce Department reported a surprise increase in the trade deficit in January at ($46.3) billion versus ($41.0) consensus and ($40.6) in the prior month. While exports gained +2.7%, import volumes overwhelmed with an increase of +5.2% in January compared against +2.6% in December. On Friday, the University of Michigan consumer confidence report was weaker than expected, as well. The headline figure was 68.2 versus 76.5 consensus and 77.5 in the prior month. Surprisingly, the inflation expectations question surged to +4.6% in the one-year time horizon and up three tenths of one percent to +3.2% for the five-year window. On a positive note, retail sales matched expectations in February with a +1.0% sequential gain in February. January was revised up to +0.7% from the prior estimate of +0.3, as well. Compared with the prior year, the February sales were +8.9% higher -- an improvement from the 8.1% gain achieved in January. Finally, overall business inventories increased by +0.9% in January versus +0.8% consensus and the prior month. Inventory-to-sales fell by two points to 1.23 signaling relatively low inventory levels compared with the trend sales growth rate.

In the prior week, the BLS Employment Report provided a burst of positive sentiment with a headline reading showing a +192,000 advance in payroll employment. The unemployment rate fell back to 8.9%, as well, despite the modest pickup in the labor force. Although average earnings were flat, the work week increased by two tenths of an hour to 34.2 hours. Earlier in the week, the ISM manufacturing index eclipsed a cyclical peak with a headline reading at 61.4. The report contained a variety of positive data points with the employment component rising three points to 64. Later in the week, the ISM non-manufacturing report confirmed the manufacturing index with a headline at 59.7 versus 59.0 consensus and 59.4 prior month. January construction activity turned negative, however, with a decline of (0.7%) compared to +2.5% in the prior month and (0.8%) consensus. Notably, the ECB press release included language referring to vigilance with respect to inflation; market pundits interpreted the language as a veiled foreshadowing to an interest rate hike as early as the April policy meeting.

Transport Economics

Freight volumes in February continued on a positive trend with the Cass Freight Index reversing several months of sequential declines. The expenditure component, increased by +12.5% compared with January 2011 on rising input costs and tightening capacity in the trucking industry. Compared to the prior year, the February data was +35.0% higher than the prior year marking the first month four wherein the YOY trend exceeded 30%. Shipment volumes were more muted with a +2.6% sequential advance in February and +11.4% against the prior year. Truck tonnage and intermodal volumes drove the February shipment improvement, according to Cass.

Contrary to the bullish tone in the Cass data, the Ceridian-UCLA Pulse of Commerce Index (PCI) data revealed a decline in diesel fuel sales in February. The PCI dipped by (1.5%) sequentially in February following a (0.3%) decline in January. The February data was +1.8% higher than the prior year, however, continuing the 15-month run of year-to-year gains. Based on its February estimate, however, PCI economists predict a slight decline in the national industrial production survey due out this week from the Federal Reserve.

Infrastructure Policy

On 11 February 2011, The House of Representations Transportation and Infrastructure Committee introduced FAA Reauthorization and Reform Act of 2011. Among other things, the legislation would extend and expand the Privatization Pilot Program from five to ten airports and eliminate the limitation to one “Large Hub” airport. The legislation would maintain current requirements for incumbent carrier approval requirements. At present, Chicago Midway controls the lone Large Hub slot, though mayor-elect Rahm Emanuel publicly dismissed the process during the campaign. At present, four airports remain enrolled in the program with Chicago Midway and Gwinnett County Briscoe Field delayed, perhaps indefinitely in the case of Chicago. Elsewhere, the Ontario, CA facility received 10 Expressions of Interest (EOI) outside the scope of the FAA PPP framework (discussed hereafter).

Infrastructure Stocks

Shareholders in the ETR-407 enjoyed another strong quarterly result at the toll road franchise in Toronto, Ontario. While down on a sequential basis, toll revenues increased by +11.8% against the prior year. EBITDA growth registered a +10.1% gain compared with 2010. On a seasonally-adjusted basis, 2010 Q4 EBITDA was +0.72% compared against the prior quarter. More importantly, tariff increases rolled through like clockwork with effect from 01 February 2011. Rates were up by over a C$1.00 in all cases with the peak period increasing from CAD 21.35 cents per KM to CAD 22.75 cents per KM for light vehicles and heavy vehicles increasing from CAD 42.70 cents per KM to 45.50 cents per KM.

Infrastructure Deal Summary

1.1 OMERS details planned launch of global infrastructure investment alliance

On 10 March 2011, Jacques Demers, president and chief executive of Ontario Municipal Employees Retirement System (OMERS), announced plans for a CAD $20 billion global infrastructure investment alliance. The alliance, would feature pension plans from Canada and potentially America, would target developed markets (80%) in Europe and North America (excluding Mexico). The alliance would target large-scale assets requiring equity commitments in excess of C$1.00 billion. The remainder would be spread throughout the rest of the world. The proposal, featured earlier in the year, would see Canadian and US pension funds collaborating on direct investments in infrastructure assets. OMERS, through its infrastructure investment subsidiary Borealis, achieved an 11.7% annualized return on its direct investments in 2010. Most recently, OMERS, in partnership with Ontario Teachers’ Pension Plan was the highest bidder for the £2.1 billion (US$3.3 billion) Channel Tunnel rail link in the UK.

1.2 Infrastructure Ontario publishes short-list for 407 East extension project

On 10 March 2011, Infrastructure Ontario short-listed three consortia for the Highway 407 East extension project. The two-phase project involves extending the existing Highway 407 project east to Oshawa, Ontario east of Toronto. The current procurement involves the Design, Build, Finance, Operation and Maintenance of the corridor. The improvement will feature six lanes for the first 10 kilometers down to four lanes for the duration. All told, the highway improvement will feature approximately 148 lane kilometers with ten interchanges. While the facility will be tolled, the procurement is expected to feature Milestone and Availability Payments with the province retaining demand risk and toll revenues. Environmental approvals were confirmed in June 2010.

The three consortia feature:

• 407 East Development Group -- Cintra Infraestructuras with Intoll Group and SNC-Lavalin (the incumbent of sorts as owners of the existing 407 ETR);

• 407 East Development Partners -- OHL Concesiones S.L. with Global Via Infrastructuras, Borealis Infrastructure, Con-Drain Company and Coco Paving; and,

• 407 GreenLink Partners -- Bilfinger Berger Project Investments with Macquarie (Bank), AECON Group, Fengate Capital Management, Dufferin Construction Company, The Miller Group and Kiewitt.

1.3 Virginia launches formal procurement for US Route 460 corridor improvement

On 03 March 2011, VDOT announced the approval of all three competing expressions of interest for the U.S. Route 460 corridor improvement project in Prince George County outside Richmond, VA. Request for Detailed Proposals on March 25, 2011. The RFDP is the second time VDOT has solicited proposals for the project. The original procurement began in 2006 when VDOT initiated an official process under the Commonwealth Public Private Transportation Act (PPTA). VDOT received three indicative proposals, but ultimately canceled the original procurement in early 2010 and commenced with the current procurement thereafter.

The consortia include the following firms:

• Cintra Infraestructuras and Ferrovial Agroman with Janssen & Spaans Engineering Inc., A. Morton Thomas and Associates Inc. and American Infrastructure;

• 460 Partners, Inc. -- Moreland Property Group Inc. and Infrastructure Capital Partners LLC and CGA Capital with Lane Construction Corporation and Skanska USA Civil Southeast Inc. (DBJV) and operating partner Transfield Services North America advised by AECOM and Bank of America; and,

• Multimodal Solutions LLC -- Edgemoor Real Estate Services, LLC with Clark Construction Group, LLC, Shirley Contracting Company, LLC and Keiwit Construction Inc. with operating partner Autostrade S.p.A. and advisors The Louis Berger Group and Barclays Capital.

The project involves the construction of a new 55 mile long limited access highway south of the existing US Route 460 alignment east of I-95 south of Richmond, Virginia. The highway will provide upgraded access from Petersburgh, VA and Prince George County south to the City of Suffolk, VA in the Hampton Roads area. The new divided highway will feature two lanes in each direction with nine interchanges at towns and major secondary roads along the corridor.

1.4 Virginia publishes conceptual proposals for HRBT improvement project

On 02 March 2011, VDOT published conceptual proposals received from Hampton Roads Mobility Group (HRMG led by ACS Infrastructure Development, Inc.) and Cintra Infraestructuras for the multi-billion dollar Hampton Roads Bridge and Tunnel improvement project. VDOT accepted the proposals after receiving an unsolicited proposal from Hampton Roads Crossing (HRC) led by Skanska Infrastructure Development and dated 29 September 2010. The HRC proposal assumed capital investment amounting to between US$3.5 and $4.5 billion with tolling levels set at $4.00 and $6.00 depending on public subsidy and federal financing availability.

The more developed of the two proposals, from HRMG, proposes development of an extensive express toll lane system extending 34 miles from Newport News to Norfolk/Virginia Beach. The system would feature all-electronic tolling with free HOV+3 and bus access. In addition, the proposal would double capacity at the existing HRBT crossing. All told, HRMG anticipates capital investment in the range of US$3.0 to $4.0 billion. To finance the development, HRMG anticipates tolls on the general purpose lanes and existing crossing along with variable tolling on the express lane system. Unfortunately, the proposed tolling regime alone will not finance the capital investment program. As such, the proposal calls for a public subsidy payment to bridge the finance gap. Over the life of the facility, HRMG anticipates a 66% to 71% private contribution and 34% to 29% public subsidy share. The Cintra proposal amounted to a statement of interest with a commitment to undertake further due diligence should VDOT elect to pursue a full-blown competitive procurement process.

Consortium members include the following firms:

• Hampton Roads Crossing -- Skanska Infrastructure Development (equity investor) with Skanska USA Civil and Kiewit (Design-Build Joint Venture) with support from Weeks Marine (marine construction) and Parson Brinkerhoff (engineering and design);

• Hampton Roads Mobility Group -- ACS Infrastructure Development (equity investor) with Dragados USA and Flatiron Constructors (Design-Build Joint Venture) with Moffat and Nichols as lead designer and Steer Davies Gleave as traffic advisor; and,

• Cintra Infraestructuras with Ferrovial Agromán.

1.5 Ontario Airport attracts ten submissions for management contract

On 02 March 2011, Los Angeles World Airports (LAWA) released the names of the ten firms submitting indicative proposals for the management contract at Ontario Airport. According to local reports, firms submitted proposals with terms ranging from 20 to 30 years with compensation strategies including upfront payments, ongoing revenue sharing and/or a rental payment structure. Respondents include a collection of infrastructure investors, Fixed-Base Operators and international airport operators.

The private firms expressing interest in the management contract include:

• American Airports Corp. (Santa Monica airport operator)

• Airport Property Ventures (Los Angeles airport operator)

• AMP Capital Investors

• AvPORTS/Aviation Facilities Co.

• Carlyle Group

• Fraport AG

• GMR Airports

• Goldman Sachs Infrastructure Partners

• Incheon International Airport Corp.

• Munich Airport Consulting

Separately, representatives from the City of Ontario submitted a separate proposal, independent of the Expression of Interest (EOI) process, to LAWA. City officials are seeking to assume operating responsibility from LAWA. Having initially considered a response, Ontario officials elected not to submit a proposal to the EOI solicitation, according to the local report. According to a note published by the City of Ontario, a transfer of ownership to the city or a regional authority has received support from a variety of regional entities, including the Southern California Association of Governments and the Los Angeles Economic Development Corporation.

LAWA has operated the airport since 1967 through a joint powers agreement with the City of Ontario. Ontario Airport has suffered significant passenger volume declines during the past few years with local officials assigning responsibility on LAWA charging neglect of the asset and relatively high operating costs at the airport. The airport competes with John Wayne Airport in Orange County and Long Beach Airport to attract value-oriented air carriers and point-to-point passenger volumes. Unfortunately, media reports suggest it struggles to remain competitive due to relatively high fixed costs and limited support from both its operator in LAWA and the carriers operating in the Southern California market. The Ontario City management contends occupancy costs at Ontario are twice the level of the mid-sized US airport.

1.6 NYC Economic Development Corporation soliciting PPP financial advisors

On 18 February 2011, the New York City Economic Development Corporation (NYCEDC) published a Request for Proposals (RFP) seeking a financial advisor to assist in developing strategies for unlocking value in municipal real estate and parking assets. The solicitation requests respondents provide at least three (3) ideas and strategies for innovations relating to three asset classes:

• City parking assets (including on-street meters and off-street lots and garages).

• City real estate assets (including management, revenue generation and use proposals for new construction and existing City assets).

• Other City assets that require large capital or operational expenditures, including environmental, transportation and other infrastructure assets.

• The RFP is available at: http://www.nycedc.com.

The submission deadline for responses is 14 March 2011. The city will review submissions and schedule interviews as necessary during the week of 21 March 2011 with final award in the following week. The RFP indicates the city intends to compensate the advisor on a success fee basis, only. Cost is only a single component of the procurement, amounting 10% of the selection criteria. Moreover, the city indicated it would consider alternatives in

Questions and Answers were due 02 March 2011 with the full details available on the NYCEDC website. In the Q&A, NYCEDC reported operating results for the municipal parking facilities. The city receives the vast majority of parking revenue from its meter system with revenue amounting to US$140.1 million in FY 2010. Meter revenue has increased by +29.5% from FY 2007. Parking garages contributed an additional US$6.6 million in FY 2010. Operating expense amounted to US$64.1 million and capital investment at $2.9 million for net contribution of $79.7 million.

1.7 Gatwick refinances acquisition loans in capital markets

After just 15 months, Global Infrastructure Partners (GIP) successfully refinanced the original acquisition facilities raised for the purchase of Gatwick Airport from BAA. According to the Fitch Ratings press release, GIP raised £1,200 million in debt in combined bank loan and dual tranche debt capital markets issue. The total facilities amount to roughly 70% of the regulated asset base. The facilities include a £620 million 4-year bank loan (pricing estimated at LIBOR + 175 bps) and £600 million dual tranche fixed-rate bonds: (1) 6.125% maturing in 2026; and, (2) 6.5% maturing in 2041. The bonds last traded at 1-2% discounts to par and slightly below par at issue. The bonds provided credit spreads at roughly 205 bps over comparable UK gilts. GIP enlisted Credit Agricole, HSBC and JPMorgan to act as bond dealers with RBS as broker and dealer.

Infrastructure Market Update: 13 February 2011

2011-02-14T07:55:00.003-05:00

Market Overview

Fourth quarter earnings season has passed the half way market and with nearly 70% of S&P500 reporting already, constituent earnings look to have sustained strong 2010 results into year-end. Top-line growth has exceeded +9.0% on average, while operating earnings growth averaged +20.3% compared with the prior year. Furthermore, 70% of firms have surpassed consensus sales estimates. The Consensus calls for $77 per share (as reported) for the S&P500 in 2010 and $87 per share in 2011 -- an increase of +13.8% and an implied multiple of 15 times forward earnings. Results are somewhat stronger on an operating earnings basis, but you can pay dividends out of adjustments. With earnings providing a nice tailwind, stocks continue to grind higher. In the past week, the S&P500 picked up another 18 points to finish at 1,329 -- an increase of +1.4% for the week and +4% over the past two. Conversely, the bond market rout continued these past few weeks with yields retesting levels last seen in April 2010. Yields peaked last week above 3.7% before settling Friday at 3.65 roughly unchanged for the week. Year to date, the 10-year has tacked on over 30 bps.

In terms of macroeconomic data, the past week was unusually light on releases. The primary data came on Friday with the Bureau of Economic Analysis reporting a widening in the trade deficit to (US$40.6) from ($38.3) billion in November. On the margin, the data may weigh on fourth quarter growth, but likely reflected in consensus estimates as the December release was inline. Exports did rise by +1.8%, but were overwhelmed by the +2.6% in import volume. In the prior week, an abundance of data generally lent support to the positive earnings backdrop. From Tuesday, ISM confirmed the manufacturing recovery. The January ISM headline came in at 60.8 compared to 57.5 consensus and 57.0 in December. New orders accelerated to 62.0, while employment slipped a bit to 58.9. Non-manufacturing ISM was strong, as well, with a headline reading at 59.4. New orders surged to 64.9, while employment picked up to 54.5. December construction disappointed, however, with activity down (2.5%) sequentially from November and (6.4%) from the prior year. Finally, the January payroll report came out Friday with a disappointment on the headline jobs number, despite a drop in the unemployment rate. Total payrolls expanded by just +34,000 well-below consensus at 140,000. The unemployment rate fell to 9.0% on a 117,000 increase in household employment, but the biggest contributor was the unusally large decline in the labor force at (504,000).

Transport Economics

The Cass Freight index registered its second consecutive SAAR decline in January. The two index components, expenditures and shipments, fell by (2.8%) and (3.7%), respectively in January from December. Compared to January 2010, however, the expenditure index was +27.2% higher. The shipment index was +12.4% above the January 2010 result. The expenditure component has sustained YOY growth rates in excess of +20% for ten consecutive months, whereas the shipment index has registered +10% growth for six consecutive months.

On 09 February 2010, Ceridian-UCLA published the Pulse of Commerce Index (PCI) survey for January and revealed a slight decline in January 2011 from December 2010. The index fell (0.3%), but was +3.4% above the prior year. Like industrial production, the PCI remains roughly (5.0%) off from peak volumes. Previously, the American Truckers Association announced another increase in truck traffic to end the year in December 2010. The seasonally-adjusted result was +2.2% ahead sequentially from November. The December 2010 result was the higher index level since September 2008. The index remains (4.9%) below its historical peak in January 2008. Compared to the prior year, the December reading was +4.2% higher.

Infrastructure Stocks

On 10 February 2011, Transurban (TCL:ASX) announced results for the six months ending 31 December 2010. Top-line growth came in at +7.4% with revenue advancing to AUD $446.9 million. EBITDA advanced to A$362.8 million -- an increase of +9.5% on rising margin. The TCL Board approved an interim dividend of A$0.13 per share and confirmed the previous guidance of A$0.26 in full year dividends for an effective yield of 4.93% and +8.3% growth from FY 2010. Notably, TCL has raised an aggregate A$1.8 billion in the past six months. Pocahontas contributed A$7.6 million in revenue and A$4.7 in EBITDA -- margin stood at 61.8%. Debt outstanding on Pocahontas US$466 million -- US$306 in senior secured and $160 in subordinated debt (TIFIA). On a TTM basis, the asset is running at $36.5 times gross leverage.

Infrastructure Deal Summary

1.1 Los Angeles Parking fails to attract any firm proposals

On 12 February 2011, the Los Angeles Times reported the plan to lease Los Angeles municipal parking facilities had fallen through. According to the report, none of the 12 pre-qualified firms elected to submit a firm proposal in response to the RFP released in August 2010. In the final analysis, City Council sought fundamental changes to the concession agreement in response to local community and neighborhood concerns about the anticipated tariff schedule. Business concerns in several neighborhoods sought to sustain current parking provisions allowing short-term free parking. Council approved the final form of the Concession Agreement in January 2011.

Based on earlier analysis, the city anticipated an enterprise value in the range of US$200 to $300 million with net proceeds of $53 million dedicated to the budget gap in 2010-2011. The schedule anticipated financial close in the spring of 2011. In light of the current situation, aids to council recommended one of two courses of action -- either modify the concession agreement to improve marketability or identify alternative means for bridging the budget gap.

1.2 Jacksonville First Coast Outer Beltway Project to be scaled back dramatically

On 04 February 2011, local media reported the Florida DOT (FDOT) would scale back the planned First Coast Outer Beltway project. The US$1,800 million project was envisioned as a real toll project with a private developer undertaking the work in exchange for the toll concession. FDOT had engaged private sponsors in the past few months to gauge investor appetite for the project. According to the report, potential sponsors were unwilling to accept toll risk on the project without underlying support in the form of a revenue floor from FDOT.

The original project involved a circumferential highway around the outskirts of the Jacksonville metropolitan area. The corridor extended for 46.5 miles with a dozen interchanges and a new bridge crossing the St. Johns River. In lieu of the full project, FDOT now intends to procure a single 15-mile segment along an existing alignment. The project will involve upgrading the existing Branan Field Road to a four-lane divided highway. The upgrade was part of the original beltway, encompassing the north-western segment. FDOT has commissioned an updated toll revenue study to determine whether the segment can generate adequate revenue to justify the construction costs estimated between US$250 and $300 million.

1.3 Virginia restructures I-95/I-395 project and moves forward with I-95 HOT Lanes

On 03 February 2011, the Virginia DOT (VDOT) announced plans to restructure the stalled I-95/I-395 project and advance the new I-95 HOT Lane project. The project will integrate into the Capital Beltway project already under construction. The revised plans will include approximately 29 miles of High-Occupancy Toll (HOT) lanes on I-95 extending south from the Capital Beltway interface to Stafford County, VA. The total construction budget is estimated in excess of US$1.0 billion. The Fluor/Transurban partnership will develop the project with Fluor undertaking the civil works; construction will commence in early 2012.

Major projects works include:

• Constructing two new reversible HOV/HOT lanes for nine miles from Route 610/Garrisonville Road in Stafford County to Route 234 in Dumfries;

• Widening existing HOV lanes from two to three lanes for 14 miles from the Prince William Parkway to approximately two miles north of the Springfield Interchange near Edsall Road;

• Improvements to the existing two HOV lanes for six miles from Route 234 to the Prince William Parkway; and,

• Upgrade access points at Garrisonville Road, Joplin Road, Prince William Parkway, Fairfax County Parkway, Franconia-Springfield Parkway, I-495 and in the vicinity of Edsall Road.

1.4 Pan Am Games Athletes’ Village short-listed respondents

On 28 January 2011, Infrastructure Ontario announced the names of the three short-listed consortia for the Pan/Parapan American Games Athletes’ Village P3. The short-listed consortia will receive the Request for Proposals (RFP) in the coming month with the preferred bidder to be named in summer 2011.

The three short-listed consortia include:

• Dundee Kilmer Development Limited (DKD): Dundee Realty Corp (equity investor/developer) with EllisDon and Ledcor Design Build as Design Build Joint Venture partners -- Brookfield Financial as Financial Advisor to the consortium;

• Legacy Village Partners: Lend Lease in partnership with Concert Properties Limited (as master developer partners and equity sponsors) with PCL and Deltera as Design Build Joint Venture partners -- Scotia Capital as Financial Advisor; and,

• Village Infrastructure Partners (VIP) Fengate Capital, The Conservatory Group and The Pemberton Group (equity investors) with Saddlebrook as Design Builder with support from Laing O’Rourke -- National Bank and TD Securities as Co-Financial Advisors.

The new athletes’’ village will accommodate participants in the forthcoming events; subsequently, the village will transition to a mixed-use, pedestrian-friendly community. The design requirement includes Leadership in Energy and Environmental Design (LEED) and provisioning for a mixture of market and affordable housing. In addition, the developer will be required to develop neighborhood infrastructure, such as water, sewer and roadway infrastructure.

1.5 Ottawa Communications Security PPP achieves cyclical low on Private Placement

On 26 January 2011, local press reports from Canada revealed the successful placement of CAD $1,000 million bond offering for the Plenary Properties backed Ottawa Communications Security Establishment Canada (OCSEC). The dual tranche bond issuance comprises a three and one-half year C$167.4 million short term note and a 33-year C$ 838.2 million long-term bond with an average life of approximately 22 years. DBRS, the local rating agency, assigned an “A” rating to both tranches. The Plenary consortium will undertake construction works on a three and one-half year schedule followed by a 30-year operating term. Consortium members include PCL Constructors (DB Contractor), Honeywell Ltd. (O&M service provider) and Plenary Group (equity investor). Hewett-Packard joined the consortium as a sub-consultant to perform various IT services to the federal agency. RBC acted as financial advisor and sole underwriter to the consortium. Bond syndicate members included BMO (5%), CIBC (10%), TD Securities (30%), National Bank Financial (5%) and RBC (50%).

Credit pricing on the private placements marked a new low in short-term spreads for Canadian bond transactions. The short-term facility priced to yield 3.8% or 115 bps over the Canadian government notes due in 2014. The long-term tranche priced to yield 5.798% or 200 bps over the equivalent Canadian government long bond. With the federal government acting as the ultimate obligor, the project company achieved better than expected pricing on the issue. In addition to competitive pricing, the private placement revealed strong buy-side demand for the largest placement to date at just over $1,000. The OCSEC bond exceeded the prior high-water mark set by C$764 million issue for the McGill University Health Center (MUHC).

Project entails construction, maintenance and operations for a multi-storey building comprising over 893,000 SQFT of special purpose commercial space for the Canadian foreign intelligence agency. The contract includes construction of an 800 car parking facility, as well. Operations and maintenance are complicated by the relatively complex IT service provisioning and security infrastructure as well as the requirements for security clearance for personnel on site. The DB Security Package features a 50% parent guarantee from PCL along with a Letter of Credit sized to 5% of the DB Contract price to cover Liquidated Damages. The whole project also benefits from a performance bond sized to 50% of the DB contract. Manager Maintenance will be pre-funded using a three-year look forward reserving regime. DBRS noted the project benefited from customary O&M security support and a projected 1.23 times opening Debt Service Coverage Ratio despite a relatively high 10.5 times CFADS leverage ratio.

Infrastructure Market Update: 23 January 2011

2011-01-23T22:33:00.002-05:00

Market Overview

The first few weeks of January bore striking similarities to the last month of the prior year. US economic data continued to suggest an economy recovery gaining traction, while the FOMC and Chairman Bernanke continue to defend sustained monetary accommodation. December meeting minutes had FOMC members worrying about disinflation and too high unemployment. With risks skewed to weak capacity utilization, the US$600 billion bond purchase program should continue unabated through June 2011. In Europe, the EU has taken further steps to underpin the weakest links on the periphery with attendant improvement in national bond markets. On a cautionary note, China continued to reign in credit formation with reserve requirement increases in January. Given the supportive backdrop, however, domestic equities continue the 2010 Q4 rally with the S&P500 adding 25.7 points during the first three weeks of the New Year -- an increase of +2.0%. In the prior week, the S&P500 sustained the first loss in eight weeks off (0.76%). The bond market has moved in an inverse pattern with the rates complex moving higher in January particularly on the long-end. Last week, the 10-year adding 9 bps to finish yielding at 3.42%.

Regionally manufacturing surveys from the New York and Philadelphia Federal Reserve Banks were both well above the breakeven point with headline readings at 11.92 and 19.3, respectively. In both reports, the new orders came in ahead of the headline figures at 12.39 for (NY) from 2.0 in December and 23.6 in (Philly) from 10.6 in the prior month. The US Leading Economic Indicators gained for the second consecutive month in December with a +1.0% advance following the November increase at 1.1%. In the prior week, the FRB national industrial production report revealed a +0.8% sequential gain in December following +0.4% in the prior month and the +0.5% consensus estimate. While industrial activities continue to look strong, housing market data released last week continue to betray a relatively weak tone. The Homebuilders’ Association remains mired in recession with a headline reading at 16 for the fourth consecutive month. While buyer traffic picked up a bit, the expectations component was flat from the prior month. Housing starts fell further in December to a SAAR of 0.529 million -- (4.3%) decline from the prior month. On the positive side, building permits rebounded by +16.7% after the November decline. Finally, existing home sales were higher than anticipated in December with sales volume at 5.28 million versus 4.9 million estimate and 4.68 million in the prior month. While inventory levels dipped to 8.1 months’ supply, pricing were (1.0%) sequentially form November.

Transport Economics

The West Coast ports reported container volumes for the month of December in the past weeks as the strong cyclical recovery tapered off with the seasonal slowdown. With all ports except Vancouver reporting, the YOY growth rate averaged just 2.92% with volumes falling at Prince Rupert (15.9%) and Oakland (0.4%) from December 2009. For the full year, however, the West Coast ports achieved a cumulative +16.3% advance from 2009 led by the +34.5% advance in Seattle followed by +31.8% advance at Prince Rupert. The San Pedro ports achieved a combined +18.7% gain in containers. In December, the ratio of import to export containers fell further to 1.84 times from 1.94 in November for the third consecutive month below the long-term trend at 2.38. Looking ahead to 2011, the National Federation of Retailers (NFR) anticipates a sustained recovery albeit at a somewhat slower pace relative to 2010. In the most recent Global Port Tracker, Hackett Associates forecast for high single-digit gains in 2011 for the West Coast Ports. In the first three months, the major ports (primary West Coast ports plus New York-New Jersey, Hampton Roads, Charleston and Savannah on the East Coast and Houston on the Gulf Coast) are expected to achieve YOY growth with May the first month to register a modest drop.

Transport Policy

On 19 January 2011, the Federal Highway Administration (FHWA) announced a new fixed-date solicitation for funding through Transportation Infrastructure Finance and Innovation (TIFIA) program. FHWA will accept applications for the current funding round through 18 February 2011. Respondents are instructed to utilize the electronic applications available on the TIFIA Web site. The solicitation is the first step in the two-stage process for submitting applications for credit facilities under the TIFIA program. Once again, public authorities in the midst of an active PPP procurement most submit the application on behalf of the various participants. Authorities and sponsors having submitted in previous funding rounds must reapply for consideration. Separately, FHWA announced an extension to the deadline for applications for the Value Pricing Pilot Program Participation, Fiscal Years 2010 and 2011 to 02 February 2011. The Federal Register notice is available online at:

http://edocket.access.gpo.gov/2011/pdf/2011-933.pdf.

Infrastructure Stocks

On 21 January 2011, Macquarie Atlas Roads published fourth quarter operating results for the six remaining (liquid) assets within the portfolio. The results were mixed with traffic declines at all three US assets and the M6 in the UK. Conversely, APRR and Warnow Tunnel both registered positive traffic growth -- +1.3% and +13.2%, respectively, compared with the prior year. Toll revenue increased on all roads except for the Chicago Skyway with revenue (6.8%) from the prior year and (5.8%) for the full year in 2010. Toll receipts on Dulles Greenway rebounded in the fourth quarter with a +7.8% advance contributing disproportionately to the +1.8% for the entire year. Chicago Skyway traffic fell (5.3%) during the quarter with a resultant (6.8%) decline in toll revenues. Skyway traffic volumes have stagnated since 2008 as a result ongoing corridor improvements. Finally, the Indiana Toll Road (ITR) achieved strong growth on improving traffic volumes at the ticket system +1.2%, whereas barrier traffic (link to Illinois and Skyway) fell back by (7.2%). Total revenue increased to $42.4 million for the quarter and $163.8 million for the full year. Based on the agreed rate schedule, the strong rebound in revenue at +and the continued demand inelasticity to rate increases suggest the ITR credit facility may remain in compliance (from a liquidity perspective) through 2015.

On 13 January 2011, Transurban (ASX: TCL) reported fourth quarter traffic and revenue figures. Traffic and revenue results were positive across all the assets, including the US laggard road in Pocahontas Parkway. Toll revenue increased on Pocahontas by +3.1% as average daily trips increased by +3.7%. On a sequential basis, Pocahontas achieved a +1.5% revenue increase on +2.9% advance in average daily trips. For the full year, Pocahontas achieved average daily traffic at nearly 14,000 trips for gross toll receipts $13.86 million. Total CFADS amounted to roughly $9.0 million. The concession remains highly leveraged, however, with gross debt amounting to roughly 34 times CFADS at year-end 2010. In 2011, Pocahontas will increase tariffs by +9.1% at the main toll plaza and +25% at the two auxiliary toll plazas. The resulting effective toll rate will increase to $0.34 per mile ranking it amongst the most expensive toll roads in the country. Separately, Pocahontas announced on 13 January 2011, the opening of the Richmond Airport Connector road. Transurban began work on the US$50 million project in 2009 with financing from the TIFIA Direct Loan program. The TIFIA loan will continue to fully accrete through 2012 with amortization to commence in 2029 and conclude in 2043.

Infrastructure Deal Summary

1.1 Cameron County Regional Mobility Authority moves forward with two teams

On 06 January 2011, the Cameron County Regional Mobility Authority approved the two proposals received from the Cintra and Zachry development teams for the SH 550 project and predevelopment advisory services. The authority intends to issue a draft Request for Detailed Proposals (RFDP) on 25 February 2011 with responses due on 29 April 2011. Respondents will have submitted alternative technical and financial concept plans two weeks prior on 15 April 2011. Bid award and final approvals are anticipated in mid-Summer with commercial close 18 April 2011. CCRMA has retained HNTB Corporation as technical advisor, Locke Lord Bissell & Liddell as legal advisor, Prime Strategies as technical advisor, Estrada Hinojosa as financial advisor and C&M Associates as traffic advisor.

The draft Instructions to Proposers (ITP) were appended to the 06 January 2011 Board Meeting Minutes and included in the PDF from pages 80 to 142. The full document is available on the CCRMA website: http://www.cameroncountyrma.org/minutes/RMAMinutes20110106.pdf.

1.2 LA City Council elects to pursue the proposed parking garage lease transaction

On Wednesday, 12 January 2011, Los Angeles City Council voted to move forward with a plan to enter into a long-term lease agreement for several municipal parking garages. Council intends to dedicate proceeds from the transaction for budgetary relief. The city will present a modified lease agreement to prospective investors on Friday, 14 January 2011. The city has engaged Loop Capital to serve as sell-side advisor on the transaction.

The draft Request for Proposals (RFP) is available on the city’s administrative office website for review. The original process had set a Concession Agreement (CA) documents package release date of 14 December 2010 and a response deadline of 31 January 2011. With the one month delay, the likely submission deadline would fall at some point in March or April of 2011. The selection criteria set forth in the RFP document includes operating requirements, such as, 10-year operating track record with at least 20 parking assets in one of the 366 large metropolitan areas and maintenance responsibilities for at least 15,000 paid spaces (for the operating partner). On the financial side, the proposals must contain committed plans of finance with an ability to achieve financial close within 90 days of CA award. The city intends to require all respondents to post security in the amount of US$20 million. Although financial information was not appended to the RFP, the document does contain a proposed rate schedule wherein the average rate increase over the 5-year schedule amounts to +25%.

Unlike in the Pittsburgh example, nine parking garages are distributed throughout the city within neighborhoods, the central business district and secondary business districts.

The assets include the following:

• Broxton in Westwood -- 366 spaces;

• Cherokee in Hollywood -- 386 spaces;

• Cinerama Dome in Hollywood -- 1,717 spaces;

• Dickens in Sherman Oaks -- 198 spaces;

• Friar Street in Van Nuys -- 237;

• Hollywood & Highland in Hollywood -- 3,006 spaces;

• Larchmont in Hancock Park -- 167 spaces;

• Pershing Square in Downtown -- 1,590 spaces;

• Robertson in West LA -- 334 spaces; and,

• Ventura BLVD in Studio City -- 397 spaces.

The draft RFP is available at the following web address:

http://clkrep.lacity.org/onlinedocs/2010/10-0139-S1_rpt_cao_8-9-10.pdf.

1.3 Los Angeles World Airports seeks private operator for Ontario Airport

On 04 January 2011, Los Angeles World Airports published an open solicitation for Expressions of Interest (EOI) for Ontario International Airport Operations and Maintenance. The solicitation is a precursor to an official procurement according to the release. While the process does not necessarily launch an official procurement, it is a first step by LAWA in the process. The proposed contract structure would allow LAWA to circumvent the Federal Aviation Administration Pilot Privatization Program (PPP).

Beyond outsourcing O&M responsibilities, LAWA has stated the following objectives:

• Return OIAO to pre-2008 passenger volumes and increase regional market share

• Market OIAO to new airlines, regional passengers, freight-forwards and logistics companies

• Improve the operational efficiency at OIAO

• Balance short-term efficiency enhancements with long-term growth objectives

Through November 2010, Ontario Airport served 4.42 million passengers -- a decline of (1.2%) from 2009. Passenger volumes at the suburban reliever have been on the decline for the four of five years following a peak volume in 2005 at 7.2 million passengers. Annual aircraft operations have declined by over 31% from 2005 to 2009, while cargo volumes fell by (32.1%). Regional economic weakness in the Inland Empire undoubtedly weighed on recent performance. The airport features three terminals comprising over 530,000 SQFT in the two main terminals with an additional 40,500 SQFT in the third international terminal. Following recent renovations, the airport has capacity for approximately 10 million passengers.

The EOI document is available at:

http://www.lawa.aero/uploadedFiles/LAWA/Business/ONT_Expression_of_Interest-Consolidated.pdf

1.4 Massachusetts Bay Transit Authority (MBTA) considering parking monetization

On 04 January 2011, the Boston Globe reported the Massachusetts Bay Transit Authority (MBTA) has evaluated the potential monetization of parking revenue at transit stations around Boston. According to the news report, the MBTA effectively securitize the parking revenue stream through a ring-fenced tax exempt debt issuance. MTBA officials anticipate raising between US$250 and US$325 million in proceeds from the bond sale. The MBTA board is reviewing the initiative as it seeks to bridge an anticipated $100 million budget deficit in the Fiscal Year ending July 2012 budget. The proposed structure would have the authority retaining title and control of the asset with (presumably) a long-term service contract with a third-party operator with net revenue pledged to repay the debt. Any excess revenue would flow to the authority. The authority is heavily indebted with an estimated US$450 million in principal and interest payments due in FY 2012 and US$575 by FY 2016. In the next few years, debt service is on pace to eclipse total farebox receipts!

MBTA parking assets comprise over 46,000 spaces in 100 parking garages and surface lots throughout the service area covering Greater Boston. At present, the authority has engaged a private operator on a short-term basis to manage the assets. After the operating service payments, the authority earns approximately US$30 million in net revenue per annum.

1.5 South Bay Expressway bankruptcy reorganization plan takes shape with haircuts

To little fanfare, the reorganization plan for the South Bay Expressway (SBE) project financing emerged late in 2010. As a result of the reorganization, the TIFIA Springing Lien has sprung. According to the 28 December 2010 reorganization plan, senior secured creditors are entitled to US$363.3 million in consideration of which US$208.5 million is a Secured Claim with the remaining $154.8 million is an Unsecured Claim (via the 68.08% share in the equity capital of the SBE project company). TIFIA (US taxpayers) are entitled to aggregate claims amounting to US$172.0 million of which US$97.76 is a Secured Claim and US$74.2 million is an Unsecured Claim. Provided TIFIA accepts the proposal (why the US DOT would decline parity remains to be seen), the effective haircut on senior creditors is nearly 38% on par value of the senior debt less two-thirds of whatever value is realized in the sale of the SBE equity stake. Equity investors (Macquarie investment funds) are wiped out in the reorganization plan.

Based on the reorganization plan, TIFIA interest accretion had an adverse impact (material) on the senior creditors’ position. According to TIFIA documents, the original plan of finance included US$340 million in Senior Debt and $140 million in TIFIA Direct Loan. Since the SBE project was unable to make scheduled debt service payments on the TIFIA facility, the principal balance accreted to roughly $170 million. Presumably, the cash flow hedges were out of the money, as well, but recognized in the reorganization process providing the enhancement to the presumptive recovery value. Compared with the latest EBITDA at just $4.4 million in the twelve months to 30 June 2009, the facility remains exceptionally over-leveraged with a low probability of equity value over the relatively short concession term (35-year term ending in 2042). Revenue stagnated as late as the 31 December 2009 quarter with average daily trips (13.4%) and revenue (0.5%). EBITDA for the six month ending 31 December 2009 amounted to just $3.2 million.

1.6 Citi Infrastructure port acquisition financing details

Industry reports revealed Citi Infrastructure Partners managed to raise AUD $810 million through a five-year multi-tranche loan for its Battleship Borrower entity to finance the DP World Australian port asset investment. The facility is split into an A$530 million acquisition term loan, A$250 million term loan and A$30 million revolver. Three Australian banks in ANZ, Commonwealth Bank of Australia and Westpac acted as Mandated Lead Arrangers (MLA) with Banco Santander and Credit Agricole taking participations in the three tranches. No pricing details were immediately available.

Infrastructure Market Update: 02 January 2011

2011-01-02T23:49:00.000-05:00

Market Overview

The last week of December capped off a strong rally in the fourth quarter of 2010. The S&P500 finished the year and quarter with a modest +0.07% gain to the finish the year at 1,258. The modest gain notwithstanding, the S&P500 advanced +10.2% for the quarter and +12.8% for the full year. Interestingly, the majority of the year’s gains followed from the short-term correction that greeted the official announcement of QE2 by the FOMC in early November. Conversely, the bond market sold off over the same period, despite the US$600 billion asset purchase plan announced in November and re-affirmed by the FOMC in December. Since the November FOMC meeting, the 10-year treasury has advanced by over +80 basis points to end the year yielding 3.30%. For the full year, the 10-year treasury increased in price with yields lower by nearly 50 bps from the 2009 year-end.

With the Irish troubles settled for now, domestic macroeconomic news has been supportive for most of December. In the last week, a host of regional manufacturing surveys suggested continued strength in the industrial sector. On 30 December 2010, the Kansas City survey showed local manufacturing on an expansionary track with an improving outlook for the six (6) months ahead. The production index was flat at 21 versus November, but at 32 compared with the prior year versus 27 in November. Leading indicators, including backlog and new orders were either flat or improving against the prior month and well ahead of breakeven. Expectations for the next six months were uniformly ahead of the prior month. Earlier in the week, the Richmond FRB survey showed the pace of manufacturing activity accelerating in the Mid-Atlantic region. All indicators, including shipments, new orders and employment, were in positive territory. The six month outlook improved as well with most respondents reported improved expectations for output and hiring. Finally, the Dallas FRB kicked off the week on 27 December 2010 with the release of its manufacturing survey with positive implications, as well. Although modestly lower from November, the current production index at 12.8 was positive for the fourth consecutive month. Capacity utilization increased to 14.8, but new orders slowed somewhat to 1.6 from 9.1 last month. Despite the slight dip in new orders, the six month outlook improved uniformly on all key input and output factors. In Chicago, the regional purchasing manager survey from 30 December 2010 was stronger than expected at 68.6 versus 62.5 last month and 62.0 consensus. The report was very strong with production at 74.0 with new orders at 60.2.

Housing data released during December tempers, somewhat, the positive tone across the regional manufacturing reports. For example, the October Cass-Shiller Home Price data registered a (1.2%) sequential decline for the 10-city average price index. Prices have fallen for four consecutive months through October. New home sales data for November was somewhat more positive with sales pacing a +5.5% gain from October to a SAAR at 290,000 units. November advance came off a depressed October sales volume wherein sales fell by (8.1%). Prices in November firmed on a sequential basis, rising +8.0% (both average and median). Existing homes sales, released a day earlier, were impacted by the initial tax credit expiry in November 2009 with sales down (27.9%) from the prior year. Compared to the prior month, however, sales volume advanced by +5.6% to a SAAR volume at 4.68 million units.

Transport Economics

The recovery in the aeronautic sector appeared to slow somewhat in November, according to International Air Transport Association (IATA). Compared with the prior period, passenger volume and freight volume increased by +8.2% and 5.4%, respectively. On a sequential basis, however, passenger and freight volumes slipped from October, falling (0.8%) and (1.1%), respectively. IATA attributed the November weakness to the maturation process of the cyclical recovery and the lingering effects of the Mexicana bankruptcy in the Latin American region. Latin America did endure the most pronounced decline at (2.1%) from October and flat growth from the prior year. Only the African region to achieve an acceleration in the year-to-year growth trend in November compared with the prior month. In addition, Africa and the Middle East achieved sequential growth in November from October. Freight tonnage advanced sequentially in the Middle East, African and Europe.

Infrastructure Deal Summary

1.1 Alberta Investment Management acquires stake in Chilean toll road

On 29 December 2010, Skanska (STO: SKA) announced the sale of its 50% stake in the Autopista Central to Alberta Investment Management Company (AIMC). AIMC, the provincial pension investment advisor, agreed to pay six (6) billion kroner or US$875 for the 50% equity stake. SKA will record an after tax gain of nearly five (5) billion kroner upon financial close. SKA had initiated the sales process late in 2009. At 31 December 2009, SKA reported a carrying value of SEK 1,293 million (US$180.6 million at historic exchange rate). On a gross basis, SKA valued the 50% stake at SEK 7,896 million (US$1,102.7 million) using an 11.65% discount rate. The US$875 consideration amounts to a 25% discount to the reported SKA valuation.

The facility is a 61-kilometer, six-lane thoroughfare running through the Chilean capital, Santiago. The project is a domestic risk facility with the project company assuming full demand risk. The project concession extends for 30 years with an end date in 2031. Partial operations commenced in 2004 with the final segment on the facility completed in May 2006. The contract value amounted to US$430 million according to the SKA website. The construction partnership included SKA (48%) and ACS/Dragados (48%) with two local firms, Belfi and Brotect (2% each).

While SKE did not divulge operating results for the facility, Abertis publishes traffic, revenue and earnings results for the toll road. During the nine months ending 30 September 2010, Autopista Central produced EUR 50 million in gross receipts (on a proportionate basis) and volume at 64,462 in Average Daily Traffic (ADT). The concession yielded EBITDA at EUR 31 million (proportionate basis). The toll road continued to exhibit both traffic and tariff growth in 2010 with ADT increasing at +3.2% and an increase of +1.2% in the average toll rate. Reported toll revenue increased by +27.4% in Euro terms on a nearly 30% gain in the Chilean Pesos. For the trailing twelve months, EBITDA amounted to EUR 43 (proportionate basis) and approximately EUR 149 million (US$196.7 million). Based on the implied value SKA/AIMC transaction, the estimated enterprise valuation amounts to $2,353 million for a transaction multiple at 12 times. The implied equity IRR utilized by AIMC to discount the SKA cash flow projections is c. 15%.

1.2 Citi Infrastructure Investors acquires 75% stake in DP World Australia

On 22 December 2010, DP World announced a strategic transaction with Citi Infrastructure Investors (CII) involving container terminal assets in Australia. According to the DP World release, CII has agreed to acquire a 75% stake in DP World Australia, which operates five container ports, for total consideration of AUD $1.5bn. Citi will fund the deal, set to close H1: 2011, with A$530m of acquisition debt and the balance in equity. In addition, the bank club has committed to provide A$250 million CAPEX facility. The five container terminals, at Brisbane, Sydney, Melbourne, Adelaide and Fremantle, possess aggregate capacity in excess of 3.5 million TEU, representing nearly 50% of the total Australian market.

For the twelve months ending 31 December 2010, DP World Australia generated an equity-adjusted EBITDA of A$96 million. Based on the implied transaction valuation, the overall enterprise value for the business amounts to A$1,817 million for an adjusted EBITDA multiple at nearly 19 times the 2009 result. According to at least one industry source, the pro forma 2010 result brought the transaction multiple to about 12.7 times on rebounding container volume and local profitability. DP World does not break out the contribution from the Australian business, choosing instead to combine the Australia and Americas division. During the six months to 30 June 2010, the combined division achieved an average +27% container volume and a like for like +21% gain in revenue (on a constant currency basis).

1.3 Global Infrastructure Partners sells further equity stake in Gatwick Airport

On 20 December 2010, Global Infrastructure Partners (GIP) announced the final sale of an equity stake in Gatwick Airport to the Future Fund of Australia (FFA). FFA will acquire a 17.2% shareholding in the airport for total consideration at GBP 145 million. Upon financial close, GIP will have reduced its shareholding to 42% through its equity syndication campaign. The other shareholders in the airport include Abu Dhabi Investment Authority (ADIA), National Pension Service of Korea (NPS) and the California Public Employees’ Retirement System (CalPERS).

During the six (6) months ending 30 September 2010, Gatwick Airport served 18.1 million passengers. Passenger volume was off (5.2%) from the prior year owing to the period closures during the quarter ending 30 June 2010 caused by the volcanic ash clouds. Gatwick was offline for six days and lost an estimated 600,000 passengers as a result of the closure. For the year ending 31 March 2010, Gatwick produced GBP 461.2 million in revenue yielding GBP 168 million EBITDA before extraordinary items. Gross cash flow to equity amounted to GBP 185 million.

1.4 Cameron County (TX) Regional Mobility Authority shortlists two consortium

On 20 December 2010, the Cameron County Regional Mobility Authority (CCRMA) announced it had received proposals for two consortia for its two phased procurement for a master developer. CCRMA intends to review the proposals and upon acceptance of each consortium’s credentials, distribute a Request for Detailed Proposals (RFDP).

The firms submitting the proposals were identified as:

• Cintra Infraestrucuras, S.A.

• Rio Grande Highway Developers, L.L.C.

The Rio Grande consortium is affiliated with Texas-based contractor, Zachry Construction Corporation. The two consortia have submitted preliminary responses. Having received just two responses, I would assume both firms will move ahead in the procurement process.

The actual project work involves two phases. The first phase involves the development of SH 550, an $80 million DBF (with possibility for O&M to be determined) along an eight (8) mile long alignment. The project has environmental approval with a Record of Decision (ROD) from the EPA. The second phase of the scope of work is more conceptual with the preferred proponent committed to working with the authority on pre-development scoping and strategy for five additional projects ranging in size from an 8-mile ($50 million) project to a 15-mile ($465 million) project. All told, the combined value for the incremental work is in excess of $1.0 billion. None of the projects have environmental approval, though approvals are anticipated on 4 of 5 expected in 2011. To the extent projects move forward, the preferred proponent would be awarded the projects in some capacity, from what I can tell.

The projects along with estimated capital expenditures are summarized hereafter:

• US 77 Driscoll and Riviera Relief Routes: USD 50 million

• West Parkway: USD 160 million

• Outer Parkway: USD 200 million

• SPI 2nd Access: USD 465 million

• 281 Connector: USD 140 million.

The original RFQ is available at: http://www.cameroncountyrma.org/docs/CCRMACDA3.pdf.

Infrastructure Market Update: 12 December 2010

2010-12-14T22:05:00.002-05:00

Market Overview

As the year-end approaches, global markets are preoccupied once again with sovereign credit risks. One year ago, it was the imminent restructurings out of Dubai. More recently, it was Ireland’s turn to recapitalize domestic corporates via multilateral credit support (EU and IMF). In November, global markets revisited common themes, including the aforementioned sovereign credit issues in Ireland, monetary policy tightening in China and extraordinary policy interventions in the much anticipated second round of asset purchased embarked upon by the FRB. Since the FRB announcement 04 November 2010, the S&P500 has trended somewhat listlessly. In contrast, the US bond market has struggled to digest the latest happenings in global markets. Since rallying to yield 2.48% on the FRB announcement, bond yields have retraced with the selloff accelerating in December. On Friday’s close, the 10-year treasury was up over 80 bps to close just shy of 3.30%. Finally, the USD/EUR cross has manifested the cross currents dominating the past few weeks. Since peaking above $1.40, the USD/EUR cross has retreated to just above $1.32 -- an increase of nearly +8.0%.

Undoubtedly, sovereign developments over the past several weeks have overshadowed macroeconomic data releases. Nevertheless, the data continue to support a recovery struggling to attain escape velocity. During the short Thanksgiving holiday week, Commerce released a surprisingly strong third quarter GDP update with the growth estimate increased to +2.5% from the advance +2.0% and the prior quarter’s +1.7%. From the last week of November, the two regional manufacturing surveys from the New York and Philadelphia FRB provided contradictory evidence on the state of manufacturing in the Mid-Atlantic. In New York, the headline index registered a (11.14) against +15.73 in October. In Philadelphia, conversely the headline leapt higher to +22.5 from the prior month’s 1.0. Overall industrial production in October was flat according to the Federal Reserve. The underlying detail was stronger, however, with manufacturing output rising +0.5%; whereas, a decline in utility output curbed the headline result. Housing production remains weak as confirmed by the Census Bureau report on housing starts. Starts were (11.7%) from the prior month at an annualized pace of 0.519 million -- a decline of (1.9%) from the prior year. The decline was fueled by a dramatic fall in multi-family starts; single family starts slipped (1.1%) from the prior month.

Transport Economics

Despite the seasonal peak in retail trade flows, transport data releases over the past few weeks have looked somewhat mixed. October is traditionally the peak month in inventory led trade flows ahead of the holiday shopping season. In particular, October has seen the strongest container volume data on the West Coast. Container volumes fade into year-end with volumes bottoming in the first quarter on an annualized basis.

Port Authorities on the West Coast reported weaker than expected container volume in October. Overall volumes on the West Coast were just +0.1% higher sequentially in October -- US West Coast was (0.3%). On a seasonally-adjusted annual basis (SAAR), however, the October volume was (3.5%) off from September. Over the past 15 years, October has experienced the strong container volumes on inventory building for the holiday season. Compared to the prior year, all major West Coast ports experienced volume gains with Long Beach and Vancouver leading the way at +35.6% and 30.2%, respectively. Nevertheless, the YOY gain averaged just +16.4% compared against the +18.3% average advance achieved during the first nine months of 2010. As the year-end approaches, the YOY comparisons become more challenging as the abysmal 2009 volumes roll off. Thus, any slowdown in sequential growth suggests a somewhat weaker outlook for container market in the year ahead.

The Cass Freight Index provided a contradictory data point to the trucker data. According to Cass data, freight shipments fell back in October from the prior month (5.2%). Expenditures were somewhat more resilient, but still off (2.7%) from September. Nevertheless, the two index components were well ahead of the prior year with expenditures at +30.3% and shipments +14.9% from October 2009. The Cass Freight Index rebounded in November, however, with both components registering seasonally-adjusted increases from October. The expenditures component was +0.7% above the prior month and +24.6% from the prior year. Shipments recovered further at +2.84%.

Truck tonnage gained for the second month in three in October according to data released from the American Truckers Association (ATA). On a seasonally-adjusted basis, tonnage increased +0.73% from the prior month and was +3.0% above the prior year. The ATA index has increased for 11 consecutive months in 2010 against the same period in 2009. Compared to the prior peak volume, however, the October reading remains (6.5%) from the January 2008 peak.

Finally, the UCLA Pulse of Commerce Index (PCI) registered its first advance in four months with a +0.4% sequential advance in November. The report, released on 07 December 2010, showed diesel fuel sales gaining +4.5% in November compared with the prior year. The YOY gain is the twelfth month of gains. Growth was widespread in November with five of nine Census regions sustaining growth in November. The Pacific region led all regions with +3.6% growth followed by the Mountain region at +1.3%. The other regions experiencing growth include the West South Central at +0.8%, East North Central +0.1% and South Atlantic at +0.1%.

Infrastructure Deal Summary

* To bring the weekly up to date, the deal summary is longer than usual.

1.1 ETR-407 issuing short-term senior and subordinates bills maturing in 2011

On 10 December 2010, 407 International announced the successful issuance of C$700 million of notes in two tranches. The company sold C$300 million ($294 million) 3.87% subordinated notes, maturing on Nov. 24, 2017. The sub-debt priced at 99.97 to yield 3.875% or 123.7 basis points over the Canadian government benchmark. In addition, the company sold C$400 million ($392 million) of 4.30% senior notes, due May 26, 2021. The senior notes priced at 99.966 to yield 4.304% -- 108.8 basis points over the benchmark. The refinancing will result in an incremental CA$150 in additional indebtedness at the project company -- an increase of approximately 3.1%. The lead managers on the sale were Bank of Montreal and Royal Bank of Canada, according to the term sheet.

Previously, on 23 November 2010, DBRS, the Canadian rating agency, announced it had assigned ratings on the two facilities. DBRS rated the Senior Notes “A” and the Subordinate Notes “BBB.” 407 International will use the proceeds of the new debt to retire existing Senior and Subordinate facilities maturing in January 2011. DBRS noted the rating affirmation turned on the solid operating results achieved in the first nine months of 2010. Traffic volumes have rebounded with a +5.6% growth rate against the prior year. Aided by toll rate increases and volume growth, revenue and EBITDA have increased by 11.4% and 13.4%, respectively from the prior year.

1.2 New Jersey Transit announces short-listed consortium for parking lots concession

On 03 December 2010, the New Jersey Transit (NJT) board approved a short-list of candidates to enter into an operating concession for the park and ride lots throughout the transit system. The short-listed consortia include the following:

• KKR with ECI Investment Advisors and Ampco Parking Systems;

• Morgan Stanley with Central Parking System;

• Carlyle Infrastructure Partners with Nexus Parking Systems;

• Macquarie Capital with Standard Parking and Tim Haahs;

• JP Morgan with LAZ Parking;

• Cintra; and,

• Edison ParkFast

The parking concession program referred to as SPACES (System Parking Amenity and Capacity Enhancement Strategy) will involve as many as 37,000 parking spaces at 81 transit stations. The concession term is expected to extend for 30 to 50 years. The short-listed teams will have until March 2011 to develop bids and put together financial strategies for the concession.

1.3 Plenary Health Hamilton financial plan achieves Single-A rating

On 16 November 2010, S&P published a pre-sale report for Plenary Health Hamilton with a preliminary rating of “A” to the project company. Plenary Health Hamilton is the project company incorporated to implement the St. Joseph’s Hamilton Healthcare project under the Infrastructure Ontario P3 Project Agreement. The project involves the DBFOM of a new, purpose-built mental health facility in Hamilton, Ontario and the subsequent decommissioning and demolition of the existing 450,000 SQFT facility. The new facility will accommodate 305 beds and comprise 800,000 SQFT. The project company has entered into a DB contract with consortium partners, PCL. The fixed-price contract amounts to CA$336 million inclusive of PCL contingencies. Infrastructure Ontario announced the award of the project on 27 September 2010. The project should achieve simultaneous commercial and financial close in early December 2010.

The DB contract includes market standard security package, except for the somewhat low liquid component via 5% Letter of Credit (as per S&P rating report). PCL will post a 50% performance bond and provide a 50% parental guarantee expiring two years after substantial completion. Maximum liability is capped at 100% of DB contract. Finally, the contract includes a retention feature both for critical path Milestone events and during the final nine month before Scheduled Substantial Completion. During operations, the project company has contracted with Honeywell to provide facilities management services. The FM security package includes an indexed LC equal to 50% of annual service payments and 50% parent guarantee from Honeywell.

The plan of finance for the project includes a dual tranche bond structure with short and long-term maturities totaling CA$373.5 million. The short-term facility amounts to CA$115 million with the long-term facility at $258.3 million. Industry sources suggest bond pricing has tightened relative to deals transacted earlier in the year with indicative margins at 225 basis points on the long-term tranche. RBC is leading the bond underwriting effort. Project equity amounts to $37.3 million for a leverage ratio equal to 90.9% just below the market convention 90:10 ratio. The equity partners, Plenary Group and Innisfree through its Innisfree PFI Secondary Fund LP. The equity commitments from both sponsors are supported by Letters of Credit from RBC and RBS for Plenary and Innisfree, respectively. Upon substantial completion, a Milestone Payment will repay the short-term tranche and reduce the leverage ratio to 87%. Availability Payments are sized to maintain an average DSCR at 1.22 times including interest income. The distribution lock-up test is set at 1.15 times and default ratio at 1.00 times.

1.4 Maryland Transportation Authority cancels procurement for service plazas

On 09 November 2010, the Maryland Transportation Authority (MTA) announced it had decided to cancel the procurement for the redevelopment of two service plazas on Interstate 95. The project involves the redevelopment and expansion of two service plazas: one in Harford County built in 1963; and the second, in Cecil County built in 1975. The Transportation Secretary, Beverly Swaim-Staley, indicated the state remained committed to the redevelopment project through a public-private partnership. The decision to hit the restart button stemmed from multiple revisions and changes during the initial procurement process. The state will target a re-release of the solicitation document early in 2011.

1.5 Chicago Parking Meters LLC sells US$600 million with spreads at 300 bps wide

On 04 November 2010, Reuters reported Chicago Parking Meters LLC (CPM) had sold US$600 million in 10-year senior-secured notes backed by its metered parking concession. The deal priced at par with the $600 million issue yielding 5.489% with a bullet maturity in 2020. Barclays, Credit Suisse and Morgan Stanley were the joint bookrunning managers for the sale. Net proceeds from the note sale will be dedicated to repay the original equity investors in the transaction. At the original closing, Morgan Stanley Infrastructure Partners acquired the franchise with an all-equity bid at US$1.1565 billion. In an updated rating report, S&P affirmed its earlier rating of “BBB-“ for the upsized debt offering from CPM. The bond adhered to the original issue details in all material respects excepting the debt size (original plan called for US$500 million). Bond covenants include a 1.25 times DSCR distribution test and required US$15 million in liquid reserves (with required replenishment upon drawdown). The original permitted indebtedness test remains in the indenture at 2.0 times DSCR along with the requirement to maintain the investment grade credit rating subsequent to any incremental debt.

On a pro forma basis, the facility is leveraged at 8.20 EBITDA whereas debt service coverage is strong at 2.2 times CFADS. On the basis of the additional permitted indebtedness, the project has scope for 10% more debt -- roughly US$60 million. According to the S&P report, the project remains on target to achieve the budgeted US$73.2 million in revenue in 2010. In the sponsors’ case, revenue is projected to more than double to 2020 at US$161.8 million -- an increase of 8.3% CAGR. Interestingly, the elasticity assumption in the updated report is just 5.0% versus 25% in the prior report. In both instances, S&P indicated the traffic consultant had confirmed the estimate based on observed utilization rates following the initial tariff increase in 2009. The remaining growth is achieved through improved compliance rates.

1.6 Cameron County Regional Mobility Authority (Texas) solicits proposals

On 29 October 2010, the Cameron County Regional Mobility Authority issued a Request for Proposal for a toll road project (SH 550) and several conceptual projects. The procurement involves a Design-Build Finance with an option to operate and maintain a new toll facility on SH 550. The concessionaire will be required to EPC the facility along with the all-electronic toll collection regime. In addition, the preferred proponent would provide pre-development services for up to five additional projects in the regional planning authority’s long-term transportation plan.

The initial project, SH 550, is an $80 million DBF (with possibility for O&M to be determined) along an eight (8) mile long alignment. The project has environmental approval with a Record of Decision from the EPA. The project will be developed under a Comprehensive Development Agreement (CDA) with a 52-year term. The CDA is under development with plans for a toll revenue sharing arrangement. At present, the plan of finance is evolving with the authority identifying all manner of potential financing sources, including toll revenue bonds, TIFA, State Infrastructure Bank (SIB) loans and other public funding sources.

The second half of the project is more conceptual with the preferred proponent committing to work with the authority on pre-development and strategy for five additional projects ranging in size from 8 mile ($50 million) project to a 15 mile ($465 million) project. All told, the combined value for the incremental work is in excess of $1.0 billion. None of the projects have environmental approval, though approvals are anticipated on 4 of 5 expected in 2011. To the extent projects move forward, the preferred proponent would be awarded the projects in some capacity, from what I can tell. There is no commitment to concession the deals, but it will be an option.

The projects along with estimated capital expenditures are summarized hereafter:

• US 77 Driscoll and Riviera Relief Routes: USD 50 million

• West Parkway: USD 160 million

• Outer Parkway: USD 200 million

• SPI 2nd Access: USD 465 million

• 281 Connector: USD 140 million.

The original RFQ is available at: http://www.cameroncountyrma.org/docs/CCRMACDA3.pdf.

Infrastructure Market Update: 31 October 2010

2010-10-31T23:59:00.000-04:00

Market Overview

The FOMC announcement on Wednesday will present the denouement to the ongoing sage -- Quantitative Easing Part Duo. The NY FRB all but confirmed the foregone conclusion when on 28 October 2010, Bloomberg News reported the open market desk had queried the 18 primary dealers on expectations and implications for QE2. According to the report, the FRB survey asked the primary dealers to estimate the size and potential impact of the second round of asset purchases. Market expectations were widespread with purchase estimates ranging from USD $500 million to Goldman’s estimate at US$2.0 trillion. Market participants responded with an expected volume of US$1.0 trillion in 10-year treasury purchases. Previously, NY FRB President William Dudley anchored expectations on the low end with talk of US$500 million. A press leak to the WS Journal later in the week confirmed the low-end target with talk of an initial commitment to US$250 billion per quarter for the next three quarters. Market participants appear to have discounted the next round in full, as equity markets were subdued last week. The S&P500 finished the week essentially flat at 1,183 -- an increase of +0.00%. The bond market continued to back up as investors lost a bit of faith in the open-ended purchase commitment. For the week, the 10-year added five basis points to finish the week yielding +2.61%.

The macroeconomic news last week continued the mixed trend. The week got off to a solid start with the September existing home sales report. The National Association of Realtors reported a solid +10% sequential gain in sales in September to a 4.53 million annualized rate; consensus called for a +7.4% gain to 4.3 million. The sales gain brought inventory down to a 10.7 months supply compared with 12.0 and 12.5 in August and July, respectively. The median price, however, dipped to US$171,700 million. On Tuesday, Case-Shiller data revealed a downturn in home prices for repeat sales. Prices fell by (0.2%) from the prior month. The Census Bureau provided the final housing report for the week on Wednesday. New home sales were ahead by +6.6% to 307,000 versus 300,000 consensus. The median price actually advanced to US$223,800 -- an increase of +1.5%. Inventory dipped to 8.0 months supply. Durable goods on Thursday were mixed with a headline +3.3% sequential gain, but (0.8%) ex-transports. On Friday, the Commerce Department released the Advanced GDP report with an at consensus +2.0% growth rate in the third quarter. Third quarter growth was held back by the give-back in residential investment, which knocked 0.80 percentage points off growth. Inventory replenishing continued to add to growth with a contribution of 1.44 percentage points. Finally, net exports reduced growth by 2.01 percentage points; a bit out of consensus given the dollar weakness, but no surprise given other trade data (e.g., trade flows at the Ports of LA and Long Beach).

Transport Economics

On 26 October 2010, American Truckers Association (ATA) reported truck tonnage in September increased by +1.7% on a seasonally-adjusted basis from August following the prior month’s sequential decline at (2.8%). From the prior year, actual freight tonnage was +5.9% higher in September marking the tenth straight month of YOY gains in tonnage hauled. The ATA chief economist noted the data reflects an observed stagnation in freight volumes beginning in the third quarter and continuing into September implying only modest GDP growth in the third quarter.

Consistent with the aforementioned tonnage data, the International Air Transport Association (IATA) reported the second month-to-month decline in air freight volumes in September. While expanding by +14.8% from the prior year, September volumes were off (2.1%) sequentially from the August level. The IATA Executive Director sounded the alarm when noting the decline is worrying and reflective of wider softening in global macroeconomic activity in the third quarter. The second consecutive decline in freight volume was widespread on a geographic basis with all regions experiencing sequential decline in September except for the Middle East. Passenger volume continued to expand in September, however, with global traffic registering an increase of +2.1%. The load factor in passenger service expanded to 80% compared with 77.7% in the prior year. Freight load factors improved to 52.4%.

Infrastructure Stocks

On 26 October 2010, Transurban (ASX: TCL) announced the successful commercial close for the Hills M2 Upgrade Project. TCL has contracted with Leighton for construction works. Total construction costs for the facility amount to AUD $550 million. The capital investment entitles TCL to a one-time toll increase of 8% at construction completion and extension on the concession end date from 2042 to 2046. TCL anticipates the improved capacity and new tolled ramps will improve traffic flow and accessibility of the motorway. Construction is expected to commence mid-December and be completed in early 2013. Transurban predicts 16% traffic uplift on average daily trips from 2016. As previously reported, the economic benefit attributable to the combined traffic increase and the associated toll rates would provide an initial return on capital of approximately 4.0% (tolls are subject to CPI indexation).

Infrastructure Deal Summary

1.1 Pittsburgh Parking Authority rejects City Council asset sale and bond issue

On 29 October 2010, the Pittsburgh Post-Gazette reported the Pittsburgh Parking Authority rejected the asset transfer proposed by City Council members. In a three-to-two vote, the PPA Board rejected the proposal to acquire the parking assets from the city and pay for the transaction via a bond issue underwritten by rate increases. Pittsburgh Mayor Luke Ravenstahl addressed the board and expressed his opposition to the plan given the requirement to take on additional debt. The alternative plan called for the sale of certain parking assets -- namely, the Mellon Square garage, five lots and about 7,000 on-street meters -- to the parking authority for $220 million. PPA would issue bonds finance by an alternative rate schedule to finance the purchase.

1.2 Fluor announces adverse ruling in SR-125 bankruptcy case

On 29 October 2010, Fluor Corporation (NYSE: FLR) announced revised full year earnings guidance for 2010 resulting from an impairment on its SR-125 Design-Build Joint Venture (DB JV). According to the press release, the judge overseeing the bankruptcy filing determined the DB JV mechanic’s lien did not have priority over senior lenders in the restructuring. As such, FLR noted it would take a charge against previously recognized accounting revenue amounting to approximately USD $95 million or US$0.32 per share. FLR indicated it would discuss the write-down in further detail on its quarterly conference call scheduled for 04 November 2010. The other member of the DB JV, URS Corporation did not announce an equivalent write-down.

1.3 Southern Connector submits restructuring plan details in bankruptcy court

On 26 October 2010, Bloomberg reported details of the Southern Connector (SC) bankruptcy plan. Connector 2000 Association filed a restructuring plan on 22 October 2010 with the US Bankruptcy Court with details on loss sharing across the multiple tranches of revenue bonds. According to filing, SC proposes to issue three classes of securities to replace the existing capital structure: 1. USD $172.1 million Tier 1 Bonds, senior-secured (in current interest and capital appreciation form); 2. US$29.8 million Tier 2 Bonds, senior subordinated (capital appreciation); and, 3. US$4.2 million Tier 3 Bonds, junior subordinated (capital appreciation).

At present, current indebtedness includes the senior-secured the Series 1998A and Series 1998B bonds amounting to USD $237.8 million and subordinate Series 1998C bonds amounting to $90.9 million. Senior-secured bondholders would exchange existing bonds for US$172.1 million in Tier 1 bonds -- first priority repayment. Tier 1 bonds would mature in 2051 and accrue interest at 5.8%, payable semi-annually. In addition, Bondholders would receive US$29.8 million in Tier 2 bonds -- secondary priority for repayment. Subordinate bondholders would exchange the Series 1998C bonds for US$4.2 million in Tier 3 bonds under the proposal. In liquidation, subordinate bondholders risk 100% capital loss, should they reject the proposed restructuring. On current projections, SC estimates Tier 1 debt service would consume 83.5% percent of net revenue; Tier 2 debt service would consume 14.5% of net revenue; and, Tier 3 consuming the remaining 2%.

Open issues include eligibility and standing under Chapter 9 (municipal bankruptcy). South Carolina has disputed the filing given the project company’s limited recourse and non-profit status. According to various reports, South Carolina contends SC is not an instrumentality of the state and therefore cannot access the protections afforded in Chapter 9. A court hearing scheduled for 06 December 2010 will rule on whether SC has the right to file under Chapter 9.

Infrastructure Market Update: 24 October 2010

2010-10-24T22:57:00.002-04:00

Market Overview

Market participants remain convinced of both the likelihood and positive impact of further quantitative easing from the FOMC. Last week, Bernanke commented on the merits of further easing given the below-trend inflation and its implications for deflation and price stability. Having previously acknowledged inflation remains below target, Bernanke concluded with a commitment to further extraordinary measures to the extent inflation remains below target. Ignoring the merits, it would appear QE2 will follow from the FOMC meeting the first week of November. In support of QE2, the Beige Book confirmed below-trend growth and stable price trends. For the USD, the damage is done. On Friday, the EUR/USD cross was trading around $1.40. Conversely, the global equity markets retained a bullish sentiment. The S&P500 advanced for the third consecutive week to finish at 1,183 -- an increase of +0.58%. The bond market was flat, however, with the 10-year picking up two basis points to finish the week yielding 2.56%.

Along with the Beige Book, macroeconomic data last week was decidedly mixed last week. From Monday, the FRB reported a decline in September industrial production at (0.2%) compared with +0.2% consensus and prior month. The Homebuilder Index registered a strong report, however, at 16 in October versus 13 in September. On Tuesday, the Census Bureau reported stronger than expected September housing starts data at 0.61 million compared with 0.58 and 0.598 million consensus and prior. Permits, however, were lower at 0.54 million versus 0.57 last month. Finally, on Thursday, the Philadelphia FRB manufacturing report turned positive, but barely at +1.0 compared with (0.7) last month and +1.0 consensus.

Transport Economics

The major West Coast ports reported container traffic last week. While sequential declines were common across the West Coast on the seasonal lull, September volumes continued to register strong YOY growth rates. All ports except for Tacoma reported positive growth rates with Portland and Long Beach leading the way at +52.9% and 30.5% from the prior year. At Long Beach and Los Angeles, the weak export trend continued with both reports handling fewer loaded outbound containers compared with the prior year. The San Pedro ports handled 2.51 loaded inbound containers for every outbound container.

FHWA August traffic data came out last week with all regions reporting positive growth in vehicle miles traveled. Overall, VMT advanced by +1.6% from the prior year. Cumulative growth through August was +0.4% compared to 2009. On a seasonally-adjusted sequential basis, however, the August traffic volume was down for the second consecutive month by (1.3%) from July. In July, volume declined by (1.2%) sequentially, suggesting weak travel demand and consequently, GDP growth in the third quarter. On a regional basis, the Midwest and Northeast lead the reporting regions with +2.6% and +2.0% growth, respectively. State level declines were reported in Florida, West Virginia, Louisiana and Nevada.

Infrastructure Stocks

On 22 October 2010, MAp Airports released quarterly results at Sydney Airport. Gross revenues increased by +13.3% to AUD $240.3 million to yield EBITDA at A$200.1. Passenger volume in September amounted to 2.05 million passengers -- an increase of +7.2% from the prior year. For the nine months ending September 2010, passenger volume has advanced by +9.1% implying a slight moderation in growth during the month of September. Revenue per passenger increased to A$26.54 from A$25.35 -- an increase of +4.7%. OPEX per passenger fell by (8.0%) resulting in EBITDA per passenger at A$22.11 +8.0% from the prior year. Elsewhere, Copenhagen Airport served 2.018 million passengers in September 2010. Volumes increased across domestic and international segments with total volume up +12.3%. For the nine months ending September 2010, passenger volumes are +8.2% ahead of the prior year. In Brussels, international traffic lead the way with a +10.8% advance, whereas intra-EU traffic increased by just +0.5% from the prior year. Overall, passenger volumes amounted to 1.69 million in September and 13.06 million year-to-date -- an increase of +4.1% for September, but (0.5%) decline YTD. Intra-EU traffic volume remains a drag on Brussels passenger volume.

On 20 October 2010, Intoll Group (ASX: ITO) announced third quarter traffic and revenue statistics for its two concessions in Toronto, Ontario CA and Sydney, Australia. The two concessions produced strong results in the third quarter with traffic advancing by +3.3% and 7.7% on the ETR-407 and Westlink M7, respectively. Toll revenue outpaced traffic growth on both facilities as toll rate increases rolled through. ETR-407 achieved CAD $153.6 million in revenue to yield C$143.9 million in EBITDA. Toll revenue advanced by +10.4% with EBITDA accelerating on improved margins to a +12.2% advance from the prior year. The M7 yielded $536.2 million in toll revenue -- an increase of 10.5% from the prior year. Separately, ETR-407 reported the declaration of its second quarter dividend distribution equivalent to C$0.13 per share. The total distribution amounted to C$80 million over 100% of Funds from Operations (FFO). The second quarter distribution includes excess cash at the project company.

Infrastructure Deal Summary

1.1 Parking deals face tepid reception by municipal legislators

First and foremost, the City of Pittsburgh City Council voted against the JP Morgan -- LAZ Parking led bid to operate municipal parking facilities for 50 years. On 20 October 2010, City Council decisively voted down the proposed concession valuing the municipal parking assets at USD $452 million. Ultimately, seven council members voted against the proposal, with one abstention and only one member voting in favor of the proposal. In lieu of the lease agreement, council members elected to sell the parking assets directly to the Parking Authority for US$220 million. The Parking Authority, in turn, will issue tax exempt debt and implement a more modest rate increase vis-à-vis the rate regime contemplated in the monetization.

In Indianapolis, political opposition to the ACS-backed lease agreement necessitated substantial revisions to the original proposal. On 20 October 2010, the Mayor of Indianapolis announced the acceptance of a revised concession agreement with ACS providing the city with an option to cancel the concession every 10 years. In exchange, the city committed to termination compensation beginning at US$19.8 million (future value) in year 10 and declining to $8 million in year 40. In addition, the revised agreement allows for added flexibility by enabling the city to remove at least 200 spaces without compensation. ACS, in turn, would reduce its upfront payment from US$35 million to $20 million, while increasing the city’s revenue sharing from an estimated US$268 million to US$515 over the life of the concession as per city estimates. In short, the revised agreement materially reduces risk transfer from public to private sector.

1.2 Hochtief announces preferred bidder status for the Presidio Parkway

On 22 October 2010, Hochtief published a press release indicating the California Department of Transportation and the San Francisco County Transportation Authority had awarded Hochtief the concession to DBFOM the Presidio Parkway (Doyle Drive) improvement. Hochtief PPP Solutions led consortium (50% interest) includes Meridiam Infrastructure Partners. Hochtief subsidiary, Flatiron Construction will lead the Design-Build Joint Venture. Hochtief estimated the total project value at USD $1.0 billion over the life of the concession agreement.

The Presidio Parkway project involves the reconstruction of the Doyle Drive access to the Golden Gate Bridge in San Francisco. The Hochtief consortium bested a competing proposal from its minority shareholder, Grupo ACS. A third pre-qualified consortium, led by Globalvia Infrastructures and FCC Construction apparently did not submit a final response to the RFP.

1.3 Pennsylvania awards container terminal development concession

On 20 October 2010, the Philadelphia Regional Port Authority (PRPA) voted to approve the 50-year concession for the development of a container terminal at the Philadelphia port. PRPA awarded the concession agreement to a consortium comprising the Delaware River Stevedores Inc. and Hyundai Merchant Marine Shipping Agency. The Delaware River Stevedores is a joint venture between SSA Marine, a Carrix subsidiary and in turn, a Goldman Sachs Infrastructure portfolio company, with Ports America, a Highstar Capital portfolio company.

The construction schedule is slated to commence in three years following the dredging of the 104.5-mile Delaware River shipping channel. The consortium will commit USD $2.0 million in pre-development expenditures. At present, the preliminary design includes an initial berth accommodating three gantry cargo cranes and a 70 acre container yard. Final completion is mandated by March 2017. The second phase, due within two years from completion of phase 1, includes a second berth with three cranes and an additional 20 acre container yard. Finally, phase three involves the expansion of an additional 30 acre container yard. Total construction costs are estimated at US$250 million. The consortium will commit to compensate the authority will involve a guaranteed minimum return on the land at 7.5% along with a variable component based on container volume. In exchange, PRPA will assume responsibility for demolition of vacant structures on site, along with environmental permitting and development of an access road on site. The Commonwealth has committed US$25 million in site preparation costs.

1.4 New Jersey Transit releases parking RFQ

On 14 October 2010, New Jersey Transit (NJT) published a Request for Qualifications (RFQ) to solicit interest in a parking concession for the parking facilities surrounding bus and rail stations. The solicitation is the first in a two-phase process with firms pre-qualified to receive the RFP and submit final proposals in phase two. At present, NJT contemplates a concession term between 30 and 50 years. NJT hopes the concessionaire will enable NJT to improve customer service and parking capacity, while enhancing ridership at its transit facilities.

As currently contemplated, the concession will include parking facilities along the heavy rail lines between Trenton and Newark Penn Station, commuter bus terminals and the light rail stations in Northern New Jersey. The largest parking facility in the system is at Metropark station on the Northeast Corridor west of Newark. The station comprises 3,718 spaces with (one day) observed occupancy at 100%. NJT estimates Metropark generated USD $5.03 million in gross receipts in FY 2009. Other important facilities include Princeton Junction, Hamilton and Trenton each with over 3,000 spaces and gross revenues approaching US$3.0 million or more. NJT anticipates capacity improvement projects at existing sites, including at Princeton Junction wherein NJT desires an expanding parking deck to accommodate additional commuters. The concessionaire will assume responsibility for this and other capital improvements.

The schedule for the RFQ commences from the publication with respondents obligated to notify NJT no later than 20 October 2010 of their intention to participate. Questions are due 22 October with formal submission due 11 November 2010. Qualified respondents will be asked to sign Non-Disclosure Agreements from 19 November 2010 with the RFP due for release in March 2011 and submission in April 2011.

NJT operates or contracts a fleet of 2,200 buses, 1,076 train cars and 93 light rail vehicles. NJT provides transportation to nearly 270 million patrons per annum. In FY 2010, NJT served 263.1 million passengers with rail facilities contributing 80.4 million or 30.6% of total passengers. Bus passengers amounted to 161.2 million or 61.3%. Light rail lines in northern New Jersey accounted for the remaining 21.5 million passengers. Passenger volume declined by (2.4%) from the prior year with volumes declining to levels last seen in FY 2007.

1.5 Chevron pipeline sale to Korean National Pension Service confirmed

Confirming prior reports, on 11 October 2010, Chevron announced the divestment by its wholly-owned subsidiary, Chevron Pipe Line Co. of the 23.44% minority stake in Colonial Pipeline Co. to an affiliate of global buy-out firm, Kohlberg Kravis Roberts & Co (KKR). KKR acquired the assets on behalf of the National Pension Service of Korea. According to a report in the Financial Times, the transaction values the equity stake at roughly $1.0 billion, without citing any source information. In 2009, Chevron reported its dividend-adjusted equity investment in CP at US$514 million with equity in earnings amounting to $51 million in 31 December 2009.

Atlanta-based Colonial owns and operates a 5,500 mile (8,850 km) petroleum products pipeline system in the United States that transports products from supply centers on the Gulf Coast to customers located along the Eastern Seaboard. On average, Colonial delivers 100 million gallons (380 million liters) of gasoline, kerosene, diesel fuel, home heating oil and aviation fuels per day. Other shareholders include Koch (28.09 percent), ConocoPhillips (16.55 percent), Shell (16.12 percent) and IFM (15.80 percent).

Infrastructure Market Update: 10 October 2010

2010-10-10T21:37:00.002-04:00

Market Overview

Although the third quarter earnings season commenced last week, the market punditry is focused instead on the anticipated second wave of quantitative easing in the US and abroad. In the US, QE2 is assumed to commence from the 03 November 2010 FOMC meeting immediately following the US mid-term elections. From Asia, the Bank of Japan cut its policy rate to zero (0) ahead of the IMF meeting on the weekend. The IMF will take up the issue of elevated currency volatility and rumblings of beggar thy neighbor competitive devaluations. Somewhat ironic -- six months ago, the cognoscenti worried more about exit strategies than the likelihood of currency wars. With the markets increasingly discounting QE2, global equities rebounded last week and pushed stock prices are re-testing the April 2010 cyclical highs. The S&P500 added +19 points to finish the week at 1,165 -- an increase of +1.65%. The USD weakened again despite the rate cut from Japan and lingering concerns on Japanese intervention with the Yen cross at multi-year lows and the EUR above $1.40 for the first time since January 2010. Bonds continued to benefit from the anticipated QE2 bid. The 10-year fell (15) bps to finish the week yielding 3.38%; yields last seen in January 2009.

Expectations for the Friday payroll jobs report overshadowed much of the macroeconomic data released last week. On Monday, the National Association of Realtors released the Pending Home Sales Index for August with modestly positive affect. Pending home sales advanced for the second consecutive month following the early summer pay back from incentive buying. The index reached 82.3 (2001 = 100) in August an increase of +4.3% from the July reading at 78.9. On Tuesday, the ISM surprised the market with its non-manufacturing index revealing a modest improvement to 53.2 versus 52.0 consensus and 51.5 prior month. Employment moved back into positive territory at 50.2 -- an increase of two points from the prior month. On Thursday, US retailers reported September same store sales with positive implications for consumer spending. Indeed, chain store comparable sales increased +4.0% from the prior year (ex-gas and autos). Finally, on Friday, the BLS released its Employment Report. Market participants pinning for QE round two may have got what they were looking for in a relatively weak report. The headline non-farm payroll count was (95,000) from the prior month. While private payrolls fell, a significant drop in state and local jobs at (83,000) coupled with continued census layoffs overwhelmed the +64,000 gain in private payrolls. Household survey data was moderately positive with the unemployment rate essentially flat at 9.6% on +141,000 job gains and (93,000). Other noteworthy data points include the flat work week in September at 34.2 hours and modest $0.01 per hour gain in average hourly earnings. Given the market response, I suppose one could argue the report was bad enough to induce FRB action in November, but strong enough to dispel concerns about contraction into the fourth quarter.

Transport Economics

The Cass Freight Index extended gains in September following the August rebound from the July dip. The expenditures component reached its highest level since July 2008 and +30.5% higher than the prior year. From the prior month, expenditures were +3.0% higher in the second consecutive month of gains following the decline in July. Total shipments rebounded to Summer 2008 levels, as well, with the shipment component +1.9% from August and +15.5% higher than September 2009. With the end of the recession officially logged in June 2009, I would point out the freight index did very good work foreshadowing the recovery, again. The two components both bottomed in April 2009, whereas YOY decline troughed in June 2009. From the second quarter, freight volumes and expenditures began to advance sequentially on a fairly steady basis. Since June, expenditures have gained +36.4% and shipments at +19.6%.

Infrastructure Stocks

On 05 October 2010, Ferrovial (SM: FER) portfolio company BAA announced the successful placement of a €500 million note maturing in 2016. The coupon on the six year note is fixed at 4.125% implying a yield inside of 205 bps over mid-swaps. The offering attracted substantial interest with BAA reporting an order book four times over-subscribed. BAA noted the geographic diversity achieved in its funding efforts with fully two-thirds of investors in the 4.125% notes residing outside the UK. BAA will use the proceeds to further address debt maturities in 2011. The refinancing follows the successful placement of 2018 notes in September 2010. BAA priced the fixed-rate notes off the 6.25% coupon with spreads inside of 385 bps over gilts.

Infrastructure Deal Summary

1.1 Canada Pension Plan tables bid to acquire 10% stake in ETR-407 from Cintra

On 05 October 2010, the Canada Pension Plan Investment Board (CPPIB) announced it had reached agreement with Ferrovial (SM: FER) subsidiary, Cintra Infraestructuras, S.A., to acquire a 10% stake in the ETR-407 concession in Toronto, Ontario. CPPIB committed to pay CAD $894 million for the minority stake. In conjunction with its acquisition of Intoll Group, the 10% stake would lift the CPPIB position in ETR-407 to 40% and reduce the Ferrovial stake to 43.23% with the remaining 16.77% holding retained by the Canadian engineering firm, SNC-Lavalin (TSX: SNC). The C$894 million bid price values the entire equity stake at C$8.94 billion and an Enterprise Value of C$13.41 billion. Based on TTM EBITDA at 30 June 2010, the transaction multiple exceeds 28.3 times. With EBITDA growing at high single digits, the forward transaction multiple is reduced to 27.4 times. On the current valuation, net debt represents just 33% of total capitalization, despite leverage in excess of 9.4 times TTM EBITDA. Nevertheless, the implied equity yield would appear to be capped in the single digits on the transaction price.

As noted in the CPPIB press release, the transaction is subject to customary rights of first refusal. Given the Intoll Group bid, only SNC is positioned to disrupt the transaction. On 07 October 2010, SNC published a regulatory filing confirming its intention to list the existing holding and use the proceeds to acquire the 10% stake. Canada’s Financial Post reported SNC hopes to raise between C$700 and C$900 million from the listing. Based on the mid-point at C$800, the transaction amount implies SNC would look to sell a majority stake in the investment vehicle enabling it to account for the retained investment under the equity method and eliminate absolute control over the holding company. By listing the concession stake, SNC would benefit from greater valuation visibility for its concession stakes and an outlet for recapitalizing the business with divested equity stakes arising from future concessions.

1.2 Partnerships BC named Integrated Team Solutions preferred proponent for Surrey

On 08 October 2010, Partnerships BC (PBC) published a press release naming Integrated Team Solutions (ITS) the preferred proponent for the Surrey Memorial Hospital Expansion in Surrey, British Columbia. ITS beat out two other consortia at the RFP stage. The other two consortia were led by Bouygues Construction and HSBC Infrastructure (BC Healthcare Solutions) and Innisfree and Acciona (ISL Health).

The ITS consortium comprises the following firms:

• EllisDon Inc.

• Fengate Capital Management

• Honeywell Ltd. (Canada)

ITS will develop the new facility under the Partnerships BC procurement model using a DBFOM contract. The project construction works will include the addition of 151 new beds and approximately 25,000 SQM. The construction works will be housed in a new critical care tower along with underground facilities, including new laboratory space and structured parking comprising 350 spaces. The province anticipates achieving financial close in the fourth quarter of 2010, with constructions works scheduled to begin in 2011.

1.3 Canada Ministry of National Defense awards administrative facility contract

On 03 October 2010, the Ministry of National Defense (MND) announced the award of the Communications Security Establishment Canada (CSEC) Long-Term Accommodation (LTA) project. Defense Construction Canada coordinated the procurement on behalf of MND. MND awarded the project to the Plenary Properties consortium. Plenary bested two competing consortia led by Carillion (Canada) and SNC-Lavalin. The Plenary consortium retained RBC as financial advisor and Davies as legal advisor.

The plenary team includes:

• Plenary

• Innisfree

• PCL Constructors Canada

• Honeywell (Canada)

MND estimates the project value at CAD $880 million. Construction works include 72,000 SQM of commercial office and ancillary facility space. Financial close is anticipated in January 2011 with construction to commence in the spring of 2011. The project is located in Ottawa, Ontario.

Infrastructure Market Update: 03 October 2010

2010-10-03T22:56:00.004-04:00

Market Overview

Sovereign credit risk returned to the fore last week as Moody’s got around to downgrading Spain and Ireland intervened again to recapitalize a systemically-important financial institution. The FT quotes estimates that the total cost of the current round in combination with earlier capital injections would exceed EUR 50 billion or one-third local GDP. Like some many others, Ireland suffers from a bloated financial sector; the combined liabilities of the two largest banks, Allied Irish and Bank of Ireland, are nearly two times GDP with gross debt amounting to nearly three quarters GDP in 2009. Grim news notwithstanding, sovereign spreads tightened later in the week. Global equities rallied, as well; strong momentum for US equities had the S&P500 closing out its strongest September since 1939. For the week, the S&P500 gave back 2.43 points to finish the week at 1,146 -- a decline of (0.2%). Despite the decline, the S&P500 advanced by +8.8% in September and +10.7% for the third quarter. The bond market remained anchored last week on continued expectations for resumed FRB bond buying in November and the lingering sovereign concerns in Europe. For the week, the 10-year fell 8 bps to finish the week yielding 3.52%. GLD tallied several more nominal highs to finish the week firmly above $1,300 per ounce. The USD weakened further and ended at $1.38 to the EUR.

Macroeconomic news last week generally confirmed modest, but positive consensus estimates. Regional FRB manufacturing reports from last week were decidedly mixed. Early in the week, reports from Texas and Richmond revealed mixed results in third quarter industrial activity. In Texas, industrial production turned positive in September, having declined in August. Leading indicators, including new orders and business outlook, turned negative at (3.0) and (4.3), respectively. Nevertheless, the six month outlook improved across the board. In Richmond, the manufacturing turned negative at (2.0) from 11 in August. Shipments and backlog both turned negative, as well, whereas capacity utilization was flat at 0. The Chicago FRB reports August manufacturing turned negative in the Midwest, too. The headline index was at 79.9 (100.0 base in 2007) down (1.4%) from July. The index was weighed down by weak output from auto manufacturers -- output fell by (6.9%). Elsewhere, the Kansas City FRB reported a rebound in September with a headline at 14 versus the 0 reported in August. Forward looking indicators, surged back with shipments rebounding to 15 from (6) in August. Future production expectations recovered to 23 from 10 in August. On Friday, the ISM manufacturing index supported the more positive perspective with a headline reading at 54.4 versus 54.5 consensus and 56.3 last. Unfortunately, new orders decelerated, while inventory levels rose. Finally, construction spending in August surprised to the upside with a +0.4% headline reading on stronger than expected public investment in August following a revised (1.4%) drop in July. Public expenditures advanced by +2.5%, while private residential fell again by (0.3%) in August. Private non-residential investment fell by (1.4%) in August.

Transport Economics

The American Trucking Association (ATA) advance Tonnage Index fell back in August by (2.7%) SAAR. The August decline was the most pronounced deterioration since March 2009. Total Tonnage, as measured by the unadjusted index increased by +3.2% sequentially from the prior month and was +7.3% above the prior year. Through August, Total Tonnage is +6.2% above the same period in the prior year. Commenting on the results, ATA Chief Economist Bob Costello said the August data reflects expectations for a slowdown through year-end.

The ongoing rebound in aviation volumes decelerated somewhat on a sequential basis in August, according to the International Air Transport Association (IATA). Passenger volume, as measured by revenue miles, slowed from a revised +9.5% in July to a +6.4% pace in August against the prior year. Growth in air cargo volumes, as measured by tonnage per mile, also declined from +23% in July to +19.6% in August. On a sequential basis, passenger volumes fell back by (1.0%) in August from June and by (0.8%) in terms of freight volume. One off factors, including the Mexicana bankruptcy, may have influenced the sequential rate. Like most other transport indicators, aviation data are running into more challenging comparables from the second half of 2009. By geography, the Middle East and Africa led the way with passenger volume growth rates of +12.3% and +10.8%, respectively. Africa lead all regions with a +28.1% YOY growth in freight ton miles, followed by North America at +25.7%. Finally, IATA highlighted the deterioration in passenger load factors from relatively high levels as capacity expansion eclipsed volume growth in August.

Transport Policy Debate

US Senate Committee on Environment and Public Works held hearings this past week on Innovative Finance in transport and the TIFIA program. Committee Chair Barbara Boxer (D: CA) has challenged the potential for the President’s Infrastructure Bank; instead, Boxer recommended expanding the TIFIA program. Perhaps that sentiment skewed the panelists. Regardless, testimonies focused on the TIFIA program’s accomplishments with several panelists recommending incremental changes to improvement credit extension. First and foremost, panelists recommended extending and enlarging the TIFIA program. The current run rate at USD $122 million per annum provides capacity to fund $1.0bn or $5.0bn over the usual life of the highway bill (recognizing that re-authorization is usually delayed for a year or two). Recommendations called for an increased authorization to $1.5 to $2.0bn to support direct loans in excess of $15bn.

Infrastructure Stocks

On 01 October 2010, MAp Airports (ASX: MAP) announced the successful financial close on various bank facilities secured against Sydney Airport. The announcement confirms MAP successfully addressed its refinancing needs for 2011 and 2012 with this issuance in conjunction with prior bond sales. At last report, MAP reported gross debt (inclusive of minority stakes) of over A$3.0bn in maturities split roughly evenly between Copenhagen and Sydney Airports from 2011 to 2012. MAP reported achieving pricing on the AUD $1.0bn bank loans at 200 to 250 bps with maturities ranging from three to seven years. Banks participating in the facilities include both existing and new banks. Financial close is anticipated by the end of October 2010. As of 30 June 2010, MAP reported Net Debt to EBITDA at 6.1 times.

BAA Airports (Ferrovial -- SM: FER) announced the divestiture of its 65% equity stake in the concession company, which operates Naples Airport, to the Italian infrastructure investor, F2i. Gross proceeds amounted to for EUR 150 million. Terms of the sale include a EUR 13 million deferred compensation secured by a Letter of Credit. The sale is conditioned on minority shareholders, City of Naples and Province of Naples, waiving pre-emptive rights of first refusal on share sales. In the fiscal year ending 31 December 2009, BAA reported earning GBP 52 million in gross revenue to yield GBP 16 million in EBITDA and GBP 4.9 million in Net Income. The transaction values the equity stake at over 30 times trailing earnings at current exchange rates.

Infrastructure Deal Summary

1.1 Skanska USA re-submits unsolicited proposal for Hampton Roads (VA) crossing

On 01 October 2010, local media reported the Virginia DOT received an unsolicited proposal for the once moribund Hampton Roads tunnel crossing project. According to reports, the Hampton Roads Crossing consortium, including Skanska along with Kiewit, Weeks Marine and Parson Brinkerhoff, submitted an updated proposal for the Hampton Roads crossings with connections between Hampton, Norfolk and Virginia Beach. In 2004, Skanska submitted an unsolicited proposal with the Washington Group, Flatiron Construction and Royal BAM Group. The original submission estimated total project costs at USD $3.671bn compared with the public sector estimate at $4.40bn. The construction works included the expansion of 15 miles of interstate highway in the existing right of way and the development of a new 13 mile segment of limited access highway. The plan of finance includes tolling on the existing crossings with an initial rate set at $2.00 per vehicle. In addition, the scheme would require $900 million in public subsidies, had VDOT accepted the construction works in full.

The updated proposal calls for the expansion of the Hampton Roads Bridge-Tunnel from its current two-by-two configuration to four-by-four lanes. Project costs are reportedly similar to the earlier proposal; the proposed toll rates, however, are significantly higher at $4 to $6 per crossing. The proposal arrived in time to satisfy a statutory requirement for VDOT to accept a proposal for improving the corridor by 30 September 2010. VDOT will review the proposal and should it elect to pursue the procurement, open up the bidding for to a 120-day competitive tender process as per the VDOT PPP legislation.

The consortium includes:

• Skanska Infrastructure Development

• Kiewit Infrastructure Co.

• Skanska USA Civil

• Weeks Marine

• Parsons Brinkerhoff

1.2 Government of Singapore acquires equity stake in Pittsburgh Electricity Utility

On 29 September 2010, Duet Group of Australia announced the sale of its equity stake in Duquesne Light Group (DLG) to the Government of Singapore Investment Corporation (GIC), the Singaporean Sovereign Wealth Fund. Duquesne Light is a regulated public utility with operations centered in the Pittsburgh metropolitan area. The firm operates a transmission and electricity distribution network serving 500 million residential and commercial customers in Southwest Pennsylvania. GIC offered USD $360 million for the equity stake. The sale is subject to the Right of First Refusal bids from the other minority equity investors. At closing, Duet would net AUD $381 million compared with A$355.4 book value (1.07 P/BV).

The acquisition values the utility at US$3,036m (EV) based on net debt of US$1,792m as of 30 June 2010. For the twelve months ending 30 June 2010, DLG yielded $350 million in EBITDA on $1.13bn in revenue. The implied EBITDA transaction multiple is 8.7 times. Compared with the regulated asset base (RAB), the transaction value implies a RAB multiple of 1.8 times based on the 31 December 2009 rate case. Revenue was flat from 2008, whereas EBITDA fell by (7.7%). In December 2009, equity shareholders recapitalized the holding company with $271 million in additional equity to fund required capital investment.

A consortium of infrastructure investors led by Macquarie Capital de-listed Duquesne Light Holdings in 2006 for consideration in excess of USD $3.0bn. Current shareholders in the holding company that owns 100% equity interest in DLG include:

• Macquarie Infrastructure Partners

• Industry Funds Management

• AMP Capital and other unlisted Australian infrastructure funds

1.3 Hochtief achieves financial close on Ontario Provincial Police Modernization

On 15 September 2010, Hochtief PPP Solutions achieved financial close on the Ontario Provincial Police Modernization (OPPM) program. The consortium also includes a local DB Joint Venture and Honeywell LTD, providing Facilities Management (FM) services. According to an Infrastructure Ontario (IO) press release, total compensation amounts to CAD $548.5 million (including construction completion payments) over the 30-year operation term. In present value terms, IO estimates total payments at C$292.7 million.

The plan of finance includes a combination of long-term bank debt and private equity -- leverage at 90:10. Three German banks will provide the long-term debt pro rata, including: KfW, Nord LB and West LB provided the 30-year bank debt. Industry news sources referenced margins at 290 bps. No further details on the debt structure are available to date.

The project involves the construction of new facilities across Ontario. In total, the Hochtief consortium will DBFOM 18 facilities in Kenora, Dryden, Armstrong, Nipigon, Kapuskasing, Timmins, Iroquois Falls, North Bay, Burk’s Falls, Chatham-Kent, Walkerton, Mount Forest, Orillia, Peterborough, Smiths Falls and Long Sault.

Infrastructure Market Update: 26 September 2010

2010-09-28T07:09:00.000-04:00

Market Overview

The FOMC met last week and released its September statement to an eager audience. The statement proved noteworthy given the extent of revisions from the August release. Lacking any specific changes in policy, the extensive changes in verbiage are unusual for the Bernanke FOMC. Most importantly, the FOMC explicitly commented on the low level of inflation and its current rate of change as inconsistent with the FOMC dual mandate of full employment and price stability. Geek note: the September release is the first since the retirement of Vice Chair Donald Kohn, who was instrumental in statement drafting. Whether personnel changes explain the deviations is pure conjecture. The bond market assumed no pride in authorship, however, digesting the revised inflation commentary with a strong bid in the treasury market. The FRB will continue to sustain its balance sheet at current levels, as previously indicated, and stands ready to expand the balance sheet should market conditions warrant. The 10-year treasury rallied through mid-week and falling 20 bps to close at 2.55% on Wednesday. Positive economic news provided cause for a sell-off on Friday with the 10-year finishing the week yielding 2.61% -- a decline of 14 bps from the prior week. While the bond oscillated, the equity markets rallied. For the week, the S&P500 gained 23 points to finish the week at 1,149 -- an increase of +2.1%. Given the FOMC inflation commentary, gold was bid and the dollar weak. Gold registered successive nominal highs with the December contract closing the week just below US$1,300.

The macroeconomic news last week was a mixed-bag with a modest recovery in housing data and above consensus durable goods orders on Friday. On Monday, the National Association of Home Builders released its monthly index with the headline flat at a depressed 13 (13 last month). There was evidence of further deterioration, however, as survey respondents marked down indications of buyer traffic down 1 point from the prior month. On Tuesday, the Census Bureau reported a surprise uptick in starts at 0.598 million (SAAR) versus 0.55 million consensus and 0.546 last month. While the starts data was positive, the overwhelming source of strength was on the West Coast in the multi-family sector; hardily a sign of incipient strength. Building permits were essentially flat from the prior month. Realtors reported existing home sales on Thursday again with mixed impact. Sales rebounded by +7.6% from the July nadir (revised higher), but August sales remain (19.0%) below the prior year’s tax credit-enhanced level. The market remains saturated with 11.6 months supply and prices fell by (1.9%) to a median price of US$178,600. Finally, the Census Bureau reported new home sales Friday with the headline at 288,000 versus consensus 290,000 and prior month 276,000. Durable goods provided the impetus for the strong equity market performance, however, as new orders (ex-transports) gained by +12.9% from the prior month. Including the volatile transport component, durable goods fell by (1.3%) sequentially, but were +11.2% ahead from the prior year.

Infrastructure Stocks

Transurban (ASX: TCL) and Intoll Group (ASX: ITO) announced the successful refinancing of M7 bank facilities. The project successfully addressed AUD $505m in near-term maturities. ANZ Bank, Commonwealth Bank, Credit Agricole, IFM, NAB, Natixis and Westpac provided the four-year facility. The project still faces significant medium-term maturities in 2012 at AU$500m and 2015 at AU$250m. TCL, in an official statement, indicated that pricing was consistent with recent project finance transactions. If Lane Cove is indicative of local debt finance costs, margins like came in modestly wide of 200 bps over mid-swaps.

Syndey Airport, a majority-owned MAp Airports (ASX: MAP) investment, will be meeting with Asian and US institutional investors in the weeks ahead to discuss a potential 144a bond offer according to a report in the Australian press (Business Spectator). Bank of America Merrill Lynch, JPMorgan and Royal Bank of Scotland will host the presentations, according to the report. S&P, in June, reported on looming maturities totaling approximately AUD $1.4bn due between 2011 and 2012. MAp previously priced an AU$175m five-year facility in Australia and has indicated it would be looking to tap US institutions in a larger deal at some point this year.

Infrastructure Deal Summary

1.1 Global Infrastructure Partners negotiating another equity stake sale in Gatwick

On 25 September 2010, the UK Telegraph reported Global Infrastructure Partners (GIP) was negotiating a final stake sale in the Gatwick Airport investment company. According to the Telegraph source, the equity sale is comparable to the sale to South Korea’s national pension fund, the National Pension Service (NPS). The prior minority stake sales were made at roughly par value from the initial investment.

The final shareholder structure at Gatwick would feature:

• Global Infrastructure Partners: GBP 425.00 million (51% shareholder)

• Abu Dhabi Investment Authority: GBP 125.00 million (15% shareholder)

• National Pension Service: GBP 106.00 (12% shareholder)

• California Public Employees Retirement System: GBP 106.00 (12% shareholder)

• Unknown Equity Investor: GBP 106.00 (12% shareholder)

GIP acquired Gatwick in 2009 for GBP 1.57 billion at 9.2 times TTM EBITDA for the period ending 30 June 2009. In the twelve months ending 31 August 2010, Gatwick had served 31.6 million passengers. Traffic volume was (2.0%) below the same period in 2009 and (10.7%) below the peak volume 2008 operating year.

1.2 Actus Lend Lease awarded Military lodging contracts

On 23 September 2010, Actus Lend Lease (Actus) announced the award of second phase of the Army Lodging Program to Privatize 11 more Army installation hotel properties through the Privatization of Army Lodging (PAL) program. The second phase will transfer 5,000 rooms to the project company. The second phase follows the initial program wherein 4,000 rooms were transferred to the program. Actus is working with Intercontinental Hotel Group (NYSE: IHG) in both phases. IHG will serve as the property manager for the refurbished hotels.

According to the press release, Actus will invest approximately USD $350 million in development and construction services for the 5,000 hotel rooms. Actus committed to US$250 million in incremental funds for the first phase, as well. Overall, Actus will arrange project financing in an amount up to $1.0 billion to complete the transaction with financial close expected in 2011. The 11 installations awarded to Actus Lend Lease include: Fort Belvoir, Virginia; Fort Bliss, Texas; Fort Buchanan, Puerto Rico; Fort Campbell, Kentucky; Fort Gordon, Georgia; Fort Hamilton, New York; Fort Huachuca, Arizona; Fort Knox, Kentucky; Fort Leonard Wood, Missouri; Fort Wainwright, Alaska; and White Sands Missile Range, New Mexico.

Previously, Actus achieved financial close on the first phase of the program in August 2009. The first phase required refurbishment and management of lodging facilities at 10 U.S. Army installations. In conjunction with the first phase, the project company raised US$25 million in mezzanine funds from the Behringer Harvard Opportunity REIT II. According to SEC filings by Behringer Harvard, the mezzanine loan bares interest at 10% per annum (the "Minimum Monthly Payment") with interest capitalized ahead of payment of senior indebtedness. Final maturity is 01 September 2016. The loan funded redevelopment of more than 3,200 rooms at 10 installations, including: Fort Rucker, Alabama; Fort Leavenworth, Kansas; Fort Riley, Kansas; Fort Polk, Louisiana; Fort Sill, Oklahoma; Fort Hood, Texas; Fort Sam Houston, Texas; Yuma Proving Ground, Arizona; Fort Myer, Virginia; and Fort Shafter / Tripler Army Medical Center, Hawaii.

1.3 Pittsburgh awards 50-year parking concession to JP Morgan and LAZ Parking

On the 21 September 2010, Pittsburgh announced the award of the long-term concession for the municipal parking assets operated by the Pittsburgh Parking Authority. Pittsburgh had conducted a two-phase procurement process with seven pre-qualified firms vying for the final bid. At the bid stage, Pittsburgh incorporated a Best and Final Offer (BAFO) round in the event that two or more bids were within 10% of the highest bid in the first round. In the end, only three consortia submitted formal bids on 16 September 2010. Two bids qualified for the BAFO round. The three bids are reported hereafter:

• Pittsburgh Parking Partners, LLC (JP Morgan Infrastructure and LAZ Parking) -- $413 million;

• Pittsburgh Parking Holdings Limited (EQT Partners) -- $391.5 million;

• Three Rivers Parking, LLC (Carlyle Infrastructure Partners) -- $311 million.

The revised bids were as follows:

• Pittsburgh Parking Partners, LLC -- $451.68 million;

• Pittsburgh Parking Holdings Limited -- $423.1 million.

The parking system comprises nearly 18,000 parking spaces, including: 8,946 spaces in 11 garages; 7,012 on-street meter spaces; and, 1,729 off-street metered spaces in 32 surface parking lots. The parking system generated gross revenue of approximately $32.0m on average over the past three years to yield $27.8m and $14.6m in net revenue and EBITDA, on average over the same period. The transaction implies an Enterprise Value of 30 times TTM EBITDA.

1.4 Brookfield Asset Management closes fundraising above target level

On 20 September 2010, Brookfield Asset Management announced the financial close on its USD $2.7bn Brookfield Americas Infrastructure Fund. The successful fundraising was well ahead of original plan at US$1.5bn highlighting a sharp reversal in institutional appetite for infrastructure investment products compared with earlier in the year. Brookfield contributed US$600m to the venture via its limited partnership vehicle, Brookfield Infrastructure Partners. The fund will target North and South America. The lone known investor is the US$11.2bn Kansas Public Employees Retirement System.

Infrastructure Market Update: 19 September 2010

2010-09-19T23:28:00.000-04:00

Market Overview

Global markets retained positive momentum in the second full week of September, despite sovereign and regulatory rumblings in Europe and mixed economic releases in the US. Currency markets were on edge as Japan intervened to stem capital flows into the Yen. Local exporters rallied on the news helping to propel a mid-week upturn in the Asian markets. The Basel III announcement on the weekend provided the immediate upside from Monday as bank stocks in Europe and the US benefited from relatively less onerous capital requirements coupled with an extended implementation time horizon. Despite assurances from the Fed on sustained buying, the speculative bid in the US treasury market has faded in early September. Since bottoming on 31 August 2010 at 2.48%, the 10-year has tacked on nearly 30 bps to close on Friday at 2.75%. The S&P500 rallied again last week to close at 1,126 -- an increase of 1.4%. The S&P500 has advanced by 76 points -- an increase of +7.3% -- month to date.

The macroeconomic data in September remains mixed with positive news from the retail sector, while the manufacturing sector appears to have slowed in the third quarter. From Tuesday, the Census Bureau reported a +0.4% advance in August retail sales versus +0.3% consensus and +0.4% prior month. Ex-autos, retail sales were +0.6% compared with +0.4% consensus and +0.2% prior month. Also on Tuesday, the Census Bureau reported a surprisingly strong Business Inventory gain of +1.0% versus consensus at +0.6% for July. The data provide a positive note for otherwise muted expectations for third quarter GDP. On Wednesday, the New York FRB revealed a weak September manufacturing report at 4.14 versus 5.0 consensus and 7.10 prior month. Employment and new orders remained relatively positive. The six-month outlook dipped, however, as regional manufacturers marked down order and payroll expectations. On Thursday, the Philly FRB manufacturing survey was even worse, with the headline revealing an outright decline at (0.7%) versus +3.8 consensus and (7.7%) prior month. Consumer sentiment on Friday capped off a mixed weak with a surprisingly weak (and ominous) headline at 66.6 versus the 70.0 consensus and 68.9 prior month. Finally, sequential growth for overall industrial production in August remained positive at +0.2% compared to +0.2% consensus and +1.0% in July according to the FRB survey. Capacity utilization remains relatively muted at 74.7%, whereas overall industrial capacity slipped for another month by (0.5%) compared with the prior year.

Transport Economics

High-frequency transport data released during the first two weeks of September point to continued sequential economic growth, albeit on a declining trend. From last week, the Cass Freight Index revealed a rebound in transport expenditures in the month of August following the July result wherein the index endured its first sequential decline in seven (7) months. In August, shipments increased by +8.3% from July and +16.5% from the prior year. Expenditures rebounded, as well, with a sequential gain of +7.6% and +33.4% from the prior year. The combined July-August expenditure result is +1.5% ahead of the 2010 Q2 implying continued sequential GDP growth. In contrast to the positive August results from Cass, the Ceridian-UCLA Pulse of Commerce Index fell back in August. On a sequential basis, diesel fuel sales fell by (1.0%) in August following the +1.7% advance in July. From the prior year, August sales were +6.0%, marking the ninth (9) straight month of YOY growth. According to the press release, the August result is consistent with a third quarter GDP growth rate between +1.5 and 2.5% (an admittedly wide range) not far off from the growth rate implied in the Cass Expenditure survey.

Elsewhere, the West Coast ports began reporting August container volumes this week. Despite the usual seasonal lull between Back-to-School and Holiday Shopping inventory build-up, the LA and LB Ports both recorded strong import volumes again in August. Loaded inbound containers were ahead from the prior year by +23.3% and +24.5% at LA and LB, respectively. The trade balance continued to deteriorate, however, with the two ports handling fewer loaded outbound containers in August compared to the prior year. The decline was the first observed at LA and the second at LB during 2010. Conversely, empty outbound volumes continued to surge with LA and LB, collectively handling nearly 400,000 empty containers. The ratio of loaded inbound to outbound containers hit 2.6 in August versus the long-term average 2.3 since 1995.

Infrastructure Stocks

On 16 September 2010, ACS Grupo (MCE: ACS) announced an at-market bid for the majority stake in Hochtief (GY: HOT). German securities law requires any minority investor to make a controlling bid after an equity stake eclipses 30% of outstanding shares. The all-stock offering would allow HOT shareholders to exchange five shares for eight ACS shares. At the Monday exchange, the ACS proposal valued HOT at nearly EURO 3.9bn or EURO 55.58 per share. HOT management was quick to rebuff the offer given its perceived low ball bid. Market participants discounted the tender, as well, pushing HOT shares to a Friday close at EURO 61.00.

Transport Policy

On 15 September 2010, the Colorado Department of Transportation (CDOT) named local lawyer and public-finance expert Michael Cheroutes as the first director of the state's High Performance Transportation Enterprise, or HPTE. HPTE is the successor of the state’s Colorado Tolling Enterprises (CTE) with the charge of exploring alternative finance strategies for procuring incremental transport investment. Cheroutes has ample experience in the state, including a leading role in the E-470 project in Denver along with the new Denver International Airport, according to a report in Bond Buyer. HPTE will lead state-wide efforts in innovative finance, including public-private partnerships for infrastructure procurement. To date, the state has closed the E-470 project, the Northwest Parkway and the most recent, Denver FasTracks (Project Eagle) Commuter Rail. At present, the authority is investigating alternatives for the existing High-Occupancy Toll (HOT) Lane on North I-25. HPTE is working with financial advisor, Scott Balice Strategies and according to the 17 September 2010 Board Agenda, is exploring a financial strategy involving TIFIA. The facility reported June 2010 traffic and revenue with positive results. The combined facility accommodating both toll and car poolers handled 299,615 vehicles with HOT customers accounting for nearly 33% of all trips. The facility has generated approximately US$180,000 per month in toll receipts in the past 12 months.

Infrastructure Deal Summary

1.1 Puerto Rico Public-Private Partnerships Authority names short-list for PR-55

On 15 September 2010, the Puerto Rico Public-Private Partnerships Authority (PPPA) released the names of the four short-listed consortium qualified to participate in final round bidding for the PR-55 and PR-5 toll roads. The consortia include the following:

• Abertis Infraestructuras and Goldman Sachs Infrastructure Partners (Fund II);

• Companhia de Concessões Rodoviárias (CCR);

• Itínere Infraestructuras, S.A. and Citi Infrastructure Investors; and,

• OHL Concesiones and Morgan Stanley Infrastructure.

The four teams will compete for the long-term of the existing toll road in the San Juan metropolitan area. PPPA intends to distribute the RFP and the full concession agreement to the short-listed consortia in late September or early October. All information will be posted simulatenously on the PPPA website at www.p3.gov.pr.

1.2 Port Authority to advance US$1.0 billion for Bayonne Bridge rehabilitation work

On 14 September 2010, the Port Authority of New York/New Jersey (PANYNJ) announced plans to advance up to $1,000m to fund the Bayonne Bridge replacement project. PANYNJ will undertake a comprehensive planning process to investigate the most cost effective strategy for accommodating the largest container vessels to the upper terminal locations in Newark Bay. At present, the Bayonne Bridge impedes access to the three large container terminals on the New Jersey shoreline. The authority will investigate various options, including lifting the existing span from its current 151-foot road deck, creating a lift-bridge at the center of the bridge using existing infrastructure or outright replacement via bridge or tunnel. In an earlier study, the US Army Corp of Engineers recommended increasing the bridge span to 215 feet above the navigation channel.

1.3 Virginia terminates review of proposals for Hampton Roads port operations

On 10 September 2010, the Virginia Secretary of Transportation, Sean T. Connaughton, announced the termination of consideration for the privatization of the port operations in southeastern Virginia. Leaving the door open to future bidders, the Connaughton stated Virginia would no longer consider the proposals given the resurgent container volumes, improved financial position at VDOT and renewed hope for container traffic in the Post-Panama Canal environment. With the three proposals off the table, VDOT will commence with a comprehensive assessment of VIT operations and a cost-benefit analysis of port privatization.

In March 2009, Chicago-based CenterPoint Properties Trust submitted an unsolicited proposal under Virginia’s Public Private Transportation Act (PPTA). In the intervening year, the Commonwealth has signed a 20-year, US$450m lease agreement with APM Terminals to consolidate operations at the new facility under Virginia International Terminals (VIT). Container volume have rebounded by +12.2% in the first six month to June 2010, but remain (10.2%) compared with the same period in 2008. According to the press release, the APM Terminal integration will enable the authority to discontinue container operations at the Portsmouth Marine Terminal and defer the scheduled development of the Craney Island facility.

Separately, VDOT announced the first double-stacked Norfolk Southern train to depart the port bound for Chicago along the Heartland Corridor. The improved service required ceiling lifts at 28 tunnels through the Appalachian Mountains en route to Chicago. The facility will reduce travel times by nearly 48 hours and reduce the distance by upwards of 250 miles. According to a less than complimentary Senate Committee on Commerce, Science and Transportation report, the public-private partnership included funding from NSF at US$97.8m, federal government at $83.3m and the State of Ohio and Commonwealth of Virginia at $9.8m.

1.4 Virginia receives three conceptual proposals for US Route 460

On 09 September 2010, the Commonwealth of Virginia released the names and member firms for the three consortia submitting qualifications for the renewed US Route 460 procurement. VDOT had terminated an earlier procurement from 2006. The proposed highway would extend for 55 miles in a four-lane divided highway configuration from I-295/I-95 in Prince George County outside Petersburg, VA to Route 58 in Suffolk, VA in the southeastern portion of Virginia (the Hampton Roads region). The proposed concession has an initial tenor of 75 years with a possible extension to 99 years.

The three consortia are:

• Cintra Infraestructuras (Ferrovial Agroman) with Janssen & Spaans Engineering, A. Morton Thomas and American Infrastructure;

• 460 Partners including: Moreland Property Group, Infrastructure Capital Partners, CGA Capital, with Lane Construction and Skanska with advisors, Bank of America and AECOM, along with O&M specialist Transfield Services; and,

• Multimodal Solutions: Autostrade with Clark Construction, Kiewit Construction, Edgemoor Real Estate Services and Shirley Contracting and advisors, Louis Berger Group and Barclays Capital.

Infrastructure Market Update: 29 August 2010

2010-08-29T21:34:00.004-04:00

Market Overview

With markets declining consistently since the last the Federal Reserve Bank (FRB) communiqué, global investors were pining for greater clarity on the evolving path of US monetary policy. Further insight came on Friday at the St. Louis FRB Jackson Hole confab. Speaking on Friday morning, Ben Bernanke re-iterated the three tools remaining in the FRB arsenal: renewed asset purchases, principal reinvestment and lower rates on reserves. Coupled with a less-bad GDP report, the speech instilled sufficient confidence for a strong rally in equities and a precipitous fall in treasuries. Despite the strong rebound Friday, the S&P500 gave back seven (7) points to close down (0.7%) for the week at 1,065. The bond market moved inversely to equities throughout with Friday the most volatile with the 10-year picking up 15 basis points. For the week, the 10-year added seven basis points, despite trading below 2.50% mid-week.

Macroeconomic news last week confirmed the increasing uncertainty over the US economic outlook. On Tuesday, the realtors association reported disappointing existing home sales data with an annualized sales rate at 3.83 million versus the prior 5.7 and the 4.65 million consensus estimate. The fall in sales resulted in an increase in existing supply to 12.5 months on the currently depressed pace compared to 8.9 months in June. The next day the Census Bureau confirmed widespread fears with a 276,000 new home sales report for July. The available supply rose to 9.1 months on current sales compared to 8.0 in June, while prices were (6.0%) sequentially to $204,000. The rebound in durable goods orders in July was weaker than expected, as well, with headline growth below estimates at +0.3% versus +2.5% consensus and (1.0%) in June. The ex-transport figure was weaker still at (3.8%) sequentially and +9.5% YOY versus the prior (0.6%) sequential rate and +15.0% YOY. Finally, the Friday Q2 GDP revision provided a boost to sentiment with an above consensus +1.6% growth rate versus 1.3% consensus and preliminary estimate at 2.4%. The revision reflected weaker than expected inventory dynamics and a wider than expected trade deficit.

Transport Economics

On 23 July 2010, FHWA published national traffic data for the month of June. Traffic volume increased by +1.3% compared with the prior year. The June growth brought cumulative traffic in 2010 to a +0.1% growth rate for the six months ending 30 June 2010. Traffic growth was positive across geographies with the North Central (Upper Mid-West) region leading the way at +1.8% growth followed by the Northeast at +1.7%. Four states -- South Dakota (0.2%), Louisiana (3.1%), Colorado (0.1%) and Hawaii (3.2%) -- recorded YOY declines in traffic volume.

Infrastructure Stocks

On 27 August 2010, Intoll Group (ASX: ITO) Directors recommended shareholders accept the improved take-over bid submitted by the Canada Pension Plan Investment Board (CPPIB). The all-cash offer of AUD $1.52 per stapled share represents a 36% premium to the closing price of the security on 14 July 2010, the last closing day before the original offer. In addition, the current offer is an AUD $0.025 cent per share premium to the initial level. More importantly, the transaction values the underlying assets (both minority stakes in the ETR-407 and Westlink M7) implies an EBITDA to Enterprise Value multiple of 26.6 times the trailing 12-month of AUD $190.0 million (FYE 30 June 2010). Compared against the prior period, FY 2010 EBITDA was +13.1% higher. On a cash flow per share basis, the bid proposal values the securities at nearly 40 times. Ironically, the $1.52 per share bid price is a three percent discount to the $1.57 Net Asset Value (NAV) estimated by management to 30 June 2010.

In terms of assets acquired, the overwhelming source of operating results is the ETR-407 concession in Toronto, ON providing geographic logic to the Canadian bid premium. ETR-407 contributed over 81% of proportionate revenue and 80% of EBITDA. As for growth, ETR-407 achieved EBITDA growth in excess of 13.7% due in part to favor concession terms allowing unlimited rate control versus the M7 10.5% YOY. EBITDA margin on the two facilities are comparable at 80.2% and 82.9%, respectively. By contrast, traffic volume growth was more variable over the past 24 months on ETR-407 at (3.0%) in the twelve months to 30 June 2009 and +3.0% to 30 June 2010 versus +5.1% and +6.6% in 2009 and 2010 on the M7.

The CPPIB bid provides further evidence on the relative value assigned to toll road and infrastructure assets in the private market in contrast to public equity markets. Whether attributable to lower cost of capital or future return expectations, private investors (particularly direct investments by pension funds and Private Equity investors on behalf of pension funds) are willing to pay a much higher initial multiple on established cash flows.

Infrastructure Deal Summary

1.1 E-470 Board to review asset value and consider long-term lease monetization

On 27 August 2010, the Denver Post reported on comments made by Aurora, CO Mayor Ed Tauer, as chairmen of the E-470 toll road, at the August board meeting. According to the news report, Mayor Taurer recommended the board consider entering into a long-term lease of the facility to monetize the price differential between public and private ownership. The mayor estimates the excess value at several hundred million dollars. Legal counsel to the board concurred with the mayor’s assessment, reportedly stating there is a “market for a road like ours.”

At present, E-470 is encumbered with US$1.4 billion in (gross) tax exempt debt. Adjusting for the $209.1 million in restricted cash, the road is leveraged at 16.8 times EBITDA on 1.20 billion in Net Debt. A significant portion of the capital stack, however, comprises Capital Appreciate Bonds (CAB). The looming accretion may explain the desire to crystallize value now, instead of waiting to see whether traffic can out-pace current yields. At present, the bonds trade at moderate discounts to par value implying a market multiple closer to 15 times EBITDA. Even ignoring the discount, interest is accreting at a much faster rate of growth compared with recent revenue and traffic volumes. In fact, traffic volume has fallen by (3.8%) in 2008 and (7.9%) in 2008 and 2009, respectively. Annual tariff increases allowed toll revenue to grow by just +1.3% from 2007 to 2009, despite the outright decline in revenue endured in 2008.

The original article is online at:

http://www.denverpost.com/news/ci_15908126#ixzz0xowTVY8X.

1.2 The Korean National Pension Service in talks to acquire US oil pipeline business

On 23 August 2010, Bloomberg News reported that the National Pension Service (NPS) of Korea was negotiating with Chevron to acquire its interest in US oil pipeline operator, Colonial Pipeline Company (CP). CP is a pipeline business providing transportation services from refineries in Texas, Louisiana, Mississippi and Alabama to marketing terminals along the East and Gulf Coasts from New Jersey to Texas. According to the Financial Times, Chevron named NPS as preferred bidder for the 23.44% stake for total consideration of $847 million. In 2009, Chevron reported its dividend-adjusted equity investment in CP at US$514 million with equity in earnings amounting to $51 million in 31 December 2009. Another infrastructure fund manager, in Infrastructure Funds Management (IFM) already controls a 15.8% stake in the pipeline business.

The CP acquisition would mark the second significant direct investment in global infrastructure assets for NPS. In February 2010, NPS agreed to acquire a 12% minority stake in Gatwick Airport from Global Infrastructure Partners. The deal is another instance of large institutional investors taking direct stakes in infrastructure assets via equity syndications.

1.3 Los Angeles publishes RFP for Parking Garages

Following last week's City Council vote, the LA City Administrative Officer (CAO) published the RFP for the parking garage lease transaction. According to a report to council, the draft Concession Agreement will include the 5-year rate adjustment schedule followed by parking rate inflation indexation common to several parking transactions. In contrast to Chicago, however, the LA deal will include revenue sharing above a certain threshold and a non-compete provision prohibiting new construction of a municipal garage within 1/8 mile from an existing facility. The document is available at:

http://clkrep.lacity.org/onlinedocs/2010/10-0139-S1_rpt_cao_8-9-10.pdf

Infrastructure Market Update: 22 August 2010

2010-08-23T07:26:00.003-04:00

Market Overview

The late summer rally faded in the past two weeks as the Federal Reserve held its monthly policy meeting to re-evaluate monetary stimulus and exit strategies. The policy statement confirmed earlier market soundings with plans to postpone balance sheet shrinkage. Apparently, USD $2.0 trillion is an optimal balance sheet given the still fragile macro environment. The erstwhile exit strategy, promulgated previously to blunt concerns around debt monetization and fiscal policy creep, clearly has changed with a more explicit view towards sustained credit creation. Over the fortnight, the bond market was bid, both on expectations of incremental FED buying and its downgraded economic outlook as per the policy statement. The 10-year treasury rallied throughout the prior week with yields falling nearly thirteen (13) bps to close on Friday the 13th yielding 2.69%. The trend continued this past week until Friday when bolds sold-off modestly. The 10-yr finished the week yielding 2.61%, while the 30-yr stepped back to 3.66%. Stocks fell for the second consecutive week with the S&P500 down four (4) points -- a weekly decline of (0.3%). For the week ending 13 August 2010, the S&P500 lost (42) points -- a decline of (3.8%).

Leading lights in macroeconomic forecasting dimmed in the most recent Survey of Professional Forecasts published by the Philadelphia Federal Reserve. For the current quarter, the average annualized growth rate amounted to just +2.3% versus 3.3% in the prior survey and the +2.4% revealed in the Preliminary Estimate reported a week ago Friday (expect a material downgrade this Friday, on a widening trade deficit -- see ports below). For the full year, forecasts averaged +2.9% for 2010, +2.7% in 2011 and 3.6% in 2012. Later in the week, the Philly Fed released its monthly manufacturing survey for the month of August. The general activity index turned negative at (7.7) from a +5.1 reading in July. In the New York survey, current conditions picked up somewhat from June with a headline reading at +7.10. New Orders and Shipments both turned negative suggesting weakness ahead. Housing data from last week was weak, as well, with the homebuilders’ confidence index dipping one point to 13. The index has fallen nine (9) points from the stimulus-high of 22 in May. Housing started ticked up by +1.7% in July, but remain well shy of expectations at 0.546 million versus consensus at 0.565 million. On the positive side, the Federal Reserve Industrial Production data for June showed a faster than expected growth rate at +1.0% versus +0.6% consensus and +0.1% last month. Capacity utilization advanced to 74.8%.

Transport Economics

Diesel fuel sales advanced in July reversing the decline observed in June, according to data from the Ceridian-UCLA Pulse of Commerce Index (PCI). In direct contrast to the Cass data reported last week, the PCI suggests re-accelerating economic activity in July. The preliminary data revealed a +1.7% advance in sales in July following a (1.9%) fall in June. Compared to the prior year, July sales were ahead by +9.0% marking the eighth (8) consecutive month of mid to high-single digit YOY growth rates. While positive given the twenty-four (24) month period of YOY declines through late 2009, the press release suggests that double digit growth would correspond with growth rates sufficient to drive unemployment lower. Nevertheless, the July data was strong enough for the PCI chief economist to refute claims of an imminent double-dip.

Elsewhere, the San Pedro port complex released container volumes for July on 13 August 2010. Based on the initial releases, July continued the strong performance observed through the first half of the year. Overall container volume through the Ports of Long Beach and Los Angeles increased by +24% in July (the third fastest pace for the cycle). Import volumes carried the day once again with LA handling over 369,000 TEU (the second highest aggregate volume behind June), while LB processed 294,000 TEU (the highest import volume since November 2007). Export volumes advanced, as well, but failed to keep pace with imports. The ratio of loaded inbound to outbound containers extended the recent advance to 2.43; the first time the ratio has broken above the long-term average in the current upturn. In Canada, the Port of Prince Rupert reported strong results, as well. Container volume eclipsed 30,000 for the first time in the facility’s operating history in July with an aggregate 38,599 TEU handled during July. Compared against the prior year, volumes advanced by +55% in July. The July container volume suggests the Port has achieved its design capacity at 500,000 TEU per annum. Overall, volumes were positive at all West Coast ports, excepting Tacoma, wherein volume was (3.75%) from the prior year. Seattle continued its strong showing with a +62% advance from the prior year in July. On average, the West Coast ports handled +25% more containers in July compared to the prior year.

Infrastructure Stocks

On 12 August 2010, MAp Airports (ASX: MAP) announced the successful close of the previously announced sale of ASUR. MAP anticipates gross proceeds of USD $207 million assuming full subscription of underwriters’ allotments. The sale price was achieved at an implied 5.9% discount from current market values. At current market prices, ASUR trades at 8.07 and 11.5 times EBITDA and EBIT, respectively. The block trade was achieved at 7.6 and 10.8 times EBITDA and EBIT, respectively. Management explained the divestiture due to a failure to achieve satisfactory influence on management decisions at the Mexican concessionaire.

Separately, MAP reported July passenger volumes with positive implications for the global aviation sector. For the first time in awhile, the European airports rivaled Sydney in terms of passenger volume. In fact, Copenhagen achieved the highest growth rate in the portfolio as domestic volumes advanced by +28.3% from the prior year. International volumes were strong, as well, at +9.9% for an overall rate of +11.3%. Sydney achieved volume gains of +10.0% and 7.8% for domestic and international channels, respectively. Finally, Brussels reported growth at +2.1% overall, but (1.0%) intra-EU and +7.0% extra-EU.

Infrastructure Deal Summary

1.1 Indianapolis announces preferred bidder for metered parking management

On 20 August 2010, the City of Indianapolis awarded the concession to operate metered parking across the city to Affiliated Computer Services (ACS). The partnership entitles ACS to operate the metered parking facilities for a 50-year term. In consideration for the concession, ACS will pay the city an upfront fee of USD $35 million along with revenue sharing arrangement beginning at 20% of revenue and rising to 50% over time. The city estimates the gross revenue at $400 million over the life of the agreement. ACS intends to invest an additional $10 million to replace the existing single-space, coin-operated metered heads. ACS partnered with local parking operator, Denison to develop the partnership concept. Under the concession, the ACS/Denison operator will oversee enforcement, while the city will undertake maintenance and coin collection.

The metered parking concession includes 3,600 metered spaces. Before the concession, parking rates were fixed at $0.75 per hour, a rate last changed in 1975. Hours of operation will be expanded by three to five hours in the downtown. In 2008, the metered parking system generated $4.3 million in revenue to yield $3.4 million. The system achieved a CAGR of +2.6% from 2000 to 2008. EBITDA margin was stable throughout the period averaging 70%.

1.2 BAA refinances acquisition facility

On 20 August 2010, Bloomberg News reported BAA successfully refinanced acquisition debt with a GBP £625 million bank loan. The four-year facility was increased from an initial £500 million with credit margins starting at 325 basis points with a 50 basis point step-up to 375 in the fourth year. Upfront fees were reported at 150 bps. Proceeds from the bank notes will be used to retire subordinate debt issued in the wake of the Ferrovial acquisition of BAA. According to Bloomberg, BAA credit default swaps tightened by 26.5 basis points to 179 following the announcement. The LIBOR loans will trade off the GBP sterling curve -- three-month LIBOR last at 0.7269%.

An industry news source reported the following banks participating in the lead bank group:

• Barclays

• Bank of America

• Deutsche Bank

• ING Bank

A second group of banks provided smaller participations, including:

• HSBC

• Mediobanca

• Natixis

• RBC

1.3 Los Angeles votes on Parking Garage Concession

On 19 August 2010, the Los Angeles City Council approved a plan to lease nine city-owned parking garages. The proposal has been under consideration for some time, but required formal council approval to move forward. In February 2010, the city published a Request for Qualifications. The city intends to utilize a portion of the proceeds from the sale to close a budget gap projected at USD $320 million in the next fiscal year. City administrators expect the deal to generate at least $53.2 million. The initial approval only enables the city to move forward with the RFP process. The ultimate decision to transact will be based on the submitted proposals.

The parking garages under consideration generated net revenue of $18.97 million in 2008. The city parking tax is set at 10% and charged against gross receipts. Gross revenue, including $2.0 million in parking taxes amounted to $20.97 million. Net revenue grew at CAGR 12% from 2000 to 2008. The parking garages comprise a combined 8,425 spaces with the three largest garages accounting for 75% of the spaces and net revenue.

1.4 Transurban achieves financial close on acquisition facility for Lane Cove Tunnel

On 09 August 2010, Transurban (ASX: TCL) confirmed financial close on the previously announced Lane Cove Tunnel (LCT) acquisition. TCL raised AUD $260 million via a non-recourse acquisition facility with a three-year maturity. According to the release, pricing was inline with the M5 refinancing in late 2009. At the time, TCL referenced an improvement in margins by 35 bps for the M5 against M2 priced at 250 bps wide of mid-swaps. As such, the Lane Cove pricing is estimated at 215 bps wide. By way of reference, TCL noted the LCT funding is rated BBB+ whereas the M5 was rated A-. Banks involved in the transaction include Australia and New Zealand Banking Group, Bank of Tokyo-Mitsubishi UFJ and Westpac.

So indeed, credit spreads reflect a continued improvement from late 2009, but remain wide of margins obtained on facilities originated in the mid-2000 time period. As far as debt/earnings multiples are concerned, the facility is leveraged roughly twelve (12) times 2009 EBITDA reported at AUD $22.1 million (revenue at $53.1 million). At the time of acquisition, TCL invested approximately $630 million or 28.5 times trailing EBITDA. The road is in its third year of ramp-up with TCL noting still growing traffic volume (8.9% CAGR from April 2007-10), 27 years under concession and a CPI-linked rate regime as justification for the steep acquisition multiple.

1.5 BMO syndicates short-term tranche of bank debt on Ontario PPP project

On 18 August 2010, Infra-Americas reported on the successful syndication of a short-term bank loan by Bank of Montreal (BMO). The 3-year tranche is a portion of the project financing for the Toronto Forensic Services and Coroners Complex (FSCC). BMO underwrote the full CAD $115 million loan and placed $35 million with Manulife and $20 million each to Canadian banks Laurentian Bank and National Bank Financial. The debt priced at 265 bps over CDOR. The remaining project financing includes a $190 million long-term amortizing bonds and $35 million in private equity. The project sponsor is Carillion Canada (50%) and Concert Properties (50%). The DB contractor is a Carillion affiliate.

1.6 Denver FasTracks achieves financial close with successful bond issuance

On 18 August 2010, the Denver Transit Partners consortium announced achievement of Financial Close on the project financing for the Denver FasTracks concession. The consortium will undertake a concession to construct the 22.8-mile East Corridor Commuter Rail link between Denver’s Union Station and the International Airport. The consortium placed USD $397.8 million in investment grade, Private Activity Bonds (PAB). The project company will be capitalized at a ratio of 88:12 Debt/Equity. In addition, the Denver Regional Transit District (RTD) will seek New Start funding from the Federal Transit Administration to complete the construction works.

The bonds were placed in serial format with maturities ranging from 2019 to 2026, 2030, 2034 and 2041. The long-dated bonds priced at 5.9% for maturity in 2030, 6.08% for 2034 and 6.13% in 2041. Spreads ranged from 274 basis points over the AAA municipal bond curve for the 2025 maturity to 218 basis points on the 2041 maturity.

Infrastructure Market Update: 08 August 2010

2010-08-08T23:59:00.001-04:00

Market Overview

Global markets got off to a solid start last week despite weak industrial readings out from China on Monday. While official data pointed to subdued growth, the HSBC PMI Index registered its first contraction in 16 months. Strong earnings in the materials sector offset Chinese weakness with analysts anticipating an end to monetary tightening in China. US markets followed global markets higher with assistant from early readings on July manufacturing and service industries. For the week, the S&P500 added 20 points to finish the week at 1,122 -- an increase of 1.8%. While equity markets advanced, the US bond market continued to embrace the deflationary outlook. Yields on the 10-year treasury fell further last week as the payroll report bolstered hopes for further quantitative easing by the Federal Reserve. By week-end, the 10-year closed with at a 2010 low of 2.82%, having closed at a high of 2.96% earlier in the week. The USD weakened further against the EURO and Pound Sterling. The EURO cross closed at $1.328.

The Friday payroll report headlined the week’s busy macro news flow. While not weak enough to guarantee a change to the policy statement due out by the Federal Reserve next week, both the headline and revisions point to ongoing weakness in the US labor market. For starters, the headline was soft with total payrolls down by (131,000). Moreover, the July figures were revised lower from (125,000) to (221,000). Private payrolls advanced by were positive by +71,000, while the Census roll resulted in a drop of (134,000). The household survey also indicated weak underlying demand for labor. According to the household survey, both the labor force and employment fell in July by (181,000) and (159,000), respectively. On the positive, hours worked and hourly earnings were higher in July to erase the prior month’s declines.

Earlier in the week, the two big ISM reports were received more positively than the jobs report. On Monday, the ISM manufacturing index provided a modestly positive surprise with a headline reading of 55.5 versus 54.0 consensus and 56.2 last month. The new orders component turned down to 53.5 from the 58.5 reading in June. On Wednesday, the non-manufacturing report contained more positive data with a headline reading at 54.3 versus 53.0 and 53.8 consensus and prior month, respectively. Importantly, the employment component turned positive for the first time in the cycle with a reading of 50.9. Elsewhere, the Census Bureau reported a positive showing for June construction with an increase of +0.1% compared against estimates of (0.5%) and the (0.2%) prior month. Public outlays at +1.5% offset weakness in residential and non-residential private investments. Finally, pending home sales weakened further in the June after the sharp drop-off in May. Sales were (2.6%) from the prior month with the index at 75.7.

Transport Economics

The Cass Freight Index suffered its first decline in since January 2010. The two components slipped by (4.5%) and (8.6%) for the expenditure and shipments components, respectively. Nevertheless, the two indices were higher compared with the prior year. The expenditures component was +23% higher from the prior year, while the shipments index was +8.7% higher. The expenditures index has sustained a 20% or greater rate of increase for the past four months.

Infrastructure Stocks

ACS Grupo (MC: ACS) announced the divestiture of its port facilities business to investment funds controlled by JP Morgan Asset Management. The business units comprised in Dragados and Logistics Port Services (Dragados SLP) include several Spanish container terminal and bulk handling facilities. Aggregate consideration amounted to EUR 720 million in Enterprise Value. According to the 2009 Annual Report, the combined container businesses handled nearly 5.0 million TEU at the Ports of Valencia, Las Palmas, Bilbao and Malaga. On the bulk side, the ports business handled nearly 6.0 million tons of dry bulk and 4.0 million tons of general cargo. Unfortunately, the business unit is not broken out on a segment basis, so no financial information is available for the transaction.

Infrastructure Deal Summary

1.1 BAA exits US airport retail concession business

On 02 August 2010, BAA announced its divestiture of the AIRMALL USA concession business. The concession businesses include operations at Baltimore-Washington (BWI), Boston Logan, Pittsburgh and Cleveland airports. Prospect Capital Corporation acquired the business for gross consideration of USD $52.4 million, including $30 million in senior-secured debt, $12.5 million in HoldCo debt and $9.9 million in preferred equity. No additional information was revealed in respect of concession revenues or operating income attributable to the business.

The business involves the management of retail concessions representing aggregate sales (retail tenants) of approximately $237 million and enplanements approaching 20 million. The portfolio comprises nearly 300,000 square feet with average sales estimated at $840 per square foot. Sales per enplaned passenger averaged $11.7 for the portfolio in 2008 (Airport Revenue News, 2009). On a weighted average basis, the concession portfolio has an average expiration date in 2019 equivalent to eight (8) years remaining to term. Of the four concessions, three have been extended by their respective authorities.

1.2 Puerto Rico announces short-list for first toll road PPP

On 01 August 2010, the Puerto Rico Public-Private Partnerships Authority announced the consortia members submitting qualifications for the existing toll road concessions. The project involves project financing, operations and maintenance of two Greenfield projects -- PR-22 and PR-5. According to the RFQ document, PR-22 extends for 52 miles linking the capital, San Juan in the east with Hatillo. The limited access facility provides a competitive alternative relative to the signalized competing facility with an estimated travel time savings of 45 minutes between San Juan and Arecibo on the north coast -- actual travel time estimated at 50 minutes by Google Maps. In 2009, the facility generated USD $85 million in revenue. Toll revenue has grown at 5.2% CAGR since 2004, despite two consecutive years of declining receipts since peaking in 2007 at $90.8 million. The other toll road, PR-5, is a relatively short spur connecting with PR-22. In 2009, the road yielded $4.2 million in revenue on 8.6 million transactions at its single toll plaza.

The consortia include the following firms:

• Morgan Stanley Infrastructure Inc. and OHL Concesiones

• CCR (Companhia de Concessōes Rodoviárias)

• JP Morgan Infrastructure Investments Fund (IIF)

• Citi Infrastructure Investors and Itínere Infraestructuras, S.A.

• Abertis Infraestructuras and Goldman Sachs Infrastructure Partners II, L.P.

• Road Development of Puerto Rico (ICEIN S.A. and CONCAY S.A.)

• Interplan-Grodco-Consorcio Remix Development Group

• Grupo ODINSA, S.A.

Submissions were received on 29 July 2010. The public authority is receiving financial advice from Macquarie Capital

1.3 SNC-Lavalin withdraws from the Toronto Air Rail Link Project

On 30 July 2010, SNC-Lavalin (SNC) issued a press release announcing its withdrawal from ongoing negotiations with respect to the Toronto Air Rail Link Project PPP. The project involved the construction of a passenger rail link between downtown Toronto, Ontario and the international airport, Lester B. Pearson International Airport (LBPIA). The project, under consideration since 2001, was structured as a demand risk transaction with the consortium taking ridership risk on the rail line. In naming SNC as preferred proponent on 13 November 2003, Transport Canada anticipated construction completion and service commencement in 2010.

According to the SNC release, the project collapsed due in part to a lack of interest from Canadian lenders and other project financiers to lend into “full revenue-risk projects.” The proposed service would have provided an express link between the airport and Union Station in downtown Toronto. The new construction works included a 3.3-kilometer spur line to an existing rail line into Toronto. At 22 minutes, the express service would run every 15 minutes with the original business plan contemplating a $20 per ride fare. The regional transit authority will take over construction and implement the project.

Infrastructure Market Update: 01 August 2010

2010-08-01T23:59:00.001-04:00

Market Overview

The European Bank stress tests notwithstanding, global money market conditions remain tenuous though sovereign spreads have eased in recent weeks. As if there were any doubt, the European Central Bank (ECB) confirmed re-acceleration in credit tightening across the EMU in the second quarter of 2010. In the US, monetary policy was muddled last week when an erstwhile inflation hawk, in St. Louis Fed President, James Bullard published a research report highlighting the deflationary risks associated with current Federal Reserve policy. Meanwhile, the second quarter earnings season passed the half-way point with XX S&P500 members reporting results. To date, some 330 firms have reported earnings with average sales +6.7% from the prior year and earnings per share +54.5%. The S&P500 was unmoved, however, having receded just 1 point on the week to close at 1,102. The bond market sold-off into the Friday GDP report only to get bid and give back 9 bps to finish the week yielding 2.91%.

The balance of macroeconomic news last week supported the view towards decelerating growth into the third quarter. On Wednesday, the Federal Reserve published the July Beige Book with the majority of regions reporting continued growth. Mid-western and southeastern reports revealed flat or declining economic conditions. Regional economic reports corroborated the slowdown with indications of deteriorating performance for June and into July. In Texas, regional industrial activity turned negative according to the Dallas Federal Reserve. In Chicago, as well, regional manufacturing activity fell by (0.5%) from May to June. In addition, the Chicago Fed reported national economic activity contracted in June from May. On Friday, Commerce published the advanced GDP estimate with negative effect. Headline growth in the second quarter decelerated to a SAAR of +2.4% from a revised +3.7% in the first quarter. Ex-inventories, final sales in the second quarter increased at a SAAR of just +1.3%.

Transport Economics

Truck tonnage fell for the second consecutive month in June, according to the American Truckers Association (ATA). ATA reported its advanced (SA) index (1.4%) in June from a revised (0.1%) decline in May. Before seasonal-adjustments, the June reading was +6.5% above the May reading and +7.6% from the prior year. In the first half of 2010, tonnage had increased at an average rate of +6.4% from the prior year, so the June reading remains ahead of earlier growth rates observed in the first quarter. Nevertheless, the reading is consistent with the previously reported slowdown in regional manufacturing surveys heightening fears of a double-dip.

Infrastructure Deal Summary

1.1 New Jersey and Pennsylvania announce PPP to replace Delaware River Bridge

On 30 July 2010, the state of New Jersey and commonwealth of Pennsylvania announced a joint venture to undertake the procurement of a replacement Delaware River crossing on the I-95 north of Philadelphia. The existing span, know as the Scudder Falls, is fifty (50) years old and among the most heavily traveled crossings under the management of the Delaware River Joint Toll Bridge Commission (DRTBC). Built in the 1950s, the facility is functionally obsolete according to the FHWA with two lanes in both directions and no shoulders. At present, the facility is untolled, while handling nearly 60,000 vehicles per day. According to the press release, the peak hour average delay at the crossing is twenty-seven (27) minutes; the functional classification in terms of Level of Service is “F.”

The construction works would involve deck expansion to accommodate three lanes in each direction along with auxiliary lanes and approach improvements. DRTBC estimates toll construction costs at USD$130 million for the bridge and $80 million each for improvements on the New Jersey and Pennsylvania access points. The proposal envisions procurement through a PPP arrangement underpinned by the imposition of a passenger vehicle toll of between $1 and $2 per trip along with a $4 toll on commercial vehicles. Pennsylvania Governor Ed Rendell signed off on the press release and will convene a public meeting in August along with New Jersey Governor Chris Christie. Following the kick-off, the authority will solicit financial and legal advisory support for the engagement with the official procurement to follow thereafter.

1.2 Denver regional transit system taking shape with public-private partnerships

Further details emerged last week with respect to the Denver regional commuter rail system. For the Eagle PPP project, both Fitch and Moody’s assigned the lowest investment grade rating to the indicative pre-sale reports in advance of formal marketing in the first week of August. In addition, the transit system will benefit from a TIFIA loan to help finance the redevelopment of Union Station -- the terminal (intermodal) station for the commuter rail system and inter-regional Amtrak service to the Denver metropolitan area. The TIFIA loan amounts to USD $146 million and will finance ongoing station revitalization efforts and enhancements. The $483 million redevelopment project includes additional funding from the Federal Railroad Administration (FRA) and its Railroad Rehabilitation and Improvement Financing Act (RRIFA) at $155 million along with another $103 million in state and federal grant money. Kiewit is lead contractor on site.

1.3 Pennsylvania Governor announces Philadelphia Port container terminal shortlist

On 23 July 2010, Governor Ed Rendell announced the two (2) short-listed consortia poised to move forward to the bid stage for the Philadelphia container terminal project. The short-listed consortia include:

• Delaware River Stevedores with Hyundai Merchant Marine America (HMMA): Joint venture between Carrix Inc., a Goldman Sachs Infrastructure Partners’ portfolio company, and Ports America Group, a High-Star Capital portfolio company.

• SMT Development Partners: OHL SA led consortium in partnership with global engineering firm, CH2m Hill.

The two consortia will be asked to prepare final and best offerings with submission in August. The Pennsylvania Department of General Services intends to name a preferred proponent as early as September with Financial Close in November. The project represents the first significant investment in the Philadelphia port complex in nearly 50 years. The facility will benefit from connections to three Class 1 railroads for overland trade, a large local market and truck access to the I-95 corridor for regional trade flow. In addition, the container terminal development will coincide with ongoing dredging work in the Delaware River shipping channel.

1.4 Chicago Metered Parking LCC bond deal apparently pulled from market

On 23 July 2010, Bloomberg reported the previously announced Chicago Metered Parking LLC bond sale was pulled without specifying any reason. The article cited an unidentified banker familiar with the transaction as indicating the deal would not come to market, as planned. Infrastructure Investor reported on comments from Morgan Stanley Infrastructure Partners (MSIP) indicating the decision to pull the deal resulted from weak capital markets appetite.

Apparently, MSIP was unhappy with investor demands for joint covenants, including the 2.0 times debt service coverage test for additional indebtedness and an ongoing commitment to maintain an investment grade rating. Failure to maintain the rating test would allow bondholders to immediately put the debt on the issuer. According to the Wall Street Journal, early negotiations on the deal had the Baa3 bond priced off a 6.0% coupon on the USD$500 million par issue. If issued at par, the facility would have paid 300 bps over the 10-year, approximately inline with current Baa3 benchmark corporate yields.

Infrastructure Market Update: 25 July 2010

2010-07-25T23:20:00.000-04:00

Market Overview

The first weeks of July witnessed headlines echoing market themes prevailing throughout 2010, including extraordinary policy exit strategies and sovereign debt concerns. On Wednesday 21 July 2010, Bernanke was on Capital Hill reporting on the Federal Reserve’s policy response to Global Financial Crisis. In prepared remarks, the Chairmen outlined an improbable exit strategy, while reiterating the FOMC downgraded economic outlook. FOMC members anticipate GDP to expand by 3.25% in 2010 and 3.85% in 2011 down from 3.45% and 3.85% in the April forecast. In subsequent Q&A, Bernanke detailed policy mechanisms available for incremental stimulus: reinvesting proceeds from portfolio maturities; modifying statement text to jawbone long-term rates lower; and, reducing interest payments on excess reserves.

Then on Friday, the Committee of European Banking Supervision released the results of its much-anticipated Stress Tests on 91 EMU Banks. With only 1 in 10 banks failing compared to over half in the US process last year, the punditry was skeptical over the weekend. The biggest criticism relates to an accounting distinction between trading and lending books vis-à-vis sovereign credit. Only sovereign credit held in the trading books was subjected to price declines, as the prospect for an actual default was considered too remote, market prices notwithstanding. Global markets rallied despite the headlines, with the S&P500 adding 38 points to finish at 1,103 -- an increase of 3.5% for the week. The bond market remains somewhat mired in a deflationary framework, but reluctantly tacked on 5 basis points by weekend after briefly dipping below 2.90% on the 10-year. Easing concerns on the sovereign crisis in Europe buoyed the EUR with the common currency rebounding back towards 1.30 against the USD.

With the markets focused on policy headlines, the macroeconomic data last week confirmed the continued dependence on fiscal stimulus. From Monday, the NAHB homebuilder confidence index dipped to 14 in July from 17 in June as traffic continued to roll back. The 10 point reading for traffic was the lowest level since March 2009. Housing starts released on Tuesday fell further than consensus at an annual rate of 0.549 million compared with 0.593 prior and 0.580 consensus. There was a time not too long ago that starts averaged over 2.0 million during the cyclical peak in 2006. Finally, on Thursday the NAR (realtors) reported another disappointing housing data point with existing sales at 5.37 million. The headline was above consensus at 5.26 and prices advanced by +5.2%. On the downside, inventory crept higher to 8.9 months from 8.3 prior. NAR forecasts inventory to approach 10 months at current sales pace through the summer. Next week brings the first estimate of 2010 Q2 GDP and new homes sales data, among others.

Transport Economics

The first weeks in July witnessed continued positive data points from the transport sector. On 06 July 2010, Cass released its June survey with the two index components (expenditures and shipments) advancing sequentially in June; the two components registered the highest YOY growth rate for the cyclical. June YOY growth for expenditures and shipments, registered an increase of +28.9% and 18.5%, respectively. On an absolute basis, the shipment index has recouped much of its cyclical decline with the highest reading since August 2008. The expenditure index has recovered to its November 2008 level.

Over the past two weeks, West Coast Port Authorities reported strong June container volume figures. The Port of Seattle continued to lead the way amongst the larger container ports in terms of YOY growth at +49.0% on accelerating import volume. Prince Rupert actually edged out Seattle overall with a +52.6% growth rate in June. Prince Rupert has slowed considerably as volumes stabilize and the ramp-up period has driven volumes toward capacity. Overall US West Coast Ports registered a +26.6% advance for the month, the fastest pace in 2010, and 20.9% for the quarter. Tacoma the lone geography reporting a decline in container volumes, as Portland, the other laggard in the current cycle, registered its second consecutive gain against the prior year’s monthly volume. In Southern California, the Ports of LA/LB both registered strong gains with import volumes accelerating at a rapid pace and empty ongoing containers confirming the container shortages reported across the Asia-Pacific trade lanes by the various container shipping companies.

Infrastructure Stocks

The M&A bid has returned to toll road sector in July following the failed de-listing bid for Transurban by a pair of Canadian Pension Funds (along with the Australian Future Fund). The latest bids feature leading global infrastructure developers, a large private equity investor and the Canadian Pension Funds. Assets in play include toll roads in Canada, Australia, Spain and Chile, with non-core assets, including airport management contracts and concessions in North and South America subject to divestitures.

Beginning in Spain, the two local shareholders reportedly teamed up with CVC, the Private Equity investor, to bid for the minority shares of Abertis (MCE: ABE). The transaction, confirmed on Monday 05 July 2010 with the trading halt in Madrid, features La Caixa and ACS seeking to monetize equity investments and consolidate shareholdings in an independent holding company with CVC. On 09 July 2010, Reuters reported sponsors had organized a large bank group to finance the acquisition vehicle via a leveraged loan with hybrid features (leverage characteristics with infrastructure pricing and deal structure). The transaction values ABE in excess of EUR 25.0 billion or 10.1 times trailing EBITDA. Funding for the transaction would come from a combination of a leveraged loan facility and divestment of several listed equity stakes, including Brisa (PL: BRI) and Atlantia (IM: ATL) and non-core airport assets. Reuters quotes several bankers expressing apprehension on the terms of the financing and its implication for the investment grade rating (under review). Lacking firm underwriting commitments, sponsors are looking for banks to provide EUR 350 million participations with spreads at 350 bps for the relatively short-term facilities, purportedly at three (3) to four (4) years. The debt facilities could amount to as much as EUR 7.0 billion, though more recent reports peg the debt quantum at EUR 5.3 billion. Even still, debt to EBITDA would increase from 6.2 to 8.2 times. Due to tight funding conditions and concerns about the Spanish economic exposure, the deal has failed to attract substantial support with La Caixa indicating the deal could get pulled should financing go wanting.

In Australia, the Canadian Pension Plan (CPP) submitted a proposal to de-list the shares of Intoll (ASX: INT) on 15 July 2010. CPP tabled an indicative proposal to acquire the share capital of INT at a +37.7% premium to the prior close and a +41.7% premium to the volume-weighted average trading price over the one-month prior to the bid submission. The proposal values the shares at AUD $1.535 for an implied Enterprise Valuation in excess of $5.1 billion or 29.2 times on 2010 pro forma EBTIDA. Like its Transurban bid, the CPP proposal would allow existing shareholders to maintain an exposure to the portfolio through an unlisted script equity shareholding. The proposal would maintain outstanding indebtedness with the equity stake funding from existing resources at CPP. The bid exposes shareholders to Canadian Dollar (CAD) exposure as the bid envisages playing for the ETR-407 equity stake in CAD. Separately, ETR-407 reported 2010 Q2 results on 16 July 2010. Toll revenue accelerated to +14.0% on strong traffic volume at +7.4%. Daily trips advanced to 327,000 from 310,000 in the prior quarter -- an increase of +5.7%. For the Fiscal Year 2010, toll revenue amounted to CAD $591.3 million on 2.27 billion Vehicle Kilometers Traveled for an average CAD $0.26 per VKMT.

Infrastructure Deal Summary

1.1 Fitch Ratings assigns BBB- to RTD FasTracks Bonds

On 23 July 2010, Fitch Ratings published a press release announcing its rating for the Denver FasTracks project financing at BBB-. The rating relates to the USD $404 million Private Activity Bond (PAB) issuance for the Macquarie Capital-Flour sponsored Denver Transit Partners LLC (DTP). The PAB issue is expected to price in early August 2010 with the proceeds dedicated to DTP to pay for capital costs attributable to the Denver commuter rail PPP project. Assuming no addition debt, the project company would be capitalized at an 88:12 Debt/Equity ratio. The remaining capital is anticipated via federal contributions under the $1.03 billion full funding grant agreement (FFGA) from the Federal Transit Administration.

Key credit metrics for the Greenfield project financing include:

• Maximum liability cap under the Design-Build contract at 45%

• Base Case minimum Debt Service Coverage at 1.35 times

• 30-year term with scheduled amortization leaving a four (4) year concession tail

• Liquidated Damages sized to cover eighteen (18) months fixed costs

• No appropriation risk; subordinate claim on dedicated retail sales tax receipts

• 1.10 times and 1.20 times Loan Life and Debt Service Coverage Lock-Up Ratios

1.2 Alberta Schools Phase II reaches financial close with dual tranche bank debt

On 23 July 2010, IJ Online reported B2L Partnership had reached financial close on the Alberta Schools Alternative Phase II (ASAP II) project financing. The project involves construction of 10 new schools in the cities of Edmonton and Calgary, Alberta, Canada. The facilities are scheduled to open in September 2012. The SPV is capitalized by equity investors Gracorp Capital Advisors (Gracorp) and Hochtief PPP Solutions and a dual tranche debt facility underwritten by Bank of Ireland and Sumitomo Mitsui (SMBC). The Debt-to-Equity ratio was market standard at 90:10.

The dual tranche facility included:

• C$17 million short term construction tranche repaid at Substantial Completion priced at CDOR plus 250bps

• CAD $75 million long-term debt amortized over 30 years with an average life of 20 years priced at CDOR plus 250bps with stepping up to 275bps

1.3 Chicago Metered Parking unveils terms for parking debt capital markets issue

On 19 July 2010, Chicago Parking Meters LLC confirmed plans to issue debt to distribution capital to equity investors. The USD $500 million facility would result in a Debt-to-Equity ratio at approximately 40:60. Initially, the project company was capitalized with 100% equity from Morgan Stanley Infrastructure Partners (MSIP). Following financial close, MSIP syndicated its equity stake through at least two transactions with Allianz Capital Partners (ACP) and the Abu Dhabi Investment Authority (ADIA). The current equity stakes amount to 50.1% at MSIP, 25% at ACP and 24.9% at ADIA. The bond issue will be offered to qualified institutional investors via a 144a private placement. The facility will pay interest at a fixed rate with a bullet repayment due on maturity for the 10-year bond.

MSIP mandated Barclays Capital and Credit Suisse as Joint Bookrunners with RBS acting as a co-manager on the sale. Pricing was expected last week following a short roadshow in the prior week. MSIP secured investment grade ratings from Moody’s and S&P (Baa3/BBB-). The S&P report features two cases: a sponsors’ case with 2020 EBITDA at USD $130.6 million for an implied Debt-to-EBITDA at 3.82 times and the S&P Base Case with EBITDA at $84.1 for an implied leverage ratio at 5.95 times. The proposed minimum coverage ratio for additional indebtedness at 2.0 times would allow sponsors to add incremental leverage on rising earnings.

In terms of operating plans, S&P reported that Desman estimated price elasticity in 2009 at 25%. S&P estimates assume a continuation of the 25% elasticity throughout the remaining rate increases through 2013. Moody’s reported a much lower elasticity at 4%, but failed to account for the increased operating hours and benefits owing to the technology upgrades. The metered parking technology requires an ongoing seven (7) year refresh cycle at $30 million (real cost) for the multi-space payment systems.

1.4 Federal Transit Administration releases its “State of Good Repair” report

On 21 July 2010, the Federal Transit Administration (FTA) announced the publication of the 2010 State of Good Repair report. FTA estimates an incremental USD $77.7 billion in capital outlays to bring the nation’s rail and bus transit systems into an acceptable standard with incremental $14.4 billion in annual expenditures to maintain optimal operating standards. The 2010 report builds on the 2009 Rail Modernization Study report prepared for Congress with additional information obtained from 36 more rail and bus operators in both urban and rural areas. In the 2009 study, FTA estimated a $50 billion investment backlog for seven rail operators with an additional $5.9 billion in annual ongoing maintenance expense requirements. Of the $77.7 billion, rail operators account for over 76% of needed capital investment. In 2009, actual maintenance investment amounted to approximately $12.5 billion compared to the required $14.4 billion amount.

The 2010 report is available online at:

http://www.fta.dot.gov/documents/National_SGR_Study_072010(2).pdf.

Infrastructure Market Update: 27 June 2010

2010-06-27T23:59:00.000-04:00

Market Overview

The market week began on an optimistic note following news from China on the currency peg. The removal of the Renminbi hard peg would allow the currency to float against the USD bolstering domestic consumption and sustaining demand for USD-dominated commodities. The positive tone was short-lived, however, as austerity plans in Europe heighted offsetting fears on global economic growth outlook. On Wednesday, the Federal Reserve Open Market Committee ended its two-day meeting. The FOMC Statement included a downgrade of the economic outlook noting money market tightening on European sovereign debt concerns and further decline in the trend rate of inflation on weak commodity prices. While KC Governor Hoenig remained in dissent, the tone of the statement is clearly more dovish than the prior release. Following the bullish start on Monday, global equity markets were weak through the Friday close. The S&P500 fell for the first time in three week losing 41 points to finish at 1,077 -- a decline of (3.6%). The bond market continued to test 2010 lows with the 10-year giving back 11 bps to finish the week yielding 3.11%. The 10-year has yielded more the 3.0% since May 2009 when it surged back from 2-year lows at 2.13% in December 2009.

Macroeconomic news last week reinforced concerns on the durability of the current expansion and the dependency therein on the exertions of governmental policy. From Tuesday, the Realtors Association released its existing home sales report with weak effect. Annualized sales were running at just 5.66 million in May following the tax credit expiration compared with the consensus at 6.2 million and 5.77 million in the prior month. Monthly supply remains elevated at 8.3 months on current sales. On Wednesday, the Census Bureau reported similarly poor results for May new home sales (contract signings). Sales were running at just 300K SAAR versus 400K consensus and 504K in April. The new home sales reveal the extent of sales drawn forward by the tax credit. On Thursday, data was somewhat mixed with durable goods orders (1.1%) for the month compared with (0.5%) consensus and +2.9% last month. Ex-transports, durable goods orders were +0.9% from last month and +17.6% from the prior year. Consumer sentiment managed to pick-up in the past month, however weak the absolute level. The current conditions assessment rose to 85.6 from 81.0 and the outlook to 69.8 from 68.8. Finally, Commerce released its last revision on first quarter GDP with a downgrade to 2.7% annualized growth from the initial 3.2% estimate. Growth was sustained by still-strong inventory investment and modest final demand.

Transport Economics

On 25 June 2010, the American Truckers Association (ATA) released its monthly freight tonnage gauge for May. The seasonally-adjusted (SA) headline fell back to 109.60 in May -- a decline of (0.6%). The SA decline was the first in three months. The index remains +7.1% above the prior year, though down somewhat from the peak growth rate reported for the cycle thus far in April with a +9.5% growth rate YOY.

FHWA released its April travel monitoring report last week with nationwide travel rising by +1.22% from the prior year. The FHWA estimated aggregate travel at 255.9 million miles traveled during the month. On a SAAR basis, monthly travel amounted to 3,075.3 million miles traveled -- an increase of +0.5% from the prior month. Cumulative travel YTD through April is (0.4%) compared with the same period in the prior year. April was the second consecutive month with positive growth after 2010 began with declines in both January and February. Traffic in April was positive across all five (5) regions during April with the North Central (Midwest) region leading the way with a +2.2% growth rate followed by 1.7% in the South Gulf. The West region had the weakest result at +0.3%. States reporting declining volume include New Hampshire, California, Colorado, Nevada and Oregon.

Infrastructure Deal Summary

1.1 Goethals Bridge RFI respondents announced at infrastructure event

Infra-News reported on 25 June 2010 the names of respondents to the Port Authority of New York/New Jersey (PANYNJ) Request for Information (RFI) in respect of the Goethels Bridge redevelopment project. The project will be structured in structure similar to a lease-leaseback with PANYNJ retaining traffic and operating risk, while assigning finance, final design, construction and maintenance risk to the private partner. The environmental review process for Goethals is nearing completion with a Draft EIS submitted in July 2009. PANYNJ anticipates a final document this summer with a Record of Decision (ROD) in the fall of 2010.

The teams include the following:

• ACS Infrastructure Development with Dragados USA, John P. Picone and Schiavone Construction;

• Acciona Infraestructuras;

• CCA-Civil with Halmar International and Arup;

• Cintra with Ferrovial Agroman;

• Fluor;

• Global Via with FCC Construction and Caja Madrid;

• Infrastructure Development Group -- China Communications Construction with Guangdong Provincial Changda Highway Engineering, Global First Financial Partners and Sinosure US Project;

• Meridiam Infrastructure North America;

• NYNJ Link Partnership -- Flatiron with Hochtief, Kiewit, Macquarie, Parsons Transportation Group and Weeks Marine;

• OHL Concesiones -- OHL with Judlau Contracting, Granite Construction, Arcadis and Weidlinger;

• Skanska US Civil -- Skanska Infrastructure Development with Traylor Bros., PB Americas and Buckland & Taylor Bridge Engineering.

1.2 Connector 2000 Association seeks bankruptcy protection for Southern Connector

On 24 June 2010, the Connector 2000 Association filed for Chapter 9 Bankruptcy protection. In January 2010, the South Carolina toll-road operator had defaulted on principal and interest owed on its senior-secured current interest debt. The association owes US$278 million to the U.S. Bank National Association (the bond trustee), US$90.9 million to HSBC Bank USA and US$8.28 million to the S.C. Department of Transportation. According to the news report, the Chapter 9 filing is one of fewer than 500 issuers to pursue bankruptcy protection under the municipal issuers’ chapter in the past 60 years. In 2009, Chapter 9 fillings accounted for just 12 of the 1.47 million total filings according to data from the Administrative Office of the US Courts.

The road suffered from weak demand exacerbated by the lack of projected development in the southern portion of the Greenville, SC metropolitan area. The original traffic study projected 21,000 transactions a day within months of opening whereas actual transactions per day in 2001 were less than 7,500. In 2009, toll revenues amounted to just $5.3 million, one-third of the $16 million initially projected for 2009. The weak results were crystallized in 2008 when debt service increased from US$3.5 million to $9.7 million.

According to Bloomberg data, a Connector 2000 bond maturing in 2023 traded on 18 June 2010 at 27 cents on the dollar, to yield 23.6%, whereas zero-coupon bonds with the same maturity traded on 21 June 2010 at 7 cents on the dollar to yield 17.8 percent. As of April 30, OppenheimerFunds Inc. held $18.4 million of Connector 2000 bonds. Pioneer Investment Management held $1.5 million valuing the bonds at about 11 cents on the dollar. Goldman Sachs Asset Management, which held $15 million of the zero-coupon bonds as of March 31, valued the bonds at just 3 cents on the dollar.

The case is In re Connector 2000 Association Inc, 10-04467, U.S. Bankruptcy Court, District of South Carolina (Spartanburg).

1.3 Florida DOT reviewing five submissions for the First Coast Outer Beltway project

On 23 June 2010, the Florida Times-Union reported Florida DOT is reviewing submissions from five (5) consortia interested in developing the First Coast Outer Beltway (FCOB) project in Jacksonville, FL. The project involves the construction of the 46-mile FCOB linking Interstate 10 in Jacksonville to Interstate 95 in St. Johns County, for an estimated US$1.8 billion.

The teams include:

• ACS Infrastructure Development

• Archer Western Contractors and Hubbard Construction Company

• Cintra Development with Ferrovial

• Flatiron and Hochtief PPP

• Globalvia Infrastructures

1.4 Carillion achieves financial close on Toronto Forensic Services P3

On 22 June 2010, Infrastructure Ontario (IO) announced the award of the Forensic Services and Coroner’s Complex in Toronto, Ontario to Carillion Secure Solutions. IO expects construction to begin in August 2010 and finish by early 2013. At peak construction activity, the project will utilize 450 works on site daily. The design and construction will obligate the project company to achieve Leadership in Energy and Environmental Design (LEED) certification.

Carillion, the UK-listed construction company, will provide 50% of project equity with Concert Properties contributing the remaining 50%. The consortium includes Stantec Architecture, McClaren, Willis & Lawrie and Vanbots with The State Group and The Univex Group of Companies acting as the construction joint venture under the Design-Build contract. Upon satisfactory construction completion, the project company will operate the facility for a period of 30-years. The availability payments amount to approximately CAD$1,005 million over the 30-year term with a present value amounting to CAD$497 million. Carillion PLC estimated the project gross receipts to amount to GBP 306 million (CAD$476.8 million) over the life of the project on an equity investment of GBP 11.6 million (CAD$18.1 million).

Project financing is structured as a dual tranche short-term bank loan and long-term amortizing debt tranche. Bank of Montreal (BMO) acted as MLA on the bank tranche at CAD$150 million and lone underwriter on the long-term debt tranche at CAD$190 million. BMO is in the market attempting to syndicate the bank loan with pricing at CDOR + 265 bps. The short-term tranche is repaid with the CAD$150 million Milestone Payment at Substantial Completion. The fixed-income bonds priced at 315 bps wide of the Canadian Government benchmark with an all-in coupon at just under 7.0%. DBRS and S&P rated the deal (A-/A low) based on market 90:10 leverage during construction followed by 86:14 leverage during operations. The projected coverage ratio is set at an average 1.26 times DSCR with 1.25 times minimum.

1.5 McGill Hospital Bonds rated (A-/A low) by S&P and DBRS

On 21 June 2010, DBRS announced the final rating for the CAD$754.8 million long-term senior amortizing bonds issued by the SNC-Lavin/Innisfree McGill Finance Inc. project company. The Project Company is a special-purpose entity created by SNC-Lavalin McGill (Partner) Inc. and Innisfree McGill (Partner) Inc. to carry out the Project Agreement and design, build, finance and maintain a new 217,500 SQM hospital. The concession term, including construction, will extend for 34.3 years. The public authority, McGill University Health Centre (MUHC), is Québec’s largest health care institution. The project involves the construction of four buildings to accommodate a variety of in-patient care and research activities. The facilities comprise 500 patient beds, 20 operating rooms, 3,000 SQM of retail space and a 2,735 parking garage. Parking operations are retained by the hospital. SNC-Lavin will undertake construction works with a fixed-price contract amounting to CAD$1,570 million with a performance guarantee provided by the corporate parent at a maximum of 55% of the contract price.

The base case scenario provides for a Debt-to-CFADS multiple of 8.4 times in the first year of operations and relatively high average DSCR of 1.40 times over the life of the project. According to DBRS, sponsors have indicated an intention to sell an $85 million in debt in the early years of operations, should market conditions and operating performance warrant. Under the revised scenario, debt-to-CFADS would increase to 10.7 times, whereas the DSCR would decline to around 1.28 times over the life of the project.

1.6 Los Angeles Parking PPP elicits responses from 19 potential investors

On 15 June 2010, the Los Angeles City Council announced the names of the nineteen (19) respondents to the initial Request for Qualifications (RFQ) for the Parking Garage long-term lease.

The firms include:

• Ace Parking;

• Ampco System Parking;

• Brainbridge ZKS;

• Carlyle Infrastructure;

• Central Parking;

• CIM;

• Cintra;

• Classic Parking;

• Five Star Parking;

• Gates Group;

• InterPark / GE Parking Concepts;

• KKR;

• Laz Parking;

• P4 Partners;

• Parking Concepts;

• Prestige Infrastructure;

• Standard Parking;

• Starwood Capital;

• Parking Company of America.

Infrastructure Market Update: 20 June 2010

2010-06-20T23:59:00.000-04:00

Market Overview

Fears of European sovereign and attendant bank credit exposures eased somewhat last week despite the tepid result from the latest Spanish auctions and rumors about a pending EU backstop. In the US, the economic outlook was labeled moderate at best by FedEx in its quarterly earnings and guidance report. US homebuilders were under pressure, as well, as the tax credit-induced buying was paid back upon expiration. Toll Brothers commented on weak traffic in May following the April expiration of homebuyer tax credits. Nevertheless, markets keyed on the apparent stabilization in Europe and the much anticipated BP dividend halt to trade higher. The S&P500 finished the week in positive territory for the second week in a row closing the week at 1,118 -- an increase of +2.4%. Bond yields were somewhat volatile during the week, but ended flat with the 10-year Treasury yielding 3.22%. The USD was soft with the EURO gaining back some ground to close near 1.24. Although volatility abated further, Gold managed to advance and establish a nominal record high at US$1,258 per troy ounce. Markets are poised for strong gains Monday as China unveiled plans to widen the trading band for the Yuan in an effort to boost domestic demand and stifle nascent inflationary pressures.

The macroeconomic news from last week was somewhat mixed with inflation data at both the consumer and producer levels revealing deflationary pressures. The headline CPI reading was (0.2%) in May, while Core prices rose by +0.1%; both figures were broadly inline with consensus estimates. The PPI fell for the second consecutive month in May with a reading of (0.3%), while core prices were +0.2%; consensus called for (0.5%) on the headline figure. Housing starts fell back more than expected in May as the tax credit expiration bit back. Starts were off by (10%) and permits were (5.9%) from the prior month. Industrial production in May exhibited relatively strong growth at +1.0% compared with 0.8% last month. The data was short of expectations, however, at +1.2%. Capacity utilization hit 74.5%, but still short of expectations at 74.7%. Finally, the New York Fed released a strong regional manufacturing survey with the headline reading at 21.0 versus consensus at 19.57.

Transport Economics

The remaining West Coasts (except for Portland) published container volumes for the month of May with positive effect. Even without the contribution from Portland, sequential volumes were +11% higher in May from April. Compared with the prior year, West Coast container volumes increased by +20% for the month. Once again, the Port of Seattle led the way with growth in excess of 50% from the prior year. Prince Rupert and Long Beach were second and third with YOY growth at 26% and 25%, respectively. The Port of Tacoma (and Portland, presumably) continued to suffer modest declines as the larger ports capture incremental demand.

Infrastructure Stocks

MAp Airports (ASX: MAP) released May traffic figures for its airport portfolio on 17 June 2010. Traffic was positive across the portfolio with the European airports rebounding following volcanic ash-induced declines in April. Copenhagen registered the strong gain for the month with an overall increase at +11.9%. Domestic volumes were 32.4% higher in May compared with the prior year. YTD, total passenger volume is +4.8% higher than the prior year. Sydney Airport continued to register solid volumes in May with overall volume at +9.0% from the prior year. Domestic volumes were up +11.0% compared with international at 4.5%. YTD, volumes have been more balanced with domestic outperforming only modestly at +8.3% versus international at 8.0%. Finally, Brussels volume remained subdued at just +1.9% weighed down by a decline in intra-EU traffic at (1.0%). MAP attributed the weakness to labor disputes in the UK.

Infrastructure Deal Summary

1.1 CalPERS participates in equity syndication at Gatwick

On 18 June 2010, Global Infrastructure Partners (GIP) and CalPERS, the California Public Employee Retirement System, published a joint statement confirming CalPERS equity investment in Gatwick Airport. The CalPERS investment is the first major infrastructure investment by the pension fund since inaugurating its infrastructure commitment to its alternatives allocation. In March 2010, CalPERS committed to spend upwards of US$1,300 million on infrastructure investments, including US$900 million in fund commitments and US$400 million in direct investments. For its Gatwick stake, CalPERS will invest US$157 million (GBP 106 million) to acquire its 12.7% equity stake in the airport project company. Based on reported corporate financings, CalPERS acquired its 12.7% stake at the original acquisition priced paid by GIP.

The CalPERS investment marks the third equity sale by GIP in the Gatwick project company. Previously, GIP sold equity stakes to both South Korean National Pension Service (NPS) and Abu Dhabi Investment Authority (ADIA) at 12% and 15%, respectively. These two stakes amounted to GBP 225, inline with the CalPERS position and the original acquisition price. The implied EBITDA/Enterprise multiple is roughly 9.2 times on a twelve-month trailing basis.

Gatwick Airport is the second largest facility serving London behind Heathrow. It served approximately 32-million passengers in the twelve months ending 30 June 2009. The airport generated over £470 million and yielded EBITDA of £171 million. Aeronautic revenue per passenger was £7.40 with commercial revenue contributing an additional £5.10 per passenger. BAA sold the airport to the GIP consortium following in advance of a divestiture order filed by the UK Competition Commission.

1.2 Denver awards Project Eagle P3 to Fluor-led consortium

On 15 June 2010, the Regional Transportation District (RTD) in Denver announced its decision to award the Eagle P3 procurement to the Denver Transit Partners (DTP) consortium. According to the press release, the DTP proposal offered a $300 million savings from the RTD budget estimate and a time-savings totaling 11 months. The total project cost is US$2.085 billion. Service commencement is anticipated from January 2016 versus year-end in the RTD base case. The announcement contained no insights into the proposed financial strategy, though a tax exempt bond solution is anticipated.

The DTP consortium includes the following firms:

• Prime Contractor and Equity Investor: Flour Enterprises Inc.

• Equity Investor and Financial Advisor: Macquarie Capital Group

• Core Contractors: Balfour Betty Rail and Ames Construction

• Hyundai-Rotem USA: Rolling Stock supplier

The project includes two segments: (1) the East Corridor, a 22.8-mile route running from Denver Union Station to Denver International Airport. The line includes five stations between the origin and terminus stations; and, (2) the Gold Line, an 11.2-mile route route running northwest to the suburb of Wheat Ridge. The line includes six interim stations. In addition, the concessionaire will build and operate a new Commuter Rail Maintenance Facility serving all four FasTracks commuter rail lines. Finally, the consortium will deliver and maintain rolling stock for the lines. The RTD consortium bested the proposal submitted by a consortium, Mountain-Air Transit Partners (MATP) comprising Veolia, Siemens and Kiewit Construction. MATP will receive a stipend of US$ 2.5 million in compensation for intellectual property developed in the bid stage.

1.3 IH-635/LBJ Managed Lanes Project sells US$615 million of Private Activity Bonds

On 18 June 2010, the LBJ Infrastructure Group LLC (LBJ) announced the successful completion of the US$615 million in Private Activity Bond (PAB) issuance for the LBJ/IH-635 Project in Dallas, TX. The bonds were issued by the Texas Private Activity Bond Surface Transportation Corporation -- the conduit issuer. LBJ issued the bonds in serial format with four tranches maturing in 2032, 2033, 2034 and 2040. The majority of bonds (68%) are due in 2040 with a 7% coupon priced to yield 7.22% (tax equivalent yield at 11.11%). With the 30-year bond yielding 4.15% on the Friday close, the LBJ long bond provides an implicit incremental spread of nearly 700 bps. The notes traded wide of the North Tarrant transaction due in part to a split rating. According to Charles Schwab, S&P rated the transaction a notch below investment grade.

Infrastructure Market Update: 13 June 2010

2010-06-13T23:07:00.002-04:00

Market Overview

Global markets found their footing following last week’s labor market induced sell-off carried through until Monday. The mid-week release of the Federal Reserve Beige Book, along with a strong export growth report from China, bolstered risk appetite into the week-end. From the Beige Book, all twelve regions reported growth during the reporting period. The majority of sectors reported improved conditions with several erstwhile laggards, including tourism and employment improving from the prior report. New York banking respondents indicated tightening lending standards for both commercial mortgages and commercial and industrial loans. The S&P500 closed out the week in positive territory having added 26.72 points at 1,091.6 -- an advance of +2.5%. The bond market was under pressure for much of the week with yields increasing by as much as 13 bps before finishing the week +3 bps to yield 3.22%.

Macroeconomic data from the prior week was rather light with the biggest headline out on Friday, with the Census Bureau announcing a surprise decline in sequential retail sales in May. Retail sales were (1.2%) off in May from April compared to a revised +0.4% advance in April and the +0.4% consensus estimate. The May retail sales decline was the first sequential decline since September 2009. Earlier in the week, the Census Bureau reported another positive report on Wholesale business inventories. Wholesalers added to inventories again with a +0.4% gain from March. Wholesalers reported sales advancing at +0.7% to drive the stock-to-sales ratio down to a record low 1.3. On Thursday, international trade data was weaker than expected with the trade deficit widening out to ($40.3) billion. Export volumes slipped by (0.7%), while imports declined by (0.4%), as well.

Transport Economics

The Ports of Long Beach and Los Angeles reported handling a combined 1.21 million TEU in the month of May. At the Port of Los Angeles, the June import volume was the busiest since October 2008. In a notable compositional change, a rapid rise in import volumes at both ports drove the volume gains in June. The San Pedro complex handled +18.3% more containers in May than the prior year. Although export volumes slowed somewhat, the year-over-year advance was still +9.4% down from the +13.2% advance reported in April. At the Port of Vancouver container volumes advanced sequentially as well with a +9.7% improvement in May from the prior month. Further north, the Port of Prince Rupert handled 24,559 TEU in May -- an increase of +26.0% from the prior year. The growth rate at Prince Rupert has slowed as the complex rapidly approaches its near-term capacity.

Infrastructure Deal Summary

1.1 JaxPort exploring additional long-term leases for terminal operations

On 11 June 2010, the Jacksonville Business Journal reported the Jacksonville Port Authority is contemplating another public-private partnership for terminal operations at its Talleyrand Marine Terminal. The terminal is situated on 173 acres with 4,780 linear feet (1,457 meters) of berthing space. An ongoing dredging project will increase depth to 40 feet from 38 feet. The Talleyrand Terminal is the furthest of three container terminals within the JaxPort complex at 21 miles from the sea buoy. JaxPort has implemented two partnership agreements with Hanjin Shipping and TraPac Inc. to develop dedicated container terminals, while utilizing the tax exempt bonding capacity of the Port Authority. The two transactions were structured with non-recourse debt secured by lease revenue from the respective terminal operators.

1.2 ETR-407 issues CAD $800 million in intermediate term notes

On 11 June 2010, ETR-407, the project company owned by Ferrovial (SM: FER), Intoll (ASX: INT) and SNC-Lavin (TSX: SNC), announced it had placed CAD $800 million in intermediate term notes. The bond issuance was structured in two tranches: $500 million of 3.88% Senior Notes due 16 June 2015 and $300 million of 4.99% Senior Notes due 16 June 2020. The transaction occurred through its existing $2.0 billion Medium-Term Notes program and pursuant to the shelf prospectus dated 18 November 2009. The transaction netted the project $749.0 million, after fees and debt service reserve funding. The proceeds of the issuance are dedicated to prefund the $625 million 4.9% coupon notes due 4 October 2010. The bonds (presumed to have traded at par) priced at 100 and 175 basis points wide of Canadian government bonds.

Net of funds dedicated to repay the October 2010 note, the project company will receive $124 million in cash proceeds. Going forward, interest expense will increase by 12.2% to $34.37 million from the prior 30.63 million. From the latest financial results, the project has an additional $723.5 million principal on senior, junior and subordinate debt due in the next twelve (12) months from 31 March 2010.

1.3 Puerto Rico Public Private Partnerships Authority to issue RFQ for Airport

Infra-Americas announced that the Puerto Rico Public Private Authority (PRPPA) has announced its intention to distribute a Request for Qualifications (RFQ) for the Luis Munoz Marin (LMM) Airport privatization. The PRPPA published a feasibility study for the airport, along with the first toll roads scheduled for privatization. The feasibility study reveals key considerations for the privatization at LMM. Among the many compelling factors, the report reveals the entirely unsatisfactory results achieved from landside operations at LMM.

Indeed, LMM is dead last in terms of its Food & Beverage and Car Parking revenues per enplaned passengers amongst the peer group (an internally-defined group) included in the Feasibility Study. LLM F&B operations yielded just $0.16 per enplaned passenger compared with $0.31 at George Bush International at Houston. Car Park operations yielded $1.08 per enplaned passenger versus $1.38 at Louis Armstrong at New Orleans. JFK registered the highest F&B yield at $2.29, while San Antonio International achieved the highest Car Park yield at $4.29 per enplaned passenger. Car Rental operations yielded a relatively strong $0.81 per enplaned passenger compared to $0.55 at Chicago O’Hare on the low end and $4.29 at Fort Meyers on the high-end. By comparison, the average Medium Hub -- as defined by FAA -- yielded $0.55, $5.37 and $2.62 per enplaned passenger in 2008. The report points to inadequate oversight at car parks and poor offerings at F&B concessions as the primary explanation for weak results.

Where the report utterly fails, however, is in terms of its Public Sector Comparator. Herein, the analysts attempt to compare the economic benefits accruing to the PRPPA against the potential lump sum payment under the PPP solution. For the base case (Status Quo), the analysts discount the next five years of net income at a 10% discount rate for a Present Value of $54 million. Then the report estimates the Present Value of costs associated with implementing the Capital Improvement Plan (CIP) at $161 million. The report then asserts that the PPRA would achieve a net negative $107 million.

The flaws in this analysis are glaringly obvious. First and foremost, Net Income is an inaccurate proxy for Cash Flow given the relatively high differential between depreciation charge and maintenance CAPEX in the Airport Cash Flow Statement. Secondly and more important, the Airport will generate revenue long after the five year forecast period. Moreover, the CIP should allow for incremental revenue growth above and beyond the existing asset base. Otherwise why should the authority implement an expansion plan? If growth opportunities do not exist or the return on capital investment inadequate, the authority’s obligation is to maintain in a state of good repair the airport infrastructure and nothing more. Thus, the analysis requires an estimation of terminal value (or the Present Value of future cash flows outside the forecast period). Ignoring for a moment the inappropriate use of Net Income as a valuation framework, I would argue that the Terminal Value is estimated based on Terminal Net Income (preferably cash flow) at $15.52 million divided by the Discount Rate less future growth and discounted to Present Value. The result is a Terminal Value of $125.17 million. When combined with the $54 million in forecast value is $178.77 million well in excess of the CIP cost.

Infrastructure Market Update: 06 June 2010

2010-06-06T20:59:00.001-04:00

Market Overview

The holiday shortened week continued the elevated volatility commencing from early May. Market participants seized on continuing concerns emanating from the evolving sovereign crisis in Europe and the knock-on effects from extraordinary policy exit strategies, on a global basis. On Tuesday, with the Bank of Canada policy decision, Canada became the first G-7 nation to commence monetary tightening in the current cycle. Noting the elevated risks out of Europe, the Bank of Canada retreated from earlier hawkish comments with the concluding remark that additional tightening is path dependent. While the market dropped on the weak US labor market report, comments from the new Hungarian government on the existing regime’s statistical manipulations and potential derivative losses at Société Générale redoubled market participants’ concerns on the key themes affecting global market developments: notably sovereign risks and the lack of transparency in respect of those exposures. For the week, the S&P500 closed down 25 points to finish at 1,065 -- a decline of (2.3%). The S&P is within 10 points of its YTD low established in early February. After backing up from lows registered last week, the bond market was bid aggressively on Friday. The 10-year Treasury retraced to 3.38% on Thursday before falling 18 bps to finish the week yielding 3.19%. Despite the disappointing macroeconomic reports, the USD benefitted from safe haven demand, as well, with the EURO enduring continued selling pressure. The currency cross settled at a cyclical low of US$1.1971.

The macroeconomic news last week was punctuated Friday by a surprisingly weak payroll report. Before the report, the consensus estimate had the May report registering a near record increase in payroll employment (no small part of which was census-related temporary staffing). Private payroll contributions were estimated at 200,000 plus. On the print, the BLS revealed that payrolls advanced by just 435,000 with temporary census hiring accounting for 95% of total job creation. The household survey was no better this month. While the unemployment rate fell to 9.7%, the decline was a function of a contracting labor force. In fact, household employment actually dropped in May by (35,000), while the unemployed fell further at (287,000). On a positive note, hours worked and wages ticked higher in May. Data from earlier in the week contributed to growing concerns that the cyclical upturn peaked in the prior quarter. From Tuesday, the ISM manufacturing survey registered a modest decline to 59.7 from 60.4 prior and consensus at 59.7. Leading indicators, including new orders and backlog, held up well with new orders flat at 65.7 and backlog increasing to 59.5. Also on Tuesday, the Census Bureau reported an increase in construction activities in April. Overall expenditures increased by +2.7% with help from residential construction at +4.5% from March. Compared with the prior year, construction expenditures were (10.5%). While off (0.1%) from March, transportation expenditures registered the fastest YOY advance at +17.7%. On Thursday, the ISM non-manufacturing index printed a 55.4 figure flat from the prior month, but below consensus at 55.9. Striking a discordant tone, the employment sub-index advanced to 50.4 from 49.5 signifying the first expansion in (private) service sector employment in the current cycle.

Transport Economics

While macroeconomic data disappointed last week, the goods movement sector continued to accelerate according to the Cass Freight Index. In fact, the two components both advanced for the fourth consecutive month. The Transport Expenditures (TE) component increased by +5.60% from the prior month and +24.8% from the prior year to 1.78. The TE YOY percent change has advanced in each month January. Conversely, the Transport Shipments (TS) component YOY increase decelerated slightly to 11.1% from 12.9% in the prior month. Nevertheless, the TS gauge advanced above 1.0 for the first time since November 2008. Since bottoming in January 2009, TE and TS have advanced by 27.8% and 19.2%, respectively.

Last week, the FHWA updated its monthly traffic volumes for March 2010. March traffic volume increased by +2.3% from the prior year. Traffic growth was widespread with each reporting region indicating YOY growth with the Northeast leading the way at +2.7% followed by 2.5%. Only four states experienced declines in traffic volume: Florida, Colorado, Hawaii and Louisiana. The national March increase arrested two consecutive months of decline to begin the year. Compared with February, March miles travel was +2.7% higher on a Seasonally-Adjusted Annual Rate. The March sequential growth rate is the briskest pace since November 2008, according to my SAAR rate. Separately, the American Automobile Association (AAA) predicted a 5.5% advance for Memorial Day traffic compared with the prior year. To date, no data has confirmed or discredited the AAA forecast. EIA data have retail gas sales up just +1.7% during the week ending 28 May 2010 from the prior year.

On 24 May 2010, Neptune Orient (NOL) released operating statistics for the four weeks ending 30 April. NOL reported container shipping volumes increased by +34% compared to the prior year. Rising container volumes have allowed NOL to increase rates and generate an increase in average revenue per TEU at +15%. NOL reported improving rates in core trade lanes, notably the Asia-Europe route. Year-to-date, container volumes have increased by +43%, while average revenue per TEU has improved by +5% compared with year ago levels.

Infrastructure Deal Summary

1.1 LBJ/I-635 Managed Lanes Project receives two investment grade credit ratings

While Warren Buffett testified on the role played by rating agencies in the financial crisis Wednesday, investment grade ratings continue apace in the Greenfield toll road sector. In the past two week, both Moody’s and Fitch published indicative ratings for the I-635/LBJ Managed Lanes Project in Dallas, TX. The two agencies concurred in their opinions with Baa3 and BBB- ratings, respectively from Moody’s and Fitch Ratings, assigned to the US$600 million Private Activity Bond (PAB) facility. The bonds are due to price in mid-June and will enter a market characterized by declining volume and expanding credit margins, neither of which bode well.

As per federal law, the TIFIA loan, which is sized at US$850 million, achieved an investment grade rating from Fitch, as well, at BBB-. Unlike the prior North Tarrant project, the TIFIA subordinate loan was not rated at a lower grade when compared with the Senior-Secured Tranche. Perhaps, the decision turned on the Springing Lien feature, which ultimately advances TIFIA to parity under a recovery scenario, as evidenced in the unfolding South Bay Expressway bankruptcy in San Diego.

The project company (LBJ Infrastructure Group) capital structure includes US$600 million in senior-secured project debt, US$850 million in quasi-subordinate TIFIA loan tranche (plus an addition $135 million in capitalized interest) and no less than $570 million in private equity. The combined $2,020 million private capital investment is leveraged at a loan-to-capital ratio just under 72%. Total debt (including TIFIA) per lane mile is relatively high at nearly $23 million. Beyond the required capital to maintain the leverage ratio, each sponsor has committed to provide contingent equity on a pro rata basis to shore up cost overruns and provide cash funding for the Debt Service Reserve and Major Maintenance Accounts. The maximum equity commitments from each of the three sponsors, based on information contained in the draft Official Statement, are as follows: Cintra -- $367 million; Meridiam -- $305.1 million; and, Dallas Police and Fire Pension System -- $47.5 million.

The senior notes include standard rate covenants including a projected 1.25 times Senior Debt Service and 1.10 times Total Debt Service (including both senior and TIFIA debt service). Equity distributions are restricted until such time as the project achieves Total Debt Service coverage at 1.20 times Total Debt Service (including both senior and scheduled TIFIA debt service). The Official Statement estimates annual debt service (based on the 6.75% coupon) at $40,500 million per annum until 2030 when bond amortization would commence with serial retirement. From 2016, project revenues are forecasted at $87.7 million with ramp-up to 2017 to yield $104.1 million in project revenues. From 2017 to 2027, revenues are forecast to grow at a CAGR of nearly 5.8%. Debt Service Coverage on the senior tranche would climb from 2.00 to 3.51 times. Operating margins appear somewhat aggressive at 78.0% from the onset in the first year with expansion to a normalized 82.8% in 2027. Interest on the TIFIA loan commences from the third quarter in 2020, with mandatory interest set at 10% of scheduled debt service. By 2023, scheduled interest expense would rise to 54.9 million with mandatory debt service set at 25% until 2040 when full debt service is due and payable with principal amortization ongoing. Senior debt would be paid in full under the stylized plan of finance.

The concession term is set at 52 years. The Design-Build contract lump sum price is estimated at $2,090 million. Performance Support includes a $250 million Letter of Credit with a Maximum Liability under the performance guarantee capped at 50% of the contract price. Bank of America Merrill Lynch and J.P. Morgan Chase are leading the underwriting with retail distribution through UBS and Schwab. As indicated previously, the Official Statement uses an indicative yield of 6.75% for illustrative purposes. By comparison, the North Tarrant bonds traded as low as 6.0% on a yield to maturity basis in late April. For whatever reason, the NASD bond data do not contain any trade data over the past month wherein credit spreads have widened materially on Baa and non-investment grade credits. Baa Corporate spreads have retraced back to 300 bps from inside 250 bps with all-in yields in the 6.25% range.

1.2 Financial close achieved on another hospital project in Canada

On 26 May 2010, the National Post reported that Acces Recherche Montreal LP, the SPV established by equity investors Fiera Axium Infrastructure and Meridiam Infrastructure, had placed a dual-tranche bond issue to implement the Centre Hospitalier de l’Université de Montréal (CHUM) P3. The bonds feature two tranches: a short-term piece structured to coincide with construction completion and a long-term tranche with a 32-year term leaving a 1-year concession tail. The short-term tranche priced at 225 bps wide of the Canadian benchmark to yield 4.40% and the long-term tranche priced at 325 bps wide to yield 7.1%. Total debt amounted to CAD $391.8 million with $59.8 million comprised in short-term tranche and the remainder in the long-term tranche. The equity contribution amounts to $43.5 million or 10% of total capital. In addition, the equity investors will contribute a contingent mezzanine facility in the amount of 5% of the $425 million fixed-price Design-Build (DB) contract. Should the project co. draw upon the mezzanine facility, the facility would be deeply subordinate to the pari passu senior facilities. In the financial plan, the project is leveraged at 8.9 times CFADS from the first anniversary of Substantial Completion. The Loan-Life Coverage Ratio is at 1.42 for the first ten (10) years. The bonds are rated A (low)/A3 by DBRS and Moody’s, respectively.

The project involves the construction of new teaching hospital facilities for the University of Montreal. The facilities will comprise a combined 68,431 SQM. Construction is expected to begin in June 2010 with substantial completion scheduled in September 2013 followed by a 30-year service phase ending in 30 September 2043. The DB contract amounts to $425 million ($6,210 per SQM). Total expenditures during the construction period will amount to nearly $584.1 (including IDC). Two Canadian contractors, Pomerleau Inc. and Verreault Ltd. will carry out the construction works, backed by a Joint and Several 100% performance guarantee. The DB agreement includes a 10% Letter of Credit to cover 14.5 months of fixed-cost Liquidated Damages. The LC would be drawn in full prior to utilization of the mezzanine facility. Bonding amounts to 50% for both Performance and Labor and Materials Bonds. Honeywell will provide Facilities Management under a FM agreement. The Service Payment (SP) amounts to $42.6 million in the first full year of operations with the Province of Montreal committing to fund 76% of the SP with the balance due from CHUM. The FM component is approximately $4.6 in the first year subject to inflation-indexation for the duration. The maximum liability cap under the FM agreement is set at 400% of the annual service fee (excluding lifecycle costs).

1.3 Citigroup priced Nassau Airport bond issue in private placement market

On 03 June 2010, Bond Buyer reported pricing details on a private placement issue for the Nassau Airport (Bahamas). Citigroup managed to place a US$165 million bond in the private placement market. The article noted pricing at 7.0% paid quarterly for a bond equivalent yield of 7.06%. The 23-year final maturity has an average life of 15 years with an implied spread between 300 and 325 bps. The article cites market participants comparing the transaction to the recent Copenhagen placement, which priced at 275 bps over Treasuries with a 6.0% coupon. The Copenhagen transaction was dated from 20 May 2010. The Nassau Airport carries a BBB- investment grade rating, as well. The market is anticipating upcoming transactions from the Australian Airports, notably Melbourne Airport and later in the year, Brisbane Airport.

1.4 Manitoba Public Insurance (MPI) allocating capital infrastructure

Another Canadian institutional investor reportedly is entering into the infrastructure finance arena. On 01 June 2010, Prequin, the private equity media outlet, reported that Manitoba Public Insurance had retained Towers Watson as its consultant to advise on formulating an infrastructure investment program. MPI intends to solicit proposals as early as Q3 and Q4 2010. The insurance company intends to invest in core infrastructure assets, including telecommunications, transportation and utilities, with a focus on North America. The asset allocation will expand an existing alternative asset program with inflation-linked assets. At present, the fund manages over $2.2 billion in investment capital. The initial investment allocation to inflation-linked assets would amount to $110 million or 5% of gross assets.

A quick search of the website revealed earlier one-off transactions, including a CAD $20 million investment in social infrastructure projects in the Province. In 2000, the insurer provided debt capital to University of Winnipeg, Brandon University and le Collège universitaire de Saint-Boniface. According to the release, MPI has invested over $1.3 billion in debt capital to various public infrastructure investments in the Province of Manitoba.

1.5 HSBC to divest its real estate and infrastructure private equity businesses

On 04 June 2010, HSBC Infrastructure Company Limited announced that its management and owners of the Investment Advisor, HSBC Specialist Fund Management Limited, had agreed to terms with the parent company, HSBC, to arrange a management buyout of the advisor. The MBO will result in the infrastructure and real estate management team owning a majority share in the business, with HSBC maintaining a substantial minority holding. The anticipated closing for the MBO is year-end 2010. The MBO is ahead of planned divestitures of specialty investment advisors from other financial services firms. The regulatory environment is turning against the financial services supermarket of Sandy Weill fame with the preference for a specialist business units focusing on core product.

Infrastructure Market Update: 23 May 2010

2010-05-23T22:00:00.000-04:00

Market Overview

Global markets were under pressure again last week as Germany surprised the market with a local ban on short sales for domestic banks and sovereign credits, along with bans on naked CDS trading. The policy decision undermined confidence in coordinated action in Europe. Instead of instilling confidence, it would appear the unilateral action reinforced fears of concentrated exposures to troubled sovereign credits at German banks. The S&P500, along with other risk assets, declined heavily throughout the week, before rallying somewhat on Friday. For the week, the S&P500 lost 48 points to finish the week at 1,088 -- a decline of (4.2%). The S&P500 is just 22 points above its intra-day low on 06 May 2010. As global stocks tumbled and the Euro collapsed, US government bonds were bid aggressively. The 10-year treasury rallied for a second straight week to finish at 3.20%. The dollar extended gains against the Euro to finish just below $1.25 having tested 1.21 earlier in the week.

In the US, the Federal Reserve released minutes from its late April meeting with an update and upgrade of its internal economic forecasts. For 2010, the FOMC members now anticipate GDP growth at 3.45% versus 3.15 in January; expectations for the unemployment rate declined to 9.3% compared with 9.6% in January. Despite the incremental improvement, the minutes revealed lingering concerns in regards to deflationary forces. The implication the FOMC target rate will highly accommodative for a good while longer. Of the macro data last week, the most striking data point came on Wednesday with the CPI release. At (0.1%), the sequential decline in prices was below consensus at +0.0% and a further decline in the year-over-year rate to +2.2% compared with 2.4% in the prior month. On Thursday, leading indicators from the Conference Board was below expectations as well at (0.1%) compared with +0.1% consensus and 1.4% last. Earlier in the week, the Census Bureau reported mixed housing data with starts increasing by +5.8% to an annualized rate of 0.672 million. Permits were down, however, as inventory overhang continues to pressure home sales.

Infrastructure Stocks

MAp Airports (ASX: MAP) released April passenger statistics on 20 May 2010 revealing the extent of fallout from the Icelandic volcano. Passenger volume at Copenhagen and Brussels Airports were lower by (19.2%) and (23.0%), respectively. Sydney Airport continued to report positive growth with domestic volume +8.6%, while international trade fared somewhat worse up +1.5%. Over the past twelve months, total passenger volume at Sydney is +4.3% higher than the prior year. Copenhagen Airport is (3.3%) lower for the same period with the decline lead by falling transfer volumes at (11.5%). Brussels Airport was the weakest performer at (5.9%). ASUR Airports, the Mexican operator, reported April volumes (0.9%) across its portfolio in April.

On 21 May 2010, Australian Infrastructure Fund (ASX: AIX) released April results for its Australian airport portfolio, as well. The AIX airports performed even better than Sydney with growth rates ranging from +2.5% to +19.5%. Passenger volumes at the largest airport advanced at double digits with the Gold Coast airports at +12.5%. Overall, the portfolio was +10.3%.

Infrastructure Deal Summary

1.1 Veolia Water awarded water contract with Winnipeg, Manitoba, Canada

On 21 May 2010, the City Council of Winnipeg, Manitoba, Canada approved an agreement with Veolia Canada to Design, Build, Operate and Maintain two sewage treatment facilities in the city. The partnership agreement will have a tenor of 30 years. Construction work on the estimated CAD $1.8bn capital investment is scheduled for completion in 2014 with operations and maintenance work to follow for 26 years. The city is under pressure to achieve environmental compliance with strict new regulatory standards by 2012. Earlier conceptual studies estimated the capital investment needs in excess of CAD $1.0bn. The city will retain full ownership of the assets through an independent Municipal Utility.

In September 2009, Winnipeg short-listed Veolia, Black & Veatch and CH2M Hill to be a strategic partner’ and own up to 49 per cent of the new corporation. The revised model has the city retaining ownership of the wastewater facilities with Veolia providing management and maintenance support during construction and afterwards, in operations.

Infratructure Market Update: 16 May 2010

2010-05-16T10:40:00.003-04:00

Market Overview

The new week opened amidst dramatic announcements from the European Union in regards to Club Med. As measured in an increasing volatile USD exchange-weighted basis, the financial backstop (TARP II) amounted to nearly US$1,000 billion. In the immediate aftermath, markets rallied strongly on what in hindsight amounted to a massive short squeeze. From Tuesday, the market faded with the EUR/USD cross under significant selling pressure. By weekend, the S&P500 had regained just 25 basis points to close +2.2% at 1,136. Bonds were volatile with the 10-year adding 11 bps on Monday, before giving back 10 bps for the remainder of the week to close at 3.44% -- +1 bps. The EUR rallied briefly on Monday above US$1.30 before succumbing to selling pressure for the remainder. By weekend, the EUR was below $1.24.

The macroeconomic news release last week evidenced sustained growth into the second quarter. Wholesale inventories increased by +0.4% in March, while sales advanced at a much stronger +2.4% pace to drive the Inventories-to-Sales ratio to a record low at 1.13. On Wednesday, international trade data revealed a modest expansion in the trade deficit to ($40.4) billion versus ($41.0) billion consensus and ($39.7) consensus. Despite recent dollar strength, import prices tracked higher in April at +11.1% from the prior year whereas export prices were +5.7% from last year. On Friday, the FRB released another positive report on the US industrial sector. April industrial output was +0.8% compared with the prior month on a seasonally-adjusted basis and +5.2% compared with the prior year. Annual growth was solid across the sector with all components in positive territory, excepting utilities (2.6%) from the prior year. Also on Friday, the Commerce Department reported somewhat contradictory retails sales date for April at +0.4% despite weak same-store sales owing to the early Easter Holiday. Ex-autos, retail sales were +0.4% from the prior month versus +0.5% consensus and +0.6% prior month. Finally, consumer sentiment continued to inch ahead in April to 73.3 versus 72.2 in March and 73.8 consensus.

Transport Economics

The West Coast Ports released April results this past week with positive implications. Container volumes climbed across the largest ports led by Seattle, Long Beach, Vancouver, British Columbia, Los Angeles, and Oakland. Further north in Canada, the Port of Prince Rupert continued to attract sold volume at 26,600 TEU -- a gain of +50.7% from the prior year. The Port of Portland reported the lone decline (Tacoma has not reported) for the month at (4.1%). Seattle Harbor again reported the fastest rate of growth at +57.0%. Seattle volume growth was led by imports at +70.0%, while export volume was solid, as well, at +55.6%. At San Pedro, the import-export balance was mixed. Los Angeles, export volume was +13.4% ahead of the prior year in April, while import volume was +10.5%. At Long Beach, import volume was +21.2% from the prior year, while export volume was +15.2%. Based on available data, the April volumes continue to extend the gains achieved in the first quarter with sequential growth suggesting sustained expansion into the second quarter.

Infrastructure Stocks

BAA, the majority-owned subsidiary of Ferrovial (SM: FER), reported operating results for April on 10 May 2010. The passenger and container volumes are the first to reveal the full extent of disruptions caused by Icelandic volcanic activities. Indeed, compared with a still-weak April 2009, passenger volumes at UK airports were (22.7%) in April 2010. Heathrow served (20.8%) fewer passengers compared with the prior month. The declines across the UK were so severe that the decline was sufficiently high to overwhelm first quarter gains and turn YTD results negative. Naples, having suffered only indirectly from the plumes, serviced (6.0%) fewer passengers in the month compared with the prior year. Freight volumes (measured in metric tones) for the month continued to evidence the dramatic improvement in the global cargo market. Despite the (21.0%) showing for aircraft movements, cargo volumes were +6.2% above April 2009 levels. Heathrow reported particular strong results with a +7.8% year-over-year improvement, despite the (19.7%) result for aircraft movements.

Transurban (ASX: TCL) made headlines on both the investment front and in regards to its shareholder roster this past week. On Monday, shares were halted on the Australian Stock Exchange as the company revealed its preferred bidder status for the bankrupted Lane Cove Tunnel in Sydney, Australia. TCL would acquire the newly-constructed tunnel for AUD 630.5 partially-financed with an equity offering amounting to AUD 542.3 million at $4.60 per share. The 2.2-mile twin tunnel is a natural extension of the M2 (already owned by TCL) with connections to the Central Business District via the M1. A joint venture between Leighton Holdings subsidiaries Thiess Pty and John Holland Group developed the project under a Design-Build contract valued at AUD 1,100 million. As institutional investors evaluated the rights offering, a large minority block comprising the Canadian pension plans and tabled an improved offering at AUD 5.57 per share. The bid values the toll road portfolio at over AUD 13.8 billion. Based on trailing twelve month proportionate EBITDA, the bid valued the portfolio at roughly 22.3 times. Regardless, the bid was rejected sending shares sharply lower. At last trade on Friday, TCL closed at AUD 4.80.

Infrastructure Deal Summary

1.1 Virginia Port Authority agrees to terms with APM Terminals

While port authorities across the country worked to attract long-term leases with private operators, the Virginia Port Authority (VPA) quietly has sought to consolidate its integrated operating model. On 14 May 2010, VPA confirmed its ambitions with the announced lease agreement to operate APM Terminal’s three-year facility at Portsmouth. The authority to pay $40 million per annum to APM Terminals for the duration of the 20-year lease. In addition, the lease terms include incentive payments for units in excess of 500,000 TEU per annum. With its three existing terminals, the new facility will expand VPA capacity to nearly 4 million TEU (compared with a peak volume at 2.1 million TEU in 2007).

In 2007, APM Terminals completed the project having invested US$500 million into the facility. APM Terminals developed the facility to serve as a dedicated terminal for its parent company’s container shipping business, Maersk Lines (DC: MAERSKA). Previously, MAERSKA had called on VPA-run terminals at the Hampton Roads complex. Upon completion of the new facility, MAERSKA decamped for the Portsmouth facility resulting in a material decline in throughput at the VPA terminals. APM Terminal was unsuccessful, however, in luring competing lines to its new facility due in part to relatively long use agreements at the VPA facilities.

On announcing the lease agreement, VPA made no mention of the unsolicited proposals received from CenterPoint Properties, Carrix-Goldman Sachs and Carlyle Infrastructure to acquire the operating subsidiary, Virginia International Terminals (VIT). Sean Connaughton, the Virginia Secretary of Transportation, an avowed proponent of PPP generally, did mention the Craney Island development. He noted the AMP Terminal deal and its added capacity would allow VPA to differ the US2.2 billion project for many years. Through the first quarter of 2010, container volume at the three existing terminals is +15.5% above 2009. In 2009, the authority handled over 1.75 million TEU -- (16.2%) from 2008 and (18%) from 2007 when VIT handled 2.13 million TEU ahead of the APM Terminal opening.

1.2 Port Authority of NY/NJ releases RFQ for Goethals Bridge redevelopment

On 12 May 2010, the Port Authority of New York/New Jersey (PANYNJ) published a Request for Information (RFI) regarding the procurement of a replacement crossing for the Goethals Bridge. The procurement strategy is somewhat unique given the fiscal constraints imposed on the authority by its “Bond Docs.” While the proposal

Goethals Bridge commands a market share of nearly 50% of total trips on the three Staten Island Bridges. In 2009, Goethals serviced 14.2 million trips and $120 million in gross receipts. Based on a 2008 travel survey, total eastbound Hudson River crossings were estimated at 337,000 vehicles per day with Goethals attracting 38,000 trips -- 12% market share.

The schedule of events is set forth as follows:

• Issue Final Environmental Impact Statement (EIS): August 2010

• Issue RFQ for DBFM: August 2010

• Issue Record of Decision (ROD): October 2010

• Issue RFP for DBFM: Q1 2011

• Best Value Proposer Awarded: Q3 - Q4 2011

• Service Commencement New Bridge: 2016

• Complete Demolition of Existing Bridge: 2017

The RFI document is available to download on the Port Authority’s website:

http://www.panynj.gov/business-opportunities/pdf/RFIDOC_21273.pdf

1.3 Port of Portland signs lease agreement with ICTSI for Terminal 6 operations

As reported last week, the Port of Portland has resumed discussions with International Container Terminal Services (MP: ICT) for the long-term lease of the lone container terminal at the port complex. On 12 May 2010, the Port Authority board approved the lease agreement with operations expected to commence in 2011. The 25-year lease agreement includes both an upfront payment and mandatory annual rental payments. At operations commence, ICT will pay the port authority US$8.0 million. The annual rental payment will open at $4.5 million with an inflation escalation factor driven off the consumer price index. In addition, a revenue sharing arrangement begins on incremental container volume in excess of 250,000 TEU. For each additional TEU above the volume threshold, ICT will pay the authority $10 rising to $20 per TEU along with an obligation to undertake a mandatory capital improvement plan at 400,000 TEU.

Based on Port Authority estimates, the 192-acre facility has a yard capacity of approximately 700,000 TEU. In 2009, the terminal handled just over 174,000 TEU -- (29.9%) from 2008. Over the past five years, the port has handled volume in excess of 250,000 on only one occasion in 2007 when volume exceeded 262,000 TEU.

Separately, ICT successfully placed its first international bond offering with a Singaporean listing in mid-March and increased the deal size late last month. ICT announced pricing on 30 April 2010. The 7.374% coupon 10-year notes re-priced at 102.627 to par for an initial yield of 7.0%. The notes priced at 322 basis points over the 10-year US treasury benchmark. In a regulatory filing, ICT estimated 2010 capital expenditures at $123 million -- +3.4% from 2009 $119 actual.

1.4 Philadelphia container terminal concession gets new lease on life

On 12 May 2010, the Philadelphia Regional Port Authority (PRPA) re-released a Request for Proposals (RFP) for the development of a container terminal, dubbed Southport, along the Delaware River through a Design-Build Finance, Operate and Maintain concession structure. Over the past few years, the port authority has serviced a modest container terminal trade at roughly 200,000 TEU per annum. The authority hopes the expanded container terminal will allow the port to attract a greater market share for both regional and westbound container traffic. The solicitation marks the second attempt by the port authority to procure the container terminal development via PPP procurement. The state authority first initiated the bidding process in 2008, only discontinue the effort in the wake of the Lehman failure; bids were due originally on 05 September 2008.

Before aborting the process, the authority received four proposals from the following consortia:

• Hamburg Süd North America and Holt Southport Development;

• Ports America with Carrix;

• Mitsui OSK Lines with TraPac; and,

• International Container Terminal Services (ICT) with DBM Fonds.

The updated solicitation envisages identifying a short-list of three pre-qualified consortia to refine conceptual proposals and submit “best and final” offers. The solicitation recommends participants consider plans for at least three berths at the terminal. Construction may be phased with the two of the three berths developed first with the third added over time as volumes improve. According to local press reports, several of the consortia that participated in the earlier process would look to submit under the improved terms (previously uncertainty surrounding environmental considerations in respect of the channel dredging effort). The Hamburg Süd joint venture with local partner, Holt Logistics, Inc. intends to submit. In addition, the Ports America and Carrix partnership confirmed its interest. Finally, the Hyundai Merchant Marine Shipping Agency also expressed interest in putting together a proposal. Separately, Hyundai has committed to commence auto shipments through an adjacent facility at the port from July 2010.

The industrial site has several benefits, including ample intermodal service and direct access to the sizable local market in Philadelphia and southern New Jersey. The site is serviced by three Class 1 Railroads (CSX, Norfolk Southern and Canadian Pacific) along convenient access to the interstate network via I-95. In total, the container terminal yard encompasses nearly 120 acres with an option to expand to nearly 240 acres should proposals justify the additional acreage. Notwithstanding these benefits, several impediments exist to accommodating the next generation Panamax vessels, including a too shallow (40’ deep) shipping channel. The Port Authority plans to dredge the channel to 45’ leaving it still too shallow to accommodate the largest vessels. Furthermore, the port facility is fully 120 miles inland from the Atlantic Ocean. In the solicitation, PRPA estimates an average sailing time of between 5.5 and 6.5 hours.

The SFP is available at the PRPA website at www.dgs.state.pa.us. The state has retained KPMG to provide financial advice with Halcrow and Aecom serving as technical advisors. The authority will host a webinar on 20 May 2010.

1.5 Detroit River International Crossing (DRIC) proposals revealed in release

On 10 May 2010, a document containing the assembled proposals submitted to the Michigan DOT and Transport Canada was released as an annex to a report to the Michigan Legislature. The proposals reveal a general disagreement amongst market participants in regards to the marketability of a traffic-risk structure for the new Detroit River crossing. On 27 January 2010, the international partnership published a Request for Proposal of Interest in respect of the new international crossing to link Detroit, Michigan and Windsor, Ontario. The solicitation challenged respondents, including both developers and financiers, to develop conceptual business plans with reference to concession duration, revenue mechanisms and financial structure/strategy.

The responses were varied with a combination of international and local contractors, along with several equity sponsors and financial service firms. Global respondents included:

• Bouygues Travaux Publics SA -- Bouygues Construction and Bouygues SA: recommended an availability-based revenue regime (noting approvingly the Port of Miami Tunnel transaction as a market precedent). The proposal dismissed, as inconsequential alternative revenue streams, such as duty free shops.

• Global Via Infrastructure (Caja Madrid and FCC 50/50 shareholdings): non-complaint in a superficial sense as the submission makes no mention of revenue regime, financial plan or concession duration.

• Acciona Infraestructuras SA -- Acciona SA: recommended as preferred an availability-based payment regime and a shadow tolling regime as a second-best solution. Proposal recommends now-consensus 30-year operating period for the availability payment structure with capitalization ratios ranging from 70/30 to 90/10.

• SNC Lavalin Capital -- SNC Lavalin with Granite Construction, American Bridge and EllisDon: discussion on credit considerations and particular situation in Detroit-Windsor would imply the consortium favors an availability-based payment regime with typical 30 to 35-year operating period post-construction. For a demand-based deal, SNC recommends 50 to 75-years to accommodate full risk transfer.

• Kiewit and Flatiron Joint Venture (Kiewit Construction with Flatiron and Hochtief): the joint venture combines the number 1 and 2 bridge builders, according to Engineering News-Record. Open to both performance and demand-based payment regimes with capital structures ranging from 90/10 under the availability-payment structure and 60/40 under the demand-based payment regime.

• ACS Infrastructure -- ACS and Dragados: proposal suggests an interest in demand-based payment regime provided adequate public funds are available to bridge financing gap. Demand risk would require an estimated 50-year operating period. Potential for Duty Free shops (by reference, operate at the crossings in and around Buffalo, New York and southern Ontario, Canada).

• Cintra -- Ferrovial: unequivocally calls for demand-based payment structure highlighting the appropriate risk allocation manifest in market-based tolling. Cintra recommends at least 50 years for demand-based regime with the optimal term at 75 years. Despite the demand-based structure, Cintra recommends still aggressive 70 to 90% debt in the capital structure.

• Meridiam Infrastructure -- Meridiam with Aecom: preliminary analysis reveals viability of demand-based revenue structure. Submission recommends demand-based revenue structure with full risk transfer.

In addition, several financial services firms submitted responses, including Scotia Capital, Bank of Montreal (BMO) and Macquarie Capital. Echoing many of the proposals, the financial firms recommended availability-based structures to facilitate credit approval amongst project finance banks. In addition, the submissions revealed near unanimous support for both TIFIA and Private Activity Bonds (PAB) in the capital stack. A number of respondents also recommended bank facilities, ranging from bridge loans to construction facilities and long-term loans.

The actual project works entail the following:

• I-75 Interchange US$451 million;

• USA Toll plaza US$474 million;

• Bridge US$812 million; and,

• Canada Toll plaza US$523 million.

Infrastructure Market Update: 09 May 2010

2010-05-09T22:42:00.003-04:00

Market Overview

David Rosenberg likes to quote Bob Farrell positing the news does not make the market; the market makes the news -- well then, Thursday certainly was indicative. From mid-afternoon, the widespread market decline accelerated into a full blown rout. Within minutes, the S&P500 had slumped 100 points for a (9.0%) intra-day decline. The sell-off, however temporary, yielded paper losses in excess of US$1.0 trillion for those unlucky enough to get stopped out! At the market nadir, the VIX index added 15 points from 25 to 40. Volatility proved its mettle as both an asset class and hedging instrument. European financials are under the microscope with CDS pricing in dire solvency considerations. From Thursday, the Markit iTraxx Financial Index surged the most on record to over 200 bps before settling at 177 bps to end the week. On the weekend, EU finance ministers met to negotiate a pact to back-stop imperiled sovereigns, local banks and support the EUR against speculative short-sales. After recouping substantial intra-day losses Thursday, the S&P500 suffered further weakness Friday. For the week, the S&P500 lost over 75 points to finish at 1,110.9 -- (6.4%) for the week and (0.38%) year-to-date. Government bonds, the least favored asset class according to Barrons’ Big Money Survey, got bid on the equity market sell-off. The 10-year treasury traded below 3.3% at one point on Thursday before sellers emerged early Friday. By the Friday close, rates were back above 3.4% to close at 3.43% -- (23) bps for the week. The US$/EUR cross was sold aggressively, as well, closing at $1.26.

While the market was fixated on developments in Europe, domestic macroeconomic news continued to evidence an improving coincident environment. The clearest confirmation came on Friday in the Employment Situation Report. The headline advance in nonfarm payroll employment was well ahead of consensus at +290,000, while the unemployment rate was higher by a +0.2% at 9.9%. The uptick in unemployment, however, was driven in large part by labor market re-entrants at 195,000. Details in the payroll report revealed broad-based job growth led by manufacturing, profession and business services, healthcare and leisure services. Since December 2009, private sector payrolls have expanded by nearly 0.5 million. Along with the strong current showing, the BLS revised prior months with positive effect -- +68,000 in March and 53,000 in February. Earlier in the week, the ISM Manufacturing report for April was just shy of expectations at 60.4 in April (consensus at 61.0) versus 59.6 in March. The April benchmark revealed the fastest pace of growth in the manufacturing sector since June 2004 and the ninth consecutive month of gains. Importantly, the employment sub-index was ahead at 58.5 from 55.1 last month. On Wednesday, the ISM Services headline was flat at 54.5 from the prior month. The employment sub-index was down slightly to 49.5 from 49.8 in the prior month. Elsewhere, the Census Bureau reported a surprise improvement in construction spending in March. Construction spending increased by +0.2% versus (0.3%) consensus and a revised (1.3%) showing in February. Compared with the prior year, however, March expenditures were (12.3%).

Transport Economics

The Cass Freight Index advanced for the third month in four in April. Compared with the prior year, the Cass Freight Shipment component was +12.9% and at its highest level since November 2008. The expenditure component was higher, as well. From March, shipping expenditures were +1.6% higher in April and +21.0% above the prior year. The shipment index troughed in January 2009 and has since gained +16.4%, whereas shipments actually bottomed in April 2009.

Infrastructure Policy Debate

On 05 May 2010, New Jersey Governor Chris Christie signed into legislation designed to ease restrictions on public-private partnerships in public education facility procurement. The law, which modifies the existing New Jersey Economic Stimulus Act of 2009, will allow Montclair State University to proceed with a public-private partnership to procure additional student housing with a private developer. The legislation confirms tax exempt eligibility for on-campus housing projects provided ownership or lease agreements confer control to the public university. The legislation allows Montclair State to begin construction work for a new 2,000 unit on-campus housing and resident life complex.

Infrastructure Deal Summary

1.1 El Paso-Global Infrastructure Partners’ Ruby Pipeline project financing closes

On 06 May 2010, El Paso Corporation announced the closing of project financing for the Ruby Pipeline project. A bank group, comprising over 10 international banks will provide a seven year, US$1.5 billion debt package. The facility priced at 300 bps over USD LIBOR with margin increases in year three to 325 bps and again in year five to 375 bps through maturity. The dual tranche structure envisages refinancing of $700 million after four years. At least 75% of the notational floating-rate exposure will be secured with a fixed-rate swap. The press release indicated a delayed draw profile with a forward starting swap in mid-2011. With the equivalent forward rate quoted at 3.5%, the all-in cost would start at somewhere in the 6.5% range.

El Paso Corporation and Global Infrastructure Partners (GIP) will capitalize the project company on a pro rata basis. The construction works are supported by the substantial equity commitment along with a completion guarantee from El Paso. The first drawdown is subject to final regulatory approval from the Federal Energy Regulatory Commission (FERC).

The project involves the construction of 675 miles of 42-inch natural gas transmission pipeline. The pipeline has an initial design capacity at 1.5 billion cubic feet per day. The pipeline will connect production assets in Wyoming to a terminal facility in Oregon, while traversing both Utah and Nevada. The construction works include compressor facilities in each of the four states. Construction is anticipated to begin in the second quarter of 2010 with an estimated in-service date from March 2011.

1.2 Commercial Financial Services outbids Bainbridge for PCAA parking portfolio

On 05 May 2010, Macquarie Infrastructure Company (NYSE: MIC) announced the results of the court-ordered auction for the assets of Parking Company of America Airports (PCAA). According to the 8-K release, Commercial Finance Services 2907 Inc. bid $141.0 million for the operating assets of PCAA. The $141 million bid represents a 26.5% premium to the previously announced proposal from Bainbridge ZKS - Corinthian Holdings, LLC (Bainbridge) -- gross consideration at $111.5 million. The implied acquisition multiple on trailing twelve-month earnings before interest, tax, depreciation and amortization (EBITDA) equates to over 18.2 times on 30 September 2009 results. Acknowledging 2009 earnings are at trough levels, the EBITDA multiple on a four year average basis is still relatively high at 10.4 times.

The increased sales price provides a material improvement for secured creditors (though still nothing for MIC shareholders). On the initial Bainbridge proposal, senior creditors would have received just $0.57 per $1.00 in recovery (excluding whatever cash was held at the various operating subsidiaries). The improved auction result allows creditors to achieve a recovery rate in excess of $0.72 per $1.00 face. The sales agreement, dated 29 April 2010, will take effect from 14 May 2010. PCAA and its subsidiaries own and operate off-airport parking facilities at 20 locations with service at seven of the largest ten airports.

1.3 Georgia DOT receives three submissions for the I-75 Managed Lanes project

On 04 May 2010, the Georgia Department of Transportation announced receipt of three submissions to its initial Statement of Qualifications (RFQ) for the West by Northwest (Managed Lanes) Project in metro Atlanta. The three consortia include:

1. West by Northwest Development Partners: Vinci Concessions and OHL Concessions (equity) with lead contractors Archer Western Contractors, OHL USA and Hubbard Construction. Parsons Transportation Group is the lead engineering firm with Vinci and OHL teaming up to handle operations and maintenance post-completion.

2. Georgia Mobility Partners: Cintra Infraestructuras with Meridiam Infrastructure North America and Grupo Soares da Costa (equity investors). Ferrovial and Prince Contracting (no relation) as lead contractors with AECOM Technical Services as lead engineer. The equity investors will provide O&M, as well.

3. Northwest Atlanta Development Group: ACS Infrastructure Development (equity investor) with Dragados in partnership with C.W. Matthews Contracting as lead contractors. PBS&J will act as lead engineer with equity sponsors providing O&M.

GDOT will review the initial proposals and determine the short-list of prequalified firms by June 2010. From there, GDOT intends to distribute a formal request for proposals (RFP) in September. The pre-qualified teams will have until January 2011 to develop their submissions. GDOT anticipates a preferred bidder by March 2011 and financial close by July 2011.

The West by Northwest project alignment extends 21-miles along the I-75 corridor in the northwest quadrant of the metro area. The project will link the northwestern suburbs of Cobb County to the I-285 Beltway around Fulton County and the Atlanta CBD. The main segment from the juncture connecting I-75 with I-575 to the terminus at I-285 will feature two reversible lanes with single reversible lanes along the individual segments on I-75 and I-275, respectively.

1.4 Port of Portland considers long-term container terminal lease

On 05 May 2010, The Oregonian -- a Portland, Oregon daily -- reported the Port of Portland has resumed discussions in regards to a long-term lease of its sole container terminal (Terminal 6). The inland port is capable of servicing Post Panamax vessels in its deep water shipping channel. Intermodal connections provide service to both Union Pacific and Burlington Northern. According to the news report, port officials are speaking exclusively with International Container Terminal Services (PM: ICT), the Philippine-listed container terminal operator. The proposed lease agreement would have an initial term of 25 years. No additional details were disclosed. Port commissioners will consider the proposal at an open meeting scheduled for 12 May 2010.

The Port of Portland has underperformed its competitive set in the Pacific Northwest throughout the recent slump in trade volume. Through the first quarter of 2010, Portland container volume has averaged just over 13,000 TEU per month. Compared with the first quarter of 2009, container volume is down nearly 9,000 TEU -- a decline of nearly (20%). The volume decline at Portland is the most severe on the West Coast; rivaled only by the Port of Tacoma at (14.6%). By comparison, the overall growth rate on US West Coast Ports was +10.1% in the first quarter. Seattle led the way forward with a +35.3% rate of growth. The two smaller ports, in Tacoma and Portland, appear to be suffering from the decline in West Coast congestion, generally, owing to excess capacity at larger rivals in Seattle, Oakland and San Pedro to the south.

ICT is a global provider of stevedoring and shipping services at six major ports in Asia, South America and Eastern Europe. It has developed new facilities in the Middle East and is due to construct additional facilities in South America. ICT estimates its total capacity at over 6.0 million TEU per annum at existing port operations. The Port of Portland would mark the first foray into the US market for ICT. For the nine months ending 31 December 2009, ICT handled over 2.5 million TEU and generated revenue of $299.3 million yielding $129.1 million in EBITDA. Yield per TEU was $118 compared with $120 at 2008 year end.

1.5 Chicago Midway files third extension for its FAA PPP Large Hub Slot

On 04 May 2010, the Federal Aviation Administration (FAA) published a third letter from the City of Chicago in respect of the Midway Airport Large Hub slot in the Privatization Pilot Program. The letter dated 30 April 2010, requested an extension through 31 July 2010 before reporting back on negotiations with private partners. Local press reports suggest the city remains interested in pursuing the transaction, but the transaction has lost some support in the wake of the metered parking transaction. Despite the continued uncertainty, operating results continue to improve. Through March 2010, the airport has reported positive year-over-year results in nine consecutive months. For the three months ending 31 March 2010, the airport reported a +8.83% advance against the prior year and a +53.9% gain in cargo volume.

Infrastructure Market Update: 02 May 2010

2010-05-02T22:58:00.002-04:00

Market Overview

The Federal Reserve released its policy statement on Wednesday amidst the din of sovereign credit downgrades across Club Med. The statement contained only modest changes and retained the pledge to “low levels” for “an extended period” -- Canadian counterparts notwithstanding. The Fed noted tentative signs of improvement in the labor and housing markets; the punditry predictive deferred action until such time as tentative signs of improvement give way to material declines in unemployment. Meanwhile, rating agencies were busy explicating contagion in Portugal and Spain, while Greece achieved the ignominious distinction as the sole EU member state with a junk credit rating. Elsewhere, Goldman executives headed south to Capital Hill and endured an ugly inquisition. The inquisition was less painful relative to the reception upon returning to NYC. While away in the capital, federal prosecutors were crafting criminal charges in connection with the SEC civil suit. Coupled with escalating clean-up cost estimates in the Gulf of Mexico, the sell-off in Goldman precipitated a market-wide decline late in the week. By Friday’s close, the S&P500 had given back just 28 points to finish the week at 1,168 -- (2.5%) from the prior week. The 10-year treasury, having sold off to yield above +4.0%, has gained steadily on sovereign default considerations. Last week, safe-have buying returned to drive the 10-year down (8) bps to finish the week yielding just 3.67%. Despite continued dollar strength, gold was bid last week, as well, with GLD +1.9% for the week.

The macroeconomic data point of the week was the 30 April 2010 advance report on first quarter GDP. The growth estimate was just below consensus at +3.2% (compared with +3.3% consensus and +5.6% in the fourth quarter). The rise in personal consumption contributed 255 bps to GDP growth. Inventories contributed another 157 bps to the growth rate in the first quarter -- down from the 379 bps contribution in the fourth quarter of 2009. Residential investment subtracted (30) bps from GDP for the first detraction since three quarters. Earlier in the week, S&P released its Case-Shiller Home Price Index with mixed affect. The index was (0.6%) in February compared with January. On a seasonally-adjusted basis, however, the index was +0.1%. From the prior year, the February release was +1.5%. Also on Tuesday, the Conference Board reported a surprise increase in its consumer sentiment index at 57.9 versus 53.5 consensus and 52.5 in the prior month. The remainder of the week included a variety of weekly data points and a seven year auction met with robust demand.

Transport Economics

On 27 April 2010, ATA reported a surge in truck volumes for the month of March. Freight volumes leapt higher by +19.1% from February (before seasonal adjustments). On a seasonally-adjusted (SA) basis, March volume was +0.4% from February wherein volumes declined by (0.3%). The SA benchmark reached its highest level of activity since November 2008. Compared against the prior year, the benchmark index was +7.5% higher. The March advance marked the fourth consecutive increase and most rapid pace since January 2005. Moreover, respondents indicated improvement in the supply-demand balance continuing into March.

International airfreight also had a strong showing in March, according to preliminary data from the International Air Transport Association (IATA). Preliminary passenger and freight volumes out on 27 April 2010 suggest solid growth in the first quarter of 2010. Freight volume was +27.8% from the prior year and within 1% of its prior peak in early 2008. Passenger volumes posted solid gains, as well, with March volume +8.6% higher than last year’s rather weak result. Passenger volumes were exceptionally strong throughout the Emerging Markets with the Middle East leading the way at +25.0%. IATA struck a note of caution, however, in respect of the fall-out from volcanic activity in April with a forecast for one-off year-over-year declines next month.

Infrastructure Stocks

On 30 April 2010, MAp Airports (ASX: MAP) published financial results for the remaining core airports assets last week. First quarter results for both Copenhagen and Brussels Airports. Of the three core airports, Brussels lead the way forward with a +16.6% increase in first quarter 2010 EBITDA. Brussels Airport operating performance was fueled by a return to traffic volume growth for the first time since 2008. Long haul volume (ex-EU) was the driving force with an advance of +8.5% from the prior year. Retail revenue and car parking revenues both were ahead by nearly 8.0%. EBITDA growth at Copenhagen was second to Brussels at +15.5%. Once again, a return to positive passenger volumes provided the catalyst for improving operations. In addition, Copenhagen operating performance benefited from concerted cost reduction campaign that saw operating expenditures per passenger decline by over 10 DKK -- (12.3%) from the prior year. Non-aeronautic revenues declined, however, due to contract renegotiations in the second half of 2009 with retail concession customers.

Infrastructure Deal Summary

1.1 The Mississippi Port Authority publishes RFI for north harbor redevelopment

The Mississippi State Port Authority at Gulfport (MSPA) published a solicitation for private developers and advisors interested in partnering with the authority for the redevelopment of the northern harbor area of the Port of Gulfport. The Request for Information (RFI) challenges respondents to investigate the highest and best use of a parcel on the northern periphery of the port complex. Proposals are due 18 June 2010. The existing port operations amount to nearly two millions tons of cargo and 200,000 TEU per annum. The main harbor is maintained at a depth of 32 feet, while the South Harbor and Turning Basin, which is approximately 1,320 feet wide, are maintained to a depth of 36 feet. The Port consists of 10 multiple berths ranging from 525 – 750 feet. The complex encompasses over 204 acres. The port is the third busiest container terminal in the Gulf of Mexico. The port is serviced by intermodal connections via Kansas City Southern and CSX (both Class 1 railroads).

The City of Gulfport suffered extensive damage as a result of Hurricane Katrina in August 2005. In October of the same year, the city undertook an extensive mastering planning exercise in an effort to crystallize the rebuilding effort in response to the devastation. The redevelopment and relocation of commercial activities at the port are an integral component in the redevelopment. The redevelopment plan envisages an expanded maritime operation on the western portion of the site. The redevelopment plan features a consolidated break-bulk and container terminal on the western parcel. The RFI will determine whether the northern parcel is utilized in the broader maritime land uses or an alternative development.

1.2 Partnership BC adds two accommodation deals to its project pipeline

On 29 April 2010, Partnership BC, in conjunction with the British Columbia Ministry of Health Services and Interior Heart and Surgical Centre (IHSC) released a Request for Qualifications (RFQ) for the new clinical support building (CSB) at Kelowna General Hospital. The RFQ process will result in a short-list of per-qualified teams. PBC will invite the short-listed teams to respond to a Request for Proposals (RFP). The procuring authorities will announce a preferred proponent by December 2010, with construction commencing immediately thereafter. The authority anticipates construction completion in 2012.

The IHSC Project construction works entail a new, four-storey, 12,970 square meter (139,590 square foot) Interior Heart and Surgical Center. The facility will house the permanent cardiac program and a new 7,850 square meter (84,470 square foot) Clinical Support Building to house laboratory and support services. The preferred proponent will be responsible for renovations to the existing Royal and Strathcona buildings along with renovations to the new Centennial Patient Care Tower to accommodate inpatient units.

On 28 April 2010, PBC in collaboration with the British Columbia Ministry of Public Safety and Solicitor General released a RFQ for the Surrey Pretrial Services Center Expansion Project. The construction works include the development of a new, state-of-the-art high-security detention facility with capacity to house 180 cells. The facility is part of a broader CAD$185 million capital investment plan representing the single largest provincial investment in British Columbia corrections infrastructure.

1.3 Canadian pension funds seek to form strategic alliances for direct investment in alternative assets

On 28 April 2010, Pension and Investment Online reported on a strategic alliance formed between Ontario Municipal Employees Retirement System (OMERS) and Ontario Teachers’ Pension Plan (OTPP) to facilitate direct investment in infrastructure and real estate assets. According to the report, OMERS and OTPP had engaged other large pension funds in the United States and Europe to coordinate regionally-focused direct investments. Philip Haggerty, vice president of corporate development at OMERS, commented on the plans at the Milken Institute Global Conference last week. The benefits of direct investment range from control to risks introduced by third party management and organizational structures. Most of all, however, the costs associated with third party infrastructure investment reduce core infrastructure assets to poor investments. Without compelling upside, Haggerty suggested third party management fee structures do no allow for adequate rendering investments unwarranted. Instead, OMERS, OTPP and others propose direct investments with internal management structures. The new ventures would provide a means for leveraging resources, both financial and experiential.

1.4 Canadians offer financial assistance to Michigan to accelerate DRIC project

On 28 April 2010, Crains Business Detroit reported on a proposal from the Canadian government to aid the State of Michigan in funding the planned Detroit River International Crossing. The $550 million offer would fund costs otherwise borne by the state for development of customs facilitates on both sides of the river. From initial estimates, the US$5.3 billion budget would require US$100 million contribution from Michigan. In exchange for the financial assistance, the Canadians would receive preferential distributions from toll revenue receipts at the new crossing.

At the time of announcement, Michigan Governor Jennifer Granholm was testifying before the Michigan House Transportation Committee on plans for legislative authorization for Public-Private Partnerships. The state plans to utilize PPP procurement processes to accelerate project delivery. At present, the new crossing would link I-75 in Detroit to Highway 401 in Ontario. Once underway, the construction phase is scheduled to extend for 48 to 52 months. Ontario is moving ahead with the Windsor Essex Parkway (the connecting facility) even before plans for the crossing are finalized. Michigan lawmakers have until the first of June to opine on the plan.

Infrastructure Market Update: 25 April 2010

2010-04-25T23:15:00.003-04:00

Market Overview

All of the ingredients for a market sell-off greeted equity investors last week. Sovereign credit, extraordinary monetary policy exit strategies and corporate malfeasance were all in the fore. In Europe, the Greek crisis spiraled out of control with revelations of inaccurate estimates in respect of the magnitude of outstanding indebtedness. By Friday, the government had reversed course and requested funding under the contingent capital pledge from the EU and IMF. On 22 April 2010, the Bank of Canada upgraded its economic outlook and retracted the promise to maintain its base rate at current levels through the second quarter of 2010. The announcement set the stage for monetary tightening at the next meeting thereby reinforcing the bid in the CAD/USD currency cross. Despite the trifecta, the US market was bid higher for the eight straight week. The S&P500 gained 25 points to finish at 1,217 -- up +2.1% for the week. The 10-year dipped briefly below 3.75% before selling off into Friday to finish yielding 3.82% -- finishing the week up 5 bps. The USD/EUR exchange fell below $1.34 for the first time since May 2009.

Macroeconomic data last week was overshadowed by the substantial flow of earnings out from S&P500 constituents. For the 85 companies reporting through 24 April 2010, revenues have an increased by an average of +4.8% with operating profit up + 54.2% on average. Furthermore, over 80% of firms have exceeded consensus revenue in the current quarter. Aside from earnings reports, the weekly data flow also included updates on the housing market. From Thursday, the Realtors Association released existing home sales data. March home sales were ahead of expectations at 5.35 million versus 5.250 consensus and 5.02 million last month. From the prior year, existing home sales advanced by +16.1%. The median price was up +3.7%, while inventory slipped back to 8.0 months on current sales. On Friday, the Census Bureau reported even better data in the new homes market. New home sales in March were running at 411K SAAR compared with 330K consensus and 308K prior month. Supply fell back to 6.7 months from February’s 8.6 rate. The housing data is picking up in advance of the revised home sales tax incentives set to expire 30 April 2010 (wherein contracts must be signed). Finally, durable goods orders were mixed with the headline (1.3%) from February, but +2.8% ex-transports. The March advance in orders (ex-transports) was the quickest pace since December 2007.

Infrastructure Stocks

On 23 April 2010, MAp Airports (ASX: MAP) released results for its flagship Sydney Airport operations. Like its toll road counterparts, the Australian international gateway is performing well-ahead of international peers. From the prior year, revenue was +11.7% higher, while EBITDA grew by +13.0% to 187.1m (ex-items). Traffic advanced by +9.4% in the quarter highlighting the strong performance both aeronautic and land-side. Aeronautic revenues were +17.8% higher on strong passenger volume and capital investment cost recovery under the regulatory regime. On a trailing 12-month basis, Sydney Airport yielded AUD 711 million on AUD 877 million in gross receipts. On the Gatwick transaction multiple, the implied Enterprise Valuation is in excess of AUD 7 billion. Given the sustained outperformance at Sydney, the valuation is likely considerably higher. MAP reported an Enterprise Value at nearly AUD 11 billion.

On 19 April 2010, Abertis (MSE: ABE) was downgraded to BBB+ by Standard and Poor’s (S&P). S&P deemed liquidity at the group level as less than adequate for continued compliance with A- rating requirements. Despite the downgrade, S&P continues to view the underlying operating assets favorably. Separately, Reuters reported ACS and La Caixa are exploring a partial stake sale to facilitate the purchase of additional shares in Iberdrola. Together, La Caixa and ACS control over 50% of Abertis. ACS had indicated it intends to increase its shareholding in Iberdrola from 12 to 20% in short order. The strategic stake sale marks the second divestiture in as many months. In March, Caja de Ahorros del Mediterraneo (MSE: CAM) hired Credit Suisse to sell its 1.68% position. CAM sold its position on 26 March 2010 at EUR 14.25 (Gross EUR 168.2m) per share to net EUR 108.2m profit.

Infrastructure Deal Summary

1.1 Mounties E Division Headquarters achieves Financial Close

The HSBC-Bouygues Joint Venture, Green Timbers Accommodation Partners, achieved Financial Close on the Royal Canadian Mounted Police (RCMP) E Division Headquarters project. The consortium tapped the insurance market with a CAD195m private placement due in September, 2037. The project involves the construction of a new headquarters facility for the regional office of the RCMP in Surrey, British Columbia. The facility will comprise 76,000 square meters. The construction phase is scheduled to extend for 32 months with a 25-year operating period to follow immediately thereafter. The construction work will be performed by a joint venture between Bouygues and local partner, Bird Construction. ETDE Facility Management Canada Ltd. (ETDE), a Bouygues subsidiary, will administer the facilities management upon service commencement. The obligor on availability payments is the Public Works Department within the federal government of Canada (AAA). According to the rating report, PWGSC will sign on behalf of Her Majesty the Queen.

S&P rated the private placement A-. According to industry reports, the bonds priced at 285bps over long-term government bonds (4.10%) to yield 6.95%. The DB Security Package features joint and several parental guarantees from the design-build joint venture's (DBJV) indirect parents, Bouygues Construction S.A. and Bird Construction Co. Ltd., as well as, two unconditional letters of credit (LC) totaling CAD$25.7m at closing, representing 11% of the DBA contract value to provide liquidity during construction. The financial plan includes fully-amortizing bonds have solid minimum senior debt service coverage ratios (DSCRs) at 1.20 times throughout operations, peaking at 1.35 in the out-years. The distribution lock-up is triggered at 1.15. The equity commitment totals CAD$23.4m representing 11% of private capital. The public authority will contribute $120m in milestone payments with the senior facility totaling $195m.

1.2 Two Bank-Sponsored Infrastructure Funds Close Well Below Targets

The Dow Jones LBO Wire reported on 23 April 2010, that Macquarie (Mac) and Goldman Sachs (GS) both wrapped up fund-raising efforts for their respective infrastructure funds last week. GS Infrastructure Partners II LP closed at US$3.1bn compared against an initial target at $7.5bn. Mac fared even worse, netting just $1.6bn versus the original target at $6.0bn and a more recent, revised target at $3.0bn. Mac has spent upwards of US$810m (50% of the fund) on two investments -- Global Tower Partners at $376.2m and Puget Energy at $342.4m. Investors apparently are a bit skittish about the concentration risk in the fund.

Investors in the GS fund include Alaska Permanent Fund Corp (the local sovereign wealth fund). Mac has secured commitments from the Illinois State Board of Investment and State Universities Retirement System of Illinois, among others. Separately, Mac extended its self-imposed deadline on its European Infrastructure Fund III to 30 June 2010 from 31 March 2010.

1.3 Private Prison operator GEO Group makes cash and share offer for outstanding shares of Cornell Corp.

On 19 April 2010 before the market open, GEO Group (NYSE: GEO), a global provider of correctional services and private hospital services, announced the acquisition of Cornell Corp. (NYSE: CRN), a private prison operator. The transaction is payable in one of two ways: (a) 1.3 shares of GEO common stock for each share of Cornell common stock; or, (b) cash consideration equal to the greater of (i) the market value of one share of GEO common stock plus $6.00 or (ii) the market value of 1.3 shares of GEO common stock. The transaction values CRN at a market capitalization of US$385 million or $685 million on an Enterprise Valuation basis. From Friday close, the transaction values CRN at a 35% premium to last close. CRN raced higher on Monday and extended gains throughout the week.

GEO will utilize existing capacity under its revolving credit facility provided by BNP Paribas. From the 2009 Annual Report, GEO reported expanding available liquidity under the revolver from $240.0 to $330.0 million and extending its maturity to September 2012. The facility bears interest at LIBOR plus 3.25%. The revolver includes an accordion feature allowing GEO to expand the facility by an additional $200 million. As of January 3, 2010, GEO had $155.0 million outstanding under its Term Loan B and some $108.5 million spoken for under the revolver. The remaining $217 million committed funds under the revolver were undrawn. GEO will tap this amount along with additional funds (BNP has agreed to extend US$155m) under the accordion feature to fund the acquisition. Based on some simple math, it would appear the transaction is moderately dilutive on an as-reported basis given incremental debt costs and modest cost savings.

In 2009, CRN produced US$87.93 billion in EBITDA on $412.38 million in revenue. Based on the prevailing Enterprise Value on Monday, the transaction implies a 7.8 multiple on EBITDA and 1.66 multiple on gross receipts. The combined company will have gross revenue potential approaching US$1.5bn to yield EBITDA in excess of $260m. The combined firm will manage and/or own 97 correctional and detention centers with a design capacity of approximately 76,000 beds along with 32 behavioral health facilities with a total capacity at 5,000 beds.

1.4 Virginia to re-engage on Route 460 Highway Improvement in Hampton Roads

According to local press reports, Virginia Governor, Mr. Bob McDonnell’s administration would like to re-engage with private investors to fast-track the development of US Route 460. On 17 April 2010, Tidewater News reported the Secretary of Transportation had tooted the benefits of alternative procurement to get the road built earlier than traditional procurement. The project involves the final design and construction of a four-lane, 55-mile divided highway in Prince George County in Southern Virginia. The corridor would incorporate nine interchanges with major linkages north and south along the highway.

Previously, the following consortia were pre-qualified for the project:

• Cintra Concesiones de Infraestructuras de Transport S.A. with Ferriovial Agroman, Earth Tech and Maunsell;

• Itinere SPE -- Sacyr with Clark Construction and Shirley Contracting along with technical consultants URS and Luis Berger and Citigroup as financial advisor; and,

• Macquarie Capital with Skanska, Lane Construction and Transfield Services with technical consultant AECOM.

1.5 New Jersey Transit appoints Scott Balice Strategies as financial advisor

On 19 April 2010, industry sources revealed New Jersey Transit had mandated Scott Balice Strategies (SBS) as its financial advisor for the evaluation of parking concessions at the transit authority’s park and ride facilities. While precise terms were not disclosed, the contract includes a US$480k pay cap. SBS will handle the entire procurement process, including financial modeling and valuation, industry outreach, solicitations, negotiations, documentation and closing. SBS is working with the City of Pittsburgh on its municipal parking privatization and had advised the City of Los Angeles on its initial investigation into its parking transaction. News reports place SBS in New Haven, as well.

NJ Transit owns 30,000 parking spaces around the state. The NJ Transit portfolio includes 164 rail stations, 60 light-rail stations and 64 bus park/rides or terminals. Park-n-Ride lots charges range from $3 to $6 per day with waiting lists reputed to extend to 6,000 names!

Infrastructure Market Update: 18 April 2010

2010-04-18T21:30:00.004-04:00

Market Overview

Late in the week, the equity markets were on pace for another strong showing. Then on Friday, the SEC revealed charges against Goldman Sachs (GS). The SEC alleges GS and its representatives defrauding investors in a singular CDO issue. The CDO in question comprised subprime MBS tranches with structuring (i.e., portfolio construction) by GS and its client Paulson & Co., a hedge fund investor short the structure. The hapless investors: IKB, a German small business lender and one of the first casualties of credit crisis and ABN Amro (neither orphans nor widows, mind you). Unwittingly, the two accredited investors had facilitated a rapidly expanding business for GS -- arranging short trades against subprime mortgage pools. The market responded as expected with a steep sell-off into the afternoon and a rally in the bond market. The S&P500 finished the day (1.61%) to close below 1,200 at 1,192. For the week, the S&P500 finished the week down 2 pts or (0.20%). The 10-year was bid throughout the week and doubly-so on Friday when yields fell by nearly 8 basis points. Since trading above 4.0% two weeks ago, the 10-year has rallied back nearly 25 bps to the Friday close at 3.77%.

Fraudulent and ill-gotten gains notwithstanding, the macroeconomic news flow, in general, provided support to the market rally. Retail sales data from Wednesday proved better than expected with a +1.6% advance from the prior month compared with +1.2% consensus and +0.3% prior. Compared against the year before, March retail sales advanced by +7.6% versus +4.4% in February. Pessimists note the early Easter, but there is no denying the solid result. Also on Wednesday, the Federal Reserve released the Beige Book. Regional reports confirmed an economy recovering ever so slowly. Eight regions reported incremental improvement, with the remaining four --Philadelphia, Cleveland, Richmond, and Atlanta -- reported stagnation. CRE remains the weak link with many regions indicating further declines, in terms of both space market fundamentals and capital market access.

On Thursday, the Federal Reserve released national industrial production data with positive effect. Industrial production advanced by +0.1% from February below expectations at +0.8%. Weak results at utilities were responsible for the shortfall. Capacity utilization, however, improved to 73.2% versus 73.4% consensus and 72.7% last month. At the regional level, both the New York and Philadelphia Fed reported improved results in their respective regional manufacturing industries. In New York, the manufacturing index hit +31.9 compared with +22.9 last month and +25.0 consensus. Philadelphia manufacturing registered a +20.2 versus +20.0 consensus and +18.9 last month. New orders and shipments components looked solid in both regions. Finally, new housing starts rebounded in March from a weather-weakened February report. For the month, starts increased to a SAAR of 0.685 million homes or +1.6% from February. Compared with the prior year, March housing starts were +20.2% higher. Interestingly, the majority of the advance appeared in multi-family starts. s

Transport Economics

Freight data reported last week corroborated early indications from the Cass Freight Index from last week. The Journal of Commerce reported on the Transcore North American Freight Index broke above 1,000 for the first time since June 2008. The spot market gauge increased by +259% from March 2009 and critically, +4% from March 2008. The unadjusted data increased by +44% from February 2010 (inline with the 5-year average gauge into a seasonally-strong March at +46.6%). On the nation’s railroads, March proved an important month for volume, as well. Carloadings at the nation’s Class 1 railroads increased on a year-over-year basis for the first time since July 2008 in March, according to the Association of American Railroads (AAR). Volume increased by +7.5% from March 2009, but remain (11.5%) from March 2008. Intermodal traffic improved, as well, at +12.1% from last year, but still off (4.5%) from 2008.

At the nation’s ports, the recovery that began in the fourth quarter of 2009 continued into March 2010. On the West Coast, the Ports of Los Angeles and Long Beach each reported solid container volume figures for the month of March last week. Total container volume advanced by +4.5% at the Port of Los Angeles, while Long Beach volume advanced by +13.0%. Exports continued to drive throughput at LA with loaded outbound containers increasing by +15.8% from the prior year. Import volume, however, lagged at (2.9%) from the prior year. Long Beach volume was better balanced with loaded inbound volume at +10.8% and loaded outbound volume at 10.9%. Elsewhere, the Port of Vancouver reported decent results with an advance of +0.4% from the prior year and +7.5% from February 2010. Seattle registered another impressive result processing +39.4% more containers in March 2010 compared with March 2009. Once again, the strongest report came from the Port of Prince Rupert wherein volumes advanced by +87.3% from the prior year. Total container volume was +87.3% from the prior year with both exports and imports well-balanced at +108.9% and +72.9%, respectively. On the East Coast, the Port of Savannah registered exceptional results, as well. March volumes increased by +32.5% with import volumes leading the way by +45.3% and exports up +22.0%. For the first quarter, savannah volume gained +24.4%.

Infrastructure Stocks

Transurban kick-started the reporting season for the listed toll-road sector on 14 April 2010 with traffic and revenue for the quarter ending 31 March 2010. As usual, the Australian assets continue to perform exceptionally-well with year-over-year revenue growth ranging from +5.0% to +15.0% and daily trips gains up from +2.0% to 7.4%. Pocahontas Parkway, the lone operational asset in the US, continued to endure withering traffic volume and falling toll revenue. The average number of daily trips fell to 12,594 in the quarter with toll revenue at US$3.108 million. Daily traffic and toll revenue were both down (1.9%) from the prior year. The Pocahontas Parkway continues to benefit from capitalized interest on the TIFIA facility, but the project would appear to be teetering on the brink of coverage triggers on the senior loan facility. As of 31 December 2010, Transurban reported US$306 million in senior debt outstanding along with another US$128 million in TIFIA subordinated debt.

Intoll (the two performing assets in the old MIG portfolio) reported first quarter results on the ETR-407 in Toronto, Ontario, Canada and Westlink M7 in Sydney, Australia. Toll revenue advanced by +9.6% and +8.7% from the prior year on the 407 and M7 concessions, respectively. VKMT increased by +4.4% and daily trips increased by +2.2% on the 407, whereas workday trips on the M7 increased by +7.6%. The two roads have experienced sequential improvement in each of the past three quarters since volumes bottomed in the second quarter of 2009. For Ferrovial/Cintra, the ETR-407 operating results support valuation well in excess of EUR 400 million for the 10% stake sale announced earlier in the year. At EUR 470 million, the 10% stake would value the concession at an EBITDA multiple of 21 in respect of Next Twelve Months (NTM) EBITDA on estimated +6.1% earnings growth.

Infrastructure Deal Summary

1.1 Puerto Rico Port Authority selects advisors for toll road and airport privatization initiatives

Late last week various industry and local media sources reported the Puerto Rican Port and Public-Private Partnership Authorities had determined their respective financial advisory teams for the privatization programs. For the three toll road privatizations, the Port Authority selected Macquarie Capital from a short-list including Macquarie, Bank of America-Merrill Lynch with Deloitte and Ernst & Young. The Macquarie team will be headed up by Managing Director, DJ Gribbin, according to comments from David Alvarez, Executive Director of the Public-Private Partnership Authority. For the FAA-approved airport privatization, the authority appointed Credit Suisse led by Mark Morehouse. The Credit Suisse team, under Morehouse, provided financial advisory services to the City of Chicago in its aborted Midway Airport privatization last year. CS edged out teams from IMG with Bank of America-Merrill Lynch and Citigroup. CS singular experience seemed to have carried the day.

Puerto Rico established a public-private partnership framework and prioritized three highway projects, including PR-22, PR-52 and PR-66 and the primary international airport serving the commonwealth and the primary city, San Juan. Two of the three highway facilities have established traffic volumes, with the third already in ramp-up. The project scope would include operations and maintenance along with select expansion. The Luis Munoz International Airport remains the busiest airport in the Caribbean basin serving as a hub to American Airlines, but has lost out as low-cost carriers have increasingly served point-to-point destinations throughout the region. On 25 February 2010, Standard and Poor’s analysts downgraded the project rating on the Luis Munoz International Airport senior-lien revenue bonds by three notches to BBB-. The airport served 8.2 million passengers in 2009 down from 9.4 million in 2008 -- a decline of (12.1%).

1.2 Alberta Schools Alternative Procurement (Phase II) project awarded to Bird Construction consortium

On 15 April 2010, Bird Construction announced the execution of a Design-Build contract with The Build-II-Learn (B2L) Partnership (with Hochteif PPP Solutions) to construction three new schools in Edmonton and seven new schools in Calgary, Alberta, Canada. The partnership was announced on 16 March 2010 following the consortium’s preferred bidder status with the Province of Alberta. The project is expected to commence immediately with service commencement scheduled from the summer of 2012. The Province of Alberta has not announced formally the preferred bidder. Initially, the announcement was anticipated in late March 2010.

In July 2009, the Province of Alberta had shortlisted three teams and invited each to respond to the RFP. The short-listed consortia include:

• Alberta Public Private Learning Excellence (APPLE) Group : Bilfinger Berger Project Investments with Stuart Olson Constructors, Read Jones Christofferson and Dominion Construction Company along with CIT Group as financial advisor.

• Build II Learn: Gracorp. Capital Advisors with Hochteif PPP Solutions, Graham Design-Build Solutions, Bird Construction Dominion and Honeywell providing facilities management; and,

• Plenary Lend Lease (PLL) Education Alberta: Plenary Group and Lend Lease with a pool of contractors and Johnson Controls providing facilities management.

Upon completion of Phase II, Alberta will have procured 28 schools under its Alternative procurement strategy. In 2008, Alberta awarded a contract to Babcock and Brown Private Partnerships to construction 18 new schools in Edmonton and Calgary. The province estimated present value savings at CAD $ 118 million.

1.3 Pittsburgh short-listed seven firms for the parking concession

On 12 April 2010, the Pittsburgh Tribune-Review reported that the City of Pittsburgh had short-listed seven firms for the municipal parking monetization. The city is seeking at least US$300 million in upfront payments as consideration for the operation of the public parking assets in the city. At present, metered parking spaces and downtown garages are run by the city’s Parking Authority. The entire parking system comprises approximately 18,000 parking spaces (an earlier report indicated a much lower figure based on limited data in the 2008 Annual Report). Parking spaces are split between on/off-street metered spaces and spaces in parking structures in the Central Business District. The authority estimates that its average rate is approximately 34-percent lower than comparable facilities under private management. Daily rates range from a low of $6.00 to $13.75 maximum rate versus private sector facilities ranging from $12.76 to $22.00 per day.

The seven consortium include:

1. J.P. Morgan (alone -- no operating partner)

2. Cintra (alone-- no operating partner)

3. Carlyle with Standard Parking

4. Alinda Capital with InterPark (GE affiliate)

5. EQT Partners and Central Parking System

6. KKR with Ampco System Parking and Duncan Solutions

7. LambaStar with Aurora Capital and LAZ Parking

The authority’s parking garages served nearly three million vehicle arrivals during the year 2008 (Annual Report -- FYE 30 Sept. 2008). The 2008 traffic volume was 200,000 higher than the prior fiscal year, an advance of over +7.1%. Gross receipts increased as well, but failed to keep pace at just +2.5% (rate reduction in 2008 caused the differential). Earnings before Interest, Tax, Depreciation and Amortization (EBITDA) reached US$18.27 million, an increase of 4.5% from 2007. After operating expenses, the authority made direct payments to the city (including parking tax) at US$14.5 million. Net assets stood at $61.99 million at FYE 2008.

Infrastructure Market Update: 11 April 2010

2010-04-11T22:55:00.001-04:00

Market Overview

The Greek situation just will not go away. Last week, uncertainties on details for the planned bail-out resulted in re-acceleration in credit spreads. By weekend, CDS spreads were above 450 basis points. Then on Friday, Fitch announced it had downgraded Greece to BBB- one notch above junk status. Elsewhere, the US treasury secretary was in China courting monetary officials after delaying the pronouncement on currency manipulation. Late this weekend, EU member states, in turn, announced a EUR 45 billion comprehensive loan package. Neither concern was sufficient to stem the inexorable rise in the stock market. The S&P500 added 16.3 points to finish the week at 1,194 for a +1.4%. The market is rapidly approaching its pre-Lehman price point. In the bond market, yields rose early in the week on payroll-inspired confidence. After rising above 4.0%, the 10-year treasury got bid with yields falling for the remainder of the week to finish yielding 3.89%. The dollar rallied inside $1.34 before weakening into the weekend to finish at $1.37.

The macroeconomic news flow last week aided the positive tone on Wall Street. From Monday, the ISM non-manufacturing index achieved its third month of gains at 55.4 versus 54.0 consensus and 53.0 last month. The business activity index achieved its best reading since 2006 at 60.0. Also on Monday, the realtors reported a surprise +8.2% advance in February home sales. Retail sales data from Thursday were healthy, benefitting in part from the early observance of the Easter. Finally, inventory data from the Census Bureau on Friday confirmed an ongoing advance in sales and normalizing inventory levels at the nation’s wholesalers.

Transport Economics

The seasonally-adjusted Cass Freight Index registered a strong showing in March. Data out last week revealed that freight shipments advanced by +4.73% in March from the prior month. From the prior year, freight shipments increased by +7.62%. The expenditures index advanced by 7.4% from the prior month and 12.8%. The two index components registered the strongest advances for each during the current cycle.

Infrastructure Deal Summary

1.1 Galveston Port Authority to retain Bank of Montreal to explore privatization alternatives

According to the Galveston County newspaper, The Daily News, the Port of Galveston would seek a private operator to manage the container terminal at Galveston. According to the news report, Port Authority Director, Steve Cernak, would ask the port’s governing board to hire Bank of Montreal to advise on the container terminal privatization. The board meeting is scheduled for April 26. Like other Gulf and East Coast ports, Galveston port officials anticipate container volume gains following the opening of the improved Panama Canal from 2014. In anticipation of increased volumes, the port would require a substantial capital improvement plan. Port officials estimate capital improvements at US$500 million.

In the past year, the port generated about US$25 million in total revenues. The existing container terminal comprises two berths on 38 acres with three full-service cranes. Dockside water depth and the shipping channel are both only 40 feet suggesting a need for substantial dredging to accommodate Post-Panamax vessels. The cost effectiveness of extensive dredging may inhibit private sector demand for the concession. The port facility is served by the Terminal Railway, a short-line spur run by Galveston Railroad, L.P. with connections to Burlington Northern Santa Fe and Union Pacific Railroads.

1.2 Hartford Parking Authority receives strong investor interest

The Hartford Business Journal reported on 06 April 2010 the initial inquiries from prospective investors in the City of Hartford, Connecticut parking facilities. The city offered up its 6,400 downtown parking spaces to potential investors last month. At present, the facilities generate approximately US$5 million in revenue per annum. The city received seven responses, but Gates Capital, the Cleveland-based private equity parking specialist dropped out. The remaining six investors include:

• Bainbridge ZKS and Ace Parking: San Diego, California based Bainbridge is a real estate and parking equity investor. Ace is a parking manager.

• Cintra Infraestructuras SA: The Ferrovial subsidiary is Spain's largest parking operator.

• Duncan Solutions and UBS Global Asset Management: Duncan is a specialist operator of turnkey parking systems featuring electronic meters, parking enforcement and collections. Unclear whether UBS Global Asset Management is pursing the transaction through its dedicated infrastructure fund.

• Kohlberg Kravis Roberts & Co. LP (KKR) with Central Parking System and Duncan Solutions: Central Parking manages Hartford parking asset at three locations.

• P4 Partners LLC and Aurora Capital Group with LAZ Parking: Aurora Capital Group is LA-based private equity firm with US$2 billion in AUM. LAZ Parking is the operator in the Chicago PPP deals.

• ProPark with Affiliated Computer Services (ACS) and Kamylon Capital: ProPark is another Hartford incumbent. ACS is an informational technology concern (recently acquired by Xerox) that handles automated payments. Kamylon is a Boston investment firm.

1.3 California Transportation Commission delays vote on the Presidio Parkway project

At a board meeting on 07/08 April 2010, the California Transportation Commission (CTC) took up the Presidio Parkway PPP and reviewed an internal staff report on the viability of the proposed procurement strategy. While the staff report found the project scope adequate, the financial plan was insufficient. The staff report notes the CTC Public Private Partnership Policy Guidance requires concessions to satisfy six criteria. The determining criteria make reference to compliance with existing statutes, financial feasibility and achievement of certain performance objectives.

On existing statutes, the Presidio proposal runs afoul of the requirement for toll collection. The Presidio project, as proposed, would involve an availability-based payment regime. Apparently, the statute requires the state to enter into PPP concessions involving user-pay systems, only. The staff report goes on to reveal that the Presidio proposal fails to satisfy almost all of the various requirements. More importantly, the project violates a central tenet of the PPP statute whereby a concession cannot create a future financial liability.

The six criteria include the following:

1. The project as described in the project proposal report is consistent with the requirements of statute;

2. Commission’s approval of the project and its financial plan does not in and of itself create a new commitment of state transportation revenues or create an undue risk to state transportation revenues committed to other projects;

3. The project is primarily designed to achieve three performance objectives, including improved mobility, operation or safety and quantifiable air quality benefits in the affected corridor;

4. The project addresses a known forecast demand as determined by the Department or regional transportation agency and evidenced in the project proposal report;

5. The criteria that the Department or regional transportation agency proposes to use for a final evaluation of proposals based on qualifications and best value are consistent with statute; and,

6. Department has made a determination of the useful life of the project in establishing the lease agreement terms that is consistent with the terms of the lease agreement.

The Presidio staff report is available at: http://www.catc.ca.gov/programs/DB-P3/P3/0410_Item17.pdf.

1.4 New Brunswick Route 1 Gateway achieves financial close

On 08 April 2010, the Province of New Brunswick announced the Dexter Developer General Partnership had achieved financial close on the Route 1 Gateway project. According to the release, the successful proposal totals CAD $580 million. The construction works will expand the corridor to six lanes and add 55 kilometers to the four-lane highway on Route 1. Transfield Dexter Gateway Services Ltd., a subsidiary of Transfield Services Ltd. (ASX: TSE), will operate maintain and repair the entire 235 km highway corridor in return for CAD $19.8 million per annum with an inflation adjustment until 2040. The concession requires Dexter to complete construction work and make available the facility by 31 July 2013.

The financial plan includes 90:10 capitalization with a bank club and private equity. The senior bank facility totals approximately CAD $510 million with National Bank Financial (NBF), Banco Espirito Santo (BES), Bank of Montreal (BMO), Canadian Imperial Bank of Commerce (CIBC) and Export Development Canada (EDC). The lead arrangers took CAD $75 million participations with another participant group, including Business Development Bank, HSBC and Laurentian Bank, provided between CAD25m and CAD30m of debt. Margins start at 250 basis points. NBF served as financial advisor to the consortium and provided hedging.

Infrastructure Market Update: 04 April 2010

2010-04-04T23:59:00.003-04:00

Market Overview

If nothing else, the last two weeks brought about clarity on the foremost considerations weighing on investor sentiment. In Europe, the Greek parliament approved austerity measures and the ECB agreed to extend its collateral exception to ensure continued acceptance of Greek government debt. In the US, the recovery appears to be gathering strength and potential support from the all-important consumer as payrolls turned positive (see below) from March. Finally, the close of the third quarter brought about an end to the Federal Reserve’s quantitative easing program, at least temporarily. The S&P500 capped the holiday-shortened week with a 1.0% advance to an eighteen month high at 1,178. The bond market, which traded in an abbreviated session Friday, traded off materially on the solid payroll figures. Yields on the 10-year treasury advanced by over 7 bps to finish the week yielding 3.94%. The 10-year treasury has added nearly 25 bps in the past two weeks as investors balked at massive issuance over the past two weeks and heavy volume in the week ahead. The USD weakened by a penny to finish at $1.35 against the Euro.

The headline macroeconomic data point for the week came on the Good Friday Holiday. The Employment Situation Report revealed payroll employment had advanced by 162,000 in March (the briskest pace in three years). Job growth was broad-based with both goods and service-producing jobs gaining on the month. The federal government contributed roughly +39,000 jobs as census hiring boosted results. In addition, revisions on January and February data had jobs flat over the two months versus an earlier estimate at (62,000). The unemployment rate remained unchanged at 9.7% as the labor force advanced by +398,000 persons with employment up +264,000. Earlier in the week, data was mixed with personal income flat in February. Motor vehicles sales, however, picked up in February to a SAAR at 11.8 million in February from a 10.8 million pace in January. Consumer confidence picked up somewhat in February to 52.5 from 45.8 in January. On the manufacturing front, ISM data revealed a robust outlook for the manufacturing sector as the headline registered a 59.6 reading with both inventories up eight points and the new orders up two points to 61.5. Finally, construction spending weakened in February at (1.3%) from January. From February 2009, construction spending fell back by (12.8%). The results were weak across the board with both residential and non-residential spending on the decline from the past month and prior year.

Infrastructure Deal Summary

1.1 Los Angeles parking monetization draws long list of prospective investors

According to various reports, the list of prospective investors is long and well-capitalized. Among the potential investors, Morgan Stanley stands out as the most prominent parking investor (with both Chicago Metered and Downtown Parking). Other prominent private equity and infrastructure investors include Carlyle, Cintra and KKR. Real estate investors expressing interest in the bidding include Starwood with a private parking operator, PCA, CIM, Brainbridge ZKS (the investment firm that recapitalized the bankrupted off-airport parking business owned by Macquarie Infrastructure Company -- NYSE: MIC) and Gates Capital Group, a dedicated private equity firm focused on parking businesses. Loop Capital is advising the city on the transaction.

1.2 Gates Capital Group closes lease-leaseback transaction for New Haven, CT parking lots

On 22 March 2010, Gates Capital Group and the City of New Haven announced initial terms for the city’s 2,738 metered parking spaces. In consideration for the lease agreement, Gates Capital Group (GCG) will make an upfront payment at USD 50 million to the city. In return, the city would make annual fixed payments for the duration of the lease term. At present, the lease term would extend for twenty-five (25) years. The proposed structure includes a break option (for the city) in year ten. The structure envisages top-line payments to GCG with all residual income flowing back to the city. The transaction amounts to a recapitalization (a revenue bond structure without recourse to the underlying assets). No details on the quantum of fixed payments have been released to date.

According to the press release, the City of New Haven issued a RFQ for parties interested in April 2009. GCP along with LAZ Parking responded to the solicitation with GCG proposing the lease-leaseback structure and LAZ Parking proposing a concession structure. The city subsequently retained Public Financial Management to advise on the transaction. In February 2010, the city awarded the contract to GCG and entered into exclusive negotiations with the firm. The city intends to use the proceeds from the upfront payment to fund a fiscal stabilization fund to bridge the anticipated budget deficits over the next several years.

1.3 SR-125 South Bay Expressway project company files for bankruptcy

On 23 March 2010, Macquarie Atlas Roads (ASX: MQA) updated the market on the state of the South Bay Expressway (SBE) in San Diego. According to the filing, SBE would seek Chapter 11 protection from creditors and ongoing litigation by the contractors as parties to the Design-Build Contract to construction the project. MQA retained a 50% interest in the company following the 50% stake divestiture to the unlisted closed-end fund Macquarie Infrastructure Partners.

According to the bankruptcy filing, SBE owes its senior creditors USD 510 million, including USD 340 million in senior-secured bank loans and another USD 170 million via the federal government through the TIFIA subsidized loan program. Spanish bank BBVA and the Irish-German DEPFA acted as Lead Arrangers on the original senior-secured loan. The bankruptcy filing will trigger the Springing Lien mechanism in the TIFIA loan documents, whereby the subordinated loan springs to parity with senior-secured creditors. The Spring Lien amounts to a 25% dilution in senior-secured interest in the project. TIFIA has retained advisors on the project. SBE is the first project to test the mechanizations of the TIFIA Springing Lien.

Macquarie Infrastructure Group (ASX: MIG), the precursor to MQA created in the restructuring announced in late 2009, had written down its equity investment in SBE to zero from 30 June 2009. The facility failed to achieve traffic and revenue forecasts from the outset. The toll road currently serves approximately 22,600 vehicles per day compared with projections for 60,000 vehicles upon stabilization. Average daily traffic has declined, instead of advancing, through the ramp-up period. Daily revenues have averaged just USD 58 thousand compared with $100,000 per day in the original financial plan.

Infrastructure Market Update: 21 March 2010

2010-03-21T23:59:00.002-04:00

Market Overview

Global markets advanced again last week as the Federal Reserve met again with the policy decision as scripted. Once again, the FOMC statement included the all important “extended period” phrase. While allowing for a policy shift should conditions warrant, the FOMC confirmed the MBS purchase program was ending and extraordinary lending facilities would close at month-end. Governor Hoenig dissented for the second time in as many meetings arguing instead for an immediate commencement in rate tightening. Elsewhere, German support for the Greek bail-out appeared to come unhinged by mid-week as public opposition intensified. Finally, the Indian Central Bank decided to raise its benchmark interest rate to the surprise of global rate-watchers. Despite the Friday sell-off on triple-witching, the S&P500 managed to advance by 10 points to finish +0.86% at 1,160. The bond market gained on the FOMC statement, but gave back much of its intra-week advance to finish the week yielding 3.69% down (2) basis points from the prior week.

The macroeconomic data from last week was dominated by reports on industrial production at the national and regional levels. From Monday, the Federal Reserve reported a modest advance in February industrial output at +0.1% from January. Manufacturing output was held back by reduced auto production, while utilities and mines moved ahead. Capacity utilization advanced by a modest amount as well to 72.7% from 72.6% last month and the consensus estimate at 72.4%. From the prior year, industrial production was +1.2% higher. Also on Monday, the New York Fed reported its regional manufacturing survey for February with the headline firmly in expansion territory at 22.86 versus 22.0 consensus and 24.91 last month. Critical components, including new orders, shipments, inventories and employment were all above zero during the month. On Tuesday, Commerce released its housing starts with disappointing effect ahead of the FOMC statement. February starts fell back (5.9%) from January on storm-related weakness. On Thursday, the Philadelphia Fed released its manufacturing survey for February, as well. The manufacturing in expansion in Philly actually accelerated according to the survey with the headline at 18.9 versus 17.6 last month and consensus at 18.0. The Conference Board’s Leading Indicators data, however, continued to disappoint with the headline falling back to +0.1% from +0.3% last month and +0.2% consensus. Finally, the Labor Department reported quiescent consumer and producer price inflation in February.

Transport Economics

West Coast ports released another set of positive data last week as most ports experienced solid year-over-year growth. Excepting the Port of Portland, West Cost container volume in February increased by +23.4% from the prior year’s nadir in February 2009. The export-led expansion is well-entrenched, but import volumes turned positive from the prior year, as well, in February. The Ports of Seattle and Prince Rupert continue to report the strongest volume gains at +48.5% and 110% respectively. The two facilities serve mid-western markets by an overwhelming margin (over 70% in Seattle and more so, at Prince Rupert). The San Pedro facilities reported an average increase of 28.4% to run out the top four. Tacoma was the lone facility reporting an annual decline.

The Public Border Operators Association released US-Canadian bridge crossing figures for the month of February last week. The data, which also included the first viewing of January, is best described as mixed, at best. While January volume increased, February re-accelerated to the downside, leaving year-to-date volume (0.2%) from the prior year. On a positive note, truck volume was +11.9% for the first two months of the year, but recall the January-February 2009 months was an abysmal period for domestic and international freight volume. YTD, the freight-heavy Ambassador Bridge crossing produced the stronger rebound in truck traffic at +19.7% from 2009. Passenger volumes increased at a more pedestrian rate of +6.0% from the prior year. The Ogdensburg Bridge (some 130 miles north of Syracuse on the New York-Canadian border, I confuse to having to look it up online) reported the strongest passenger volume gain at 14.7%.

Transport Policy Debate

President Obama found time outside the healthcare debate to amend and extend the Build America Bonds (BAB) program. On 19 March 2010, BondBuyer reported the President had signed the US$17.6 billion jobs bill. The bill includes provisions to extend the BAB program through 31 March 2013 with a graduated subsidy. The tax credit would decline from the statutory 35% to 33% in 2011, 31% in 2012 and 30% for first quarter of 2013 before expiring effective 01 April 2013. In addition, the bill would eliminate from the cap on Private Activity Bonds all issuance dedicated to water and wastewater facility capital investment. Finally, the bill extends the existing surface transportation legislation through calendar year and transfers upwards of 19.5 billion in foregone interest to the Highway Trust Fund to insure solvency through year-end.

Infrastructure Stocks

On 19 March 2010, MAp Airports (ASX: MAP) released another solid set of operating statistics for the month of February. For the second consecutive month, all three airports posted gains in passenger volume from the prior year with Sydney leading the way forward at +12.3%. Copenhagen advanced by 10.4% with a strong showing in domestic passengers at +40.0%. Brussels Airport remains the laggard at +4.9% from the prior year. Sydney Airport has moved into positive territory for the trailing twelve months, whereas both Copenhagen and Brussels remain behind the full-year results. Sydney’s annualized volume was over 33 million passengers.

Infrastructure Deal Summary

1.1 Caltrans is evaluating bids from three consortia for the Presidio Parkway project in San Francisco

On 19 March 2010, Infrastructure Journal reported California Department of Transportation had received three proposals for the US$1.0 billion Presidio Parkway PPP project in San Francisco, California. The Doyle Drive replacement project would provide an updated parkway approach to the Golden Gate Bridge.

According to the report, the three consortium heads are: (1) Globalvia; (2) ACS/Dragados; and, (3) Hochtief with Meridiam Infrastructure. The 30-year deal would be the first project procured under the new California PPP legislation. Caltrans is due to announce the preferred bidder in August 2010. Caltrans retained KPMG and Sperry Capital to act as co-financial advisors with Nossaman providing legal advise and ARUP and Parsons Brinckerhoff acting as technical advisors for procurement options.

1.2 Indiana Governor Mitch Daniels clears the way for private finance in two road projects in Indiana

On 18 March 2010, Governor Mitch Daniels signed into law SEA 382. The legislation will allow the state to evaluate alternative financial and procurement strategies for two infrastructure projects in the state. The first is the Illiana Expressway in northwestern Indiana will connections through to Illinois. The project has a preliminary budget in the US$1.00 billion range. According to media reports, the project is a long way off with an anticipated start date in 2017. No mention on whether the project would contravene competitive aspects in the Indiana Toll Road concession. Wikipedia indicates the planned alignment is outside the 10-mile centerline buffer around ITR.

The second piece involves several Ohio River crossings between Indiana and Kentucky in the southeastern portion of the state. The combined capital budget is in excess of US$4.0 billion. Last year, Kentucky provided support to a bi-state authority to pursue a public-private partnership for the portfolio of river crossings. Current Indiana law prohibits private tolling without prior legislative authorization. The bills had widespread bi-partisan support in the state capital with the Senate passing the bill in a 42-0 vote.

1.3 CalPERS to accelerate infrastructure allocation via fund commitments and direct investments

On 15 March 2010, Pension and Investments reported CalPERS plans to accelerate its infrastructure commitment to US$1.3 billion. The state pension plan retained Meketa Investment Group to advise on the infrastructure commitment and the firm came back with a plan to invest $900 million via infrastructure funds and another $400 million through direct investments. To date, CalPERS has invested just $220 million to infrastructure via fund commitments since introducing infrastructure to the inflation-linked asset class in the pension plan’s Policy Asset Allocation in December 2007.

Infrastructure Market Update: 14 March 2010

2010-03-15T00:01:00.000-04:00

Market Overview

The stock market ground higher last week on dubious anniversaries of the current bear market low in 2009 and the NASDAQ peak from 2000. Investors digested mixed news on the sovereign front with Greece moving closer to resolution, while Chinese inflation was higher than expected. The inflation data provides further justification for the Chinese much-maligned monetary tightening campaign. Elsewhere, the Federal Deposit Insurance Corporation (FDIC) completed the sale of US$1.37bn structured notes with underlying exposure to failed bank real estate loan assets. The structured notes carry implicit full-faith guarantees and were met with ample demand from ABS investors. Reuters reported the deal as over-subscribed eight to ten times. The transaction, while exotic, is indicative of the demand for securitized product. The S&P500 added +11.5 points to finish +1.0% at 1,149.99. The bond market weakened somewhat with the 10-year adding 3 bps to finish the week yielding 3.71%. The dollar lost ground to the Euro as risk appetite won out. The USD fell back to 1.38 to the Euro.

The macroeconomic news flow last week was highlighted by better than expected news on retail sales. On 12 March 2010, the Census Bureau reported February retail sales advanced by +0.3% versus consensus at (0.2%) and +0.5% last month. Ex-autos, retail sales advanced by +0.8% versus consensus at 0.0%. Early optimism stemming from retail sales gains were offset by a surprise decline in February consumer sentiment according to the University of Michigan. The headline sentiment index registered 72.5 in February compared to the consensus at 74.0 and 73.6 last month. The Census Bureau also reported a below-consensus reading on business inventories for January with a reading at 0.0% versus the consensus at +0.2%. Earlier in the week, the Commerce Department reported a larger than projected decline in trade deficit to (US$37.3bn) versus consensus at ($41.0bn) and ($40.2bn) last month.

Transport Economics

BAA airports, the majority-owned Ferrovial (SM: FER) aviation business, released February passenger volume last week. UK passenger volume advanced in February on strong performance at Heathrow. Scottish Airports at Aberdeen and Glasgow, however, weakened for the second month. Passenger volume declined by (4.6%) and (5.0%), respectively. Heathrow performed well with a gain of +5.3%, in part, explained by inclement weather in 2009. In aggregate, passenger traffic at all BAA UK airports advanced by +2.2% in February from 2009. Passenger volume at Gatwick continued to advance in February with volume increasing by +3.2% from 2009. Cargo volume also gained with a dramatic +38.9% advance from 2009.

In the US, the John Wayne Airport (SNA) in Orange County released another solid traffic report for February 2010. Passenger traffic increased to 599,000 in February for a +2.8% advance from the prior month. General aviation increased by +8.1% from February 2009. SNA has led the recovery the passenger volume in the domestic market with positive performance beginning in the third quarter of 2009.

Infrastructure Deal Summary

1.1 Grupo Ferrovial marketing 10% stake in ETR-407 in Toronto, Ontario, Canada

In a regulatory filing on 12 March 2010, Grupo Ferrovial (SM: FER) subsidiary Cintra Infraestructuras SA indicated it would seek to divest a minority stake in the ETR-407 concession in Toronto, Ontario, Canada. The electronic toll lane is amongst the most resilient facilities in North America. Peak to trough, vehicle miles traveled fell by (11%), whereas EBITDA at its weakest point slipped by just (0.29%) year-over-year in January 2009. FER owns 53.23% of the asset through its Cintra subsidiary. Cintra has mandated RBC Capital Markets to coordinate the sale of the minority stake. In the filing, FER indicated the sale was part of an asset rotation policy (undoubtedly driven by a need for further de-leveraging), with bid prices the determining factor on whether to pursue the divestiture. According to the filing, FER was responding to unsolicited expressions of interest from various infrastructure investors. The Canadian pension plans would be among the likely short-listed investors.

Recall -- Ontario Teachers Pension Plan (OTPP) raised capital recently with the open market sale of 244.6 million shares in the old Macquarie Infrastructure Group (30% shareholder in ETR-407) in October ahead of the de-merger. The sale at AUD 1.40 per share raised AUD 342.4 million or C$325.3 million. Shortly thereafter, OTPP announced an indicative offer to de-list Transurban (ASX: TCL), though, to date, no further action has been taken by OTPP. In addition, local media reports tipped SNC-Lavin as a potential acquirer, as well.

For FER, Intoll (ASX: ITO) and SNC-Lavin (TSX: SNC), the sale, if priced appropriately, should encourage public markets to bridge the valuation gap between reported value and implied market price. According to Credit Suisse research, the implied valuation (imputed from stock market prices) for the 10% stake range from €377m to €510m based on current trading prices for FER and ITO. The SNC stake is imbedded too deeply in the construction company’s book value to assign a reliable valuation. Based on my own analysis, the stake may be worth somewhat less at EUR 358 million (market exchange rates) on an equity discount rate at 8.00% and an implied forward EBITDA multiple of 20 times. On an annualized (seasonally-adjusted) basis, the ETR-407 should yield toll revenue at C$600 million and EBITDA approaching C$490 million in CY 2010.

1.2 Pittsburgh City Council votes to evaluate direct transfer of parking assets to municipal pension plan

On 11 March 2010, local dailies reported on a vote by the Pittsburgh City Council to study the potential for transferring the city’s parking facilities to the municipal pension fund. The city’s advisor, Morgan Stanley, was on-hand to downplay the alternative with the article reporting that the advisors predicted that any third party study could have a chilling effect on potential proposals. Council members also welcomed colleagues from Chicago, which warned on the rushed approach taken in their city on the metered parking lease agreement in 2009.

The city has determined to allocation net proceeds totaling US$200 million to shore up the city’s municipal pension plan. In recent press reports, the funding deficit has widened to over $700 million. In addition, the sale or proposed transfer would necessitate defeasance on the existing $105 million in outstanding indebtedness.

1.3 Kansas City Southern acquires intermodal facility in Mexico

On 08 March 2010, Kansas City Southern (NYSE: KSU) announced the acquisition of the Puerta Mexico intermodal facility at Toluca in the State of Mexico. KSU also announced plans to commence direct train service from Lazaro Cardenas to Puerto Mexico via the Puerta Mexico facility. The intermodal facility has capacity to service 150,000 containers and 2 million tons of cargo per annum. Neither KSU nor Ports America revealed financial details on the transaction.

Separately, analysts from Wolfe Trahan reported on conversations with senior management that revealed +12% volume gains overall in February and +25% growth for freight volumes on Mexican lines from last year.

1.4 Dexter Construction named preferred bidder for the Route 1 Gateway Project in New Brunswick, CA

On 08 March 2010, the New Brunwick Premier Shawn Graham announced the awarding of the Route 1 Gateway Project to the Dexter Construction led consortium. The concession agreement obligates the consortium to complete construction of the Route 1 corridor as a four-lane highway. The project includes the development and operation in aggregate of fifty-five (55) kilometers between Waweig and Lepreau including:

• Four new interchanges;

• Major structural works at six river crossings; and

• Installation of 104 km of wildlife fencing.

Full financial details are slated for release upon major contracts signing later this month. Construction is scheduled for completion on 31 July 2013. In addition to new construction, developer/operator will assume responsibility for operation and maintenance on the 235 km corridor from St. Stephen and River Glade, beginning 01 June 2011, until concession end 30 June 2040.

The Dexter Construction team outlasted competitive tenders from the two competing entities, including:

The bidding consortium include:

• New Brunswick Transportation Group led by Dragados/Iridium (ACS Group);and,

• Brun-Way Group led by SNC-Lavalin.