Despite speed bumps, Port of Miami tunnels continued attracting lender interest
By Risa Polansky
When it looked like the deal for underwater tunnels to the Port of Miami was collapsing, financing fell apart.
And by the time it seemed the project was a go again, the financial markets had crashed.
Still, in an environment where many say it's near impossible to finance major projects, 10 international banks dove in to back the on-again tunnels.
The state late last year attempted to shelve the long-planned tunnel project when the equity partner on the selected contractor team went under.
Local proponents pushed state officials to accept a new, flush partner and revive the project.
They won, but were up against a June deadline to sign a contract and an October cutoff to cement financing.
This summer's commercial close served as a signal the project was truly back on track, said attorney Allan T. Marks, partner in law firm Milbank's Global Project Finance Group, which represented the banks in structuring and negotiating the financing.
After that, "it was really like putting together a new group" of lenders, he said.
And despite the infamous frigid financial climate, it wasn't difficult.
"I would have thought it would be," Mr. Marks said.
But the tunnel project, structured as a public-private partnership, drew interest from international banks experienced in the arena.
"They understand the risks of a project like this, they understand how it can be structured, they were able to work pretty collaboratively with the sponsors," he said.
The 10 lenders are all "active in the P3 [public-private partnership] space," agreed Chris Ruffa, lead banker with BNP Paribas, the administrative agent for the bank group, via e-mail from New York.
With BNP Paribas, the group includes the Royal Bank of Scotland, BBVA, Calyon, Dexia, Grupo Santander, ING, Société Générale, UniCredit Group and WestLB, which provided altogether about $341 million in senior secured loans for the project, which reached financial close last week.
The banking group came together through a "funding competition to obtain the most competitive financing for the project," Mr. Ruffa said.
And he says the outcome speaks to the tunnel project's viability.
"The bank debt was oversubscribed reflecting the strong interest of lenders in the project."
Good projects are still attracting lenders, even in today's market, said Joe Aiello, chairman of the board for Miami Access Tunnel, the consortium set to dig the tunnels.
"It's certainly a more difficult environment than it was two years ago, but I think very, very good projects still attract a good deal of interest in the banking community," he said.
In digging into the tunnel deal, the banks considered the parties involved — the concession team and government sponsors the Florida Department of Transportation, Miami-Dade County and the City of Miami — and the deal itself.
"Given that this is an availability-based project, I believe that is viewed favorably by the banks," Mr. Aiello said.
Through the public-private partnership, the contractor consortium was responsible for financing the tunnel project, which it will also design, build, operate and maintain for 35 years.
In return, the governments are to make annual "availability payments," which the concession team can use to pay back the loans.
The state is contributing $457 million, Miami-Dade $402.5 million and the city $50 million.
The structure means the private partner is essentially guaranteed to get paid, whereas relying on something like toll revenue as a stream to pay back debt could be less reliable.
"When you take that uncertainty, the toll risk, off the table, it becomes a much less risky proposition from a financial standpoint," Mr. Aiello said.
Much of the bank debt is set up to be paid when construction is complete, as that's when the state ramps up regular annual payments to the private consortium, attorney Mr. Marks said.
So once the tunnels are done, "the banks actually get paid up pretty quickly."
A $340 million Transportation Infrastructure Finance and Innovation Act [TIFIA] loan from the federal government is longer term.
"What TIFIA is really supposed to do is provide long-term, low-interest loans to fill the gap" between available public and private money to get projects built faster, he said.
Lead banker Mr. Ruffa said he could not comment as to whether BNP Paribas plans to keep the debt on its books, nor could he share the life of the loans, how the debt service is structured, how much interest the consortium will owe or how it will be paid.
Though he also wouldn't cite the interest rate, Mr. Ruffa did say that "the competitive tension in light of the strong interest of the banks meant that the project benefited from competitive terms for the financing."
He acknowledged the project does come with some risk but said lenders are confident.
"No project is without risk and we are confident that the principal risks have been identified for this project and draw comfort from the extensive due diligence carried out," he said. "Importantly also these risks have been assumed and appropriately priced by parties best placed to do so."
He pointed to Miami Access Tunnel's lead construction firm, Bouygues Travaux Publics of France, "which has extensive experience and is a global leader with respect to tunneling."
Bouygues, along with investment fund Meridiam, also invested equity — about $80 million total.
"With capital at risk the project parties are highly incented to ensure that the project is delivered on time and budget," Mr. Ruffa said. "Accordingly these risks and project progress generally will be very closely monitored under the various project and finance documents."
The fact that the banks dove into this venture is widely significant, attorney Mr. Marks said.
"What really makes this especially important is there haven't been very many P3 [public-private partnership] deals which have gotten done in the US in the last year or two… These successes are critical to the market."
Deals like this affirm that foreign investors should be investing in construction here, he said.
Such investors often worry about political roadblocks in dealing in the US.
The tunnel project saw its share.
But in the end, "this is the kind of project that could reassure investors that the US is worth investing in," Mr. Marks said. "The fact that we were able to overcome political risk in this transaction… is really important for the US P3 industry."
That's the hope, lead banker Mr. Ruffa said.
"We are hopeful that the timely and cost-effective delivery of this tunnel will see such partnerships have broader application in the procurement of essential infrastructure in the US."
As far as timeliness, the state has given the go-ahead to complete the project design and move ahead, consortium Chair Mr. Aiello said.
"That team is off and working already."
The plan is to break ground late in 2011, he said.
He predicts smooth sailing.
"It's a job with significant construction complexity, but we've got a team that's been organized because they have demonstrated through their global track record an ability to perform… so we don't see anything out of the ordinary moving forward."