Friday, June 06, 2008

JP Morgan avoids the 'C word' (concession) while funding the conversion of freeways to toll roads in Austin

J.P. Morgan to lend up to $2.5B for toll roads

June 6, 2008

By Jean Kwon
Austin Business Journal
Copyright 2008

A growing interest by the private financial sector in transportation projects has spread to Central Texas and may be part of the long-term answer to funding toll roads.

J.P. Morgan Securities, a division of J.P. Morgan Chase & Co., has pledged to provide the Central Texas Regional Mobility Authority up to $2.5 billion in capital sources for planned toll road or managed lane projects at U.S. Highway 183, State Highway 71, U.S. Highway 290, and MoPac Expressway. JP Morgan's $1 billion Asset Management Fund is looking into directly investing in CTRMA's projects, says Don Henderson, Executive Director at J.P. Morgan Securities.

As cash-strapped federal and state agencies increasingly relinquish funding and control over transportation projects across the country, private capital is stepping in.

According to the Organization for Economic Cooperation and Development, infrastructure -- roads, water, and power plants -- as an asset class is worth an estimated global value of $17 trillion. The OECD expects global expenditure for transportation infrastructure to be $3 trillion by 2030.

In the last four years, the private financial sector has invested $20 billion in U.S. roads, according to a Morgan Stanley study.

Infrastructure matches with the asset types that investors want because essential services like roads and water have low risk and long-term predictable cash flow, says Mike Heiligenstein, executive director of CTRMA. Roads, for example, have built-in inflation protection since tolls can be adjusted to reflect inflation rates.

Overseas pension funds have been investing in long-term assets like energy and water for years but have more recently looked at roads, says Henderson. The Chicago Skyway Bridge, Indiana toll roads and the Pennsylvania Turnpike, for example, have been backed by foreign investors.

Having financial institutions like J.P. Morgan sell directly to mutual funds, pension funds and other long-term investors enables transportation projects to avoid entering concession deals with private firms that lease and operate revenue-streamed projects like toll roads, says Steve Pustelnyk, a spokesman for CTRMA. Australian infrastructure powerhouse Macquarie Group Ltd., which recently approached Austin city officials about privatizing all or part of Austin-Bergstrom International Airport, has concession projects for 34 roads in 10 countries.

"We could have gone the concession route but [the JP Morgan model] is a hybrid," says Pustelnyk. "As we look at funding shortfalls and limits to traditional funding methods these things allow us to overcome funding challenges without letting us go to the extreme of doing a concession."

Under the private financial sector model CTRMA retains direct and complete control over toll road projects and reinvests revenue in the community, says Pustelnyk.

© 2008, Austin Business Journal

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