Case Study

Name: Northern Virginia Capital Beltway HOT Lanes Date: 2007-2008 Project: Financial Advisory for USDOT TIFIA Loan

Summary: IMG advised the US Department of Transportation’s Infrastructure Finance and Innovation Act (TIFIA) on a $589 million loan to the $1.9 billion Capital Beltway project in northern Virginia.

Issue: Relieving congestion on I-495, or the Capital Beltway, in Northern Virginia and the Washington, D.C. area, has been a major focus of the Virginia Department of Transportation (VDOT) and other transportation agencies. In the early 2000s, Fluor Enterprises initially and then with Transurban (USA) Development submitted a proposal to the Commonwealth of Virginia to build and operate High Occupancy Toll (HOT) lanes on a 14-mile stretch of the Capital Beltway, under Virginia’s Public-Private Transportation Act. The Transurban-Fluor consortium was subsequently awarded an 80-year concession to design, build, finance, operate and maintain the HOT lanes.

After winning all necessary approvals, Transurban-Fluor sought a loan from the USDOT’s TIFIA program in 2007.

Solution: Serving as advisor to the TIFIA Joint Program Office (JPO), IMG conducted due diligence on the project economics, the design-build contract, the management approach, sponsor capabilities and the proposed financial plan. IMG also worked with the TIFIA JPO and legal counsel to negotiate loan agreement and other documents that met TIFIA’s standards and was acceptable to the financial markets.

The loan agreement approved by the USDOT consists of a TIFIA loan of up to $588.9 million that is subordinated to the project’s senior Private Activity Bond (PAB) debt of $589.0 million. The other elements of the project funding include cash equity of $349.8 million and a VDOT grant of $408.9 million. The TIFIA loan has a maturity of up to 40 years, interest capitalization during the construction period and five years after substantial completion, and repayment of principal in the last fifteen years of the loan.

Financial close for the TIFIA loan and the senior PABs was reached in June 2008 and soon after construction had begun; the project is expected to be completed by 2013.

Value Created: The Project will be one of the first toll facilities in the US to use dynamic congestion pricing. Drivers will be able to access and exit HOT Lanes from dedicated, multiple entry locations along the Capital Beltway. Tolls will fluctuate throughout the day to reflect real-time traffic conditions. Generally, higher tolls will be charged during peak travel times when traffic on the Capital Beltway is most congested and lower tolls will be charged during off-peak travel times when traffic on the Capital Beltway is least congested. The objective of the value pricing will be to maintain an agreed level of service, approximately a minimum average operating speed of 45 miles per hour. By adding extra capacity, the project will also reduce congestion on the Capital Beltway’s non-tolled general purpose lanes.

With TIFIA funding, the Project was able to obtain a low cost and flexible funding source that was an important element in achieving overall financial close for this ground-breaking project.