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Case Study

Name: City of Chula Vista, California
(San Diego County)

Date: 2000 - 2001

Project: Toll Road Valuation and P3 Financial Analysis


Summary: IMG conducted a valuation of the SR-125 Private Toll Road Franchise for the City of Chula Vista as part of the City’s deliberations regarding whether to transfer the franchise of the 11-mile road from a private consortium to a public authority of not-for-profit entity.

Issue: The $300 million SR-125 tollroad was one of the four original tollroad projects developed under California’s AB-680 that allowed private companies to develop and operate critical roads under a long-term franchise agreement around the state. Due to several years of delay, caused in part by environmental challenges, the consortium which won the SR-125 franchise was considering selling the concession to private or public parties, including the City of Chula Vista.

Due to its importance as a critical north-south route to a Mexican border-crossing and its role in helping to develop new neighborhoods in the east of the City, the City of Chula Vista commissioned IMG to assess the value of the tollroad franchise as a first step in considering whether to enter into negotiations to transfer the tollroad to a not-for-profit entity associated with the City.

Solution: IMG conducted a financial appraisal and provided a range of values of the toll road franchise, supplying a second opinion on whether the Project was feasible under various scenarios. IMG developed an extensive discounted cash flow valuation model, incorporating federal credit support, tax-exempt, taxable, and subordinated debt, and equity financing alternatives. IMG also reviewed all operational assumptions, project agreements, and financing alternatives, including term sheet for credit enhancement under the federal TIFIA program. IMG additionally provided advice on entering into negotiations with the Project developers if and when deemed appropriate.

Value Created: IMG provided the City with a clear analysis of the most reasonable values of the toll road franchise, taking into account the City’s cost of capital and project risks. IMG also helped the City understand the project agreements and all operating assumptions made in the asset transfer.

 

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