4.2.3 Synthesis of Real Toll Priced Managed Lane Experience

With the exception of the Elizabeth River Tunnels project, all real toll P3 concessions that have reached financial close since 2009 have involved priced managed lane projects. There have been a total of nine priced managed lane real toll concessions implemented in the U.S. beginning with the 91 Express Lanes that entered into service in December 1995. Although there is a relatively large number of these projects, their collective outcome remains to be determined, as five of these projects are in construction or design at the time of this writing, and an additional three have been open for less than two years.

The following real toll priced managed lane projects are in operation in the U.S.:

91Express Lanes in Orange County, California

I-495 Capital Beltway HOT Lanes in Northern Virginia

North Tarrant Express (I-820 and SH 121/183) in Fort Worth, Texas

LBJ Express in Dallas, Texas

I-95 HOV/HOT Lanes in Northern Virginia (95 Express Lanes)

The first real toll P3 managed lane concession is the 91 Express Lanes, which opened to service in late 1995. Running in a geographically constrained valley in an extremely congested highway corridor, the project has been highly profitable for its entire history. It was built without any public money but was purchased by the Orange County Transportation Authority in 2003 in order to annul a non-compete clause in the P3 concession agreement that prevented Caltrans from making improvements to the parallel general-purpose lanes. Built at a cost of $119 million, the private developer sold the concession for $207.5 million and derived a significant profit.

Most of the more recent real toll P3 managed lane projects have involved much larger and more expensive improvements in heavily traveled commuter corridors with well-documented traffic levels. Nonetheless, the introduction of tolling for the first time introduces revenue risk. The public sector agencies sponsoring these projects have made significant financial contributions towards their construction in order to make their financings viable. In addition to managed lane capacity, these projects have also involved the reconstruction and enhancement of existing urban-suburban highway corridors and have featured concession terms in excess of 50 years.

The $2.068 billion, 85-year Capital Beltway HOT lane concession opened to service in late 2012 to lower than expected revenue levels. This led to a refinancing less than two years later, with the private partner investing an additional $280 million of its own equity to reduce its debt servicing costs. While the outcome of this project is not certain, the concessionaire's additional equity investment indicates that it has confidence in the project's long-term financial performance.

The $2.047 billion North Tarrant Express (I-820 and SH 121/183) opened to traffic in October 2014 to revenues that were higher than industry expectations.2 The project has maintained its credit rating, due to its positive performance and expectations for continued economic and population growth in the Dallas-Fort Worth metropolitan area. However, if the growth in traffic levels slows project reserves could erode.

The $923 million 95 Express Lanes project opened in Northern Virginia in December 2014. This is the only recent real toll managed lane project not to receive a public sector subsidy, due to its lower cost and healthy revenue generation potential. In its first six weeks of operation, revenues averaged $105,000 per day, which was higher than industry expectations.3

The $2.615 billion LBJ Express opened to service in September 2015. Through the third quarter of its first full year of operation, although toll transactions were one percent below expectations, revenues were seven percent higher than budget due to higher-than-anticipated toll rates.4

The $209 million U.S. Express Lanes (Phase 2) opened in January 2016. The Phase 2 private partner is also operating and collecting toll proceeds from the U.S. 36 Express Lanes (Phase I) and I-25 Express Lanes, both of which have been built by the state of Colorado. Gross revenues on the combined Phase 1 and 2 U.S. 36 facility are slightly above expectation in 2016.5

The remaining three real toll managed lane concessions are under construction or design at the time of this writing:

North Tarrant Express 35W Project ($1.64 billion)

I-77 ($636 million)

SH 288 ($1.06 billion)

While these projects range in size, each transaction has included a subsidy from the public sector sponsor. In addition, the public sponsor of the North Tarrant Express 35W Project project is developing an extension of that project at its own cost. The private partner will operate the extension and be entitled to the toll revenues it generates. While the outcome of these three concessions is not known at this time, these important financial commitments demonstrate that project sponsors recognize that it would not be possible to implement these projects as at-risk, real toll managed lane concessions without public funding and other contributions in kind.

_____________________________________________________________________

2 Business Wire, February 27, 2015 http://www.businesswire.com/news/home/20150227005958/en/Fitch-Affirms-North-Tarrant-Express-Mobility-Partners

3 Fitch Ratings, March 30, 2015 https://www.fitchratings.com/site/fitch-home/pressrelease?id=982134

4 LBJ Express Quarterly Operations and Maintenance Report, Q3 2016 http://emma.msrb.org/ES988641-ES773865-ES1175182.pdf

5 Fitch Ratings, December 2, 2016 http://www.businesswire.com/news/home/20161202005743/en/Fitch-Affirms-Plenary-Roads-Denver-LLCs-PABs