4.4.1 Synthesis of Long-term Lease Concession Experience

Table 4-3 summarizes the five long-term lease concessions in the U.S. to date. Concession periods tend to be longer than with real toll DBFOM and availability payment concessions, averaging about 82 years. Only the Puerto Rico lease is less than 75 years, although it was extended from 40 to 50 years in 2016.

Table 4-3: Long-term Lease Concessions through December 2016

All long-term leases include a commitment to operations and maintenance over the concession term. However, unlike similar commitments for availability payment concessions, adhering to established performance standards is not as easily enforced since there are no performance-based availability payments. Two lease transactions have included provisions for facility expansion: the Pocahontas Parkway where the concessionaire constructed a connecting road segment to Richmond International Airport, and the Northwest Parkway, which includes options for two extensions of that facility. Other commitments bundled with long-term leases have included upgrading toll collection systems, capital maintenance, and other safety and system improvements.

Experience with long-term leases in the U.S. has been decidedly mixed. Most long-term lease concessions are no longer held by their original private sector concessionaires. Although the Chicago Skyway's investors sold their interests in the facility for a profit in 2015, 10 years into the lease, both the Indiana Toll Road and Pocahontas Parkway struggled to achieve adequate traffic and revenue levels sufficient to cover their debt repayments. The Indiana Toll Road's concessionaire filed for bankruptcy in 2014, and the lease was subsequently auctioned off to a new private sector consortium. The Pocahontas Parkway's concessionaire ultimately transferred ownership of the roadway to the banks holding its senior debt in 2014, and subsequently VDOT awarded a concession to a new private consortium in October 2016.

The Northwest Parkway's concessionaire reported "favorable" performance evidenced by 15.2 (2014) and 41 (2015) percent increases in toll revenue, along with respective 13.3 and 12 percent growth in traffic due to strong economic activity in the Denver metropolitan area.8 Nonetheless, prior years of underperformance and an inability to restructure private debt maturing in 2017 led the concessionaire to sell the toll road to new investors in late 2016.

The PR-22 and PR-5 concessionaire refinanced its shorter-term debt in December 2015 extending the payback period and stabilizing the facility's finances. The concession agreement also was extended by 10 years in April 2016 in exchange for an additional payment from the concessionaire to the project sponsors of $115 million. In conjunction, the concessionaire's revenue share was increased from 50 to 75 percent of future toll revenues. Traffic levels have shown recent improvement despite unfavorable economic conditions in Puerto Rico.9 Ninety-five percent of the concessionaire's five-year investment plan to make operational improvements to the roadways is complete.

While several initial private sector investors have been challenged to realize expected returns from their investments in the near-term, public sector sponsors have generally benefited from their long-term lease transactions. First, changes in lease ownership have not had an impact on facility users or project sponsors since the provisions of the original concession agreements, including commitments to operate and maintain the roadways, to follow established methods for toll rate increases, and to share excess profits still stand. Second, the large, upfront payments secured upon lease execution have provided demonstrable benefits. At a minimum, they helped retire debt on burdensome or troubled assets for all five projects, and in three instances, permitted the project sponsors to make investments elsewhere in their respective region or state. Both the Chicago Skyway and Indiana Toll Road exemplify this outcome, as the City of Chicago and State of Indiana were able to make substantial investments in infrastructure, and in the City of Chicago's case, to parlay the proceeds into social and future income generation benefits as well.

However, in order to achieve these results, each of these sponsors had to forego the income that these existing toll facilities would have provided them over the life of these extremely long concession terms. While it may have been more difficult politically and from a public acceptance perspective, the project sponsors could have implemented toll increases and streamlined operation of their existing toll facilities in ways emulating what their private sector operators have accomplished. With mature legacy facilities such as in Chicago, Indiana and Puerto Rico, the income that has been forfeited for periods up to 99 years is substantial. These sponsors did receive extremely large payments for these leases that provided capital funding for other project needs, and in the case of Indiana to fund the $2.6 billion, 10-year, Major Moves transportation investment program, advancing the benefits of the projects undertaken.

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8 Brisa 2014 and 2015 Consolidated Annual Reports. http://www.brisa.pt/Portals/0/Documentos/Relatorios/EN/RC%20Consolidados/ReCBAE_Cons_2014UK.pdf

9 Abertis 2015 Annual Report. https://www.abertis.com/media/annual_reports/2015/IA2015_abertis_eng_bP7VWsH.pdf