Introduction to Public Private Partnerships

May 25, 2010

Table of Contents
SECTION 1 SECTION 2 SECTION 3 SECTION 4 SECTION 5 SECTION 6 APPENDIX A APPENDIX B

Introduction to UBS Addressing the Infrastructure Problem Overview of Public-Private Partnerships PFI/PPP in the UK Implementing PPP in Florida Case Studies Pending US PPP Biographies

2 5 10 28 32 37 43 45

SECTION 1

Introduction to UBS

UBS Infrastructure Advisory Group Broad-based Global Experience

Advisory

Equity

2007-2009 Financial advisor to the State of Illinois for its proposed long-term lease of the Illinois lottery

Pending Joint financial advisor to the Kingdom of Saudi Arabia in relation to the Saudi Landbridge Rail Link BOT project

2009 Joint bookrunner on a R$1,099 million (US$630mm) follow-on equity offering

2009 Joint lead manager and joint underwriter for an entitlement offer and multiple placements for Asciano to raise A$2.35 billion

2008 Sole financial advisor to Beijing Capital Airport on the acquisition of Beijing Airport Terminal 3 Assets for RMB26.9 billion (US$3.7 billion) including A share issue on Shanghai Stock Exchange raising RMB4 billion

2007-2009 Financial advisor to the Commonwealth of Puerto Rico with regard to concession of the parking facility at LMM Airport

2009 Sole financial advisor to LCR in relation to its 5.2 billion debt restructuring 2006 Joint bookrunner for Vinci s 2.5 billion 2 for 11 rights offering

2005 Joint global coordinator and joint bookrunner of the US$4.3 billion secondaryoffering

2005 Financial advisor to Sanef(and joint bookrunner) in relation to its 900 million IPO

2008 Financial advisor to Abertis, Citi Infrastructure Investors and Criteria CaixaCorp on its $12.8bn winning bid for the long-term lease of the Pennsylvania Turnpike

2006-2008 Financial advisor to the State of New Jersey with regard to potential PPP initiatives

Debt
The Ministry of Railway (MOR) of the Peoples Republic of China 2009 Joint bookrunner on a 1 billion 10-year fixed-rate bond for Deutsche Bahn Finance B.V. (guarantor: Deutsche Bahn AG) 2008 Joint lead manager for the Ministry of Railway of the Peoples Republic of Chinas RMB 20 billion (US$2.9 billion) Enterprise Bond Offering 20042008 2006 Global coordinator and financial advisor of Network Rails. 20 billion multicurrency debt issuanceprogramme

2006 Joint financial advisor and corporate broker to BAA on the recommended 15.9 billion cash offer from a consortium led byFerrovial

2007 Joint adviser to MTR Corporation on its US$8.8 billion proposed merger with the Kowloon-Canton RailwayCorporation

2006 Sole financial advisor to Orient Overseas (International) Limited on its US$2.4 billion divestiture of four North American container terminals to Ontario Teachers' Pension Plan

2006 Exclusive financial advisor to RREEF on its acquisition of a 49.9% stake in Peel Ports valuing Peel Ports at approximately 1.6 billion

2005 Sole bookrunner onSNCF s CHF600 million bond issue, maturing in 2012. UBS also arranged the CHR to EUR, fixed to floating swap

2004 Arranger, joint lead manager and joint book runner of the 5 billion issuance for the financing of the new Italian high speed rail network. The bond comprised three tranches: a 10y fixed rate, a 20y fixed rate and a 15y inflation -linked

2003 Underwriter and joint lead manager of a 1.03 monoline wrapped bond issue for Metronet in relation to its bid for the concession to provide infrastructure services in respect of the BCV and SSL networks of the London Underground

Advisory

UBS: A Leading Infrastructure / PPP Advisory Group Globally

UBS advised 4 out of the 6 biggest transportation infrastructure M&A transactions of all times
Infrastructure M&A Worldwide1
Amount Adviser (US$mm) No. (% ) Bookrunner

Bookrunner of Infrastructure Funds2

Deal value (US$m) No. (% )

1 2 3 4 5

Goldman Sachs UBS Citi Lazard Rothschild

131,415 99,947 94,972 74,586 72,011

41 44 45 38 46

28.5 21.7 20.6 16.2 15.6

1 2 3 4 5

UBS Deutsche Bank Bank of AmericaMerrill Lynch ABN AMRO Citi

4,653 1,548 1,411 1,393 1,205

35 14 8 12 11

21.0 7.0 6.4 6.3 5.4

2006 Joint financial adviser and corporate broker to BAA on the recommended 15.9 billion cash offer from a consortium led by Ferrovial

2005 Financial adviser to Vinci on its 19 billion acquisition of Autoroutes du Sud de la France (ASF)

2009 Joint lead manager and joint underwriter for an entitlement offer and placement for Hastings Diversified Utilities Fund to raise A$250 million

2008 Financial adviser and manager on North American infrastructure fund raising with total commitments of US$1.913 billion

Infrastructure Equity Issuance Worldwide1

Amount Underw riter (US$mm) No. (% )

Infrastructure Debt Issuance Worldwide1

Amount Underw riter (US$mm) No. (% )

1 2 3 4 5 6

UBS Nomura Morgan Stanley Citi HSBC Bank of America Merrill Lynch

10,999 9,147 6,537 6,117 4,606 4,065

33 10 25 21 11 15

12.0 10.0 7.2 6.7 5.0 4.5

1 2 3 4 5 6

Mizuho Nomura Group Daiwa Capital Markets Credit Suisse UBS

61,475 27,389 21,907 21,681 19,866 19,835

334 172 173 174 107 109

12.4 5.5 4.4 4.4 4.0 4.0

2009 Joint bookrunner on a R$1,099 million (US$630 million) follow-on equity offering

2009 Joint lead manager and joint underwriter for an entitlement offer and multiple placements for Asciano Group to raise A$2.35 billion

2009 Joint Head Manager for JPY40 billion two tranche (10 & 20 year) straight bond issuance for JR central

2009 Joint bookrunner on a 1 billion 10year fixed-rate bond for Deutsche Bahn Finance B.V. (guarantor: Deutsche Bahn AG)

Source: Dealogic NoteS: 1 January 1999March 2010 2 Includes all deals since 1996, excluding self managed funds 4

SECTION 2

Addressing the Infrastructure Problem

The US Infrastructure Problem

The poor state of US national infrastructure continues to merit significant concern

Unprecedented state and federal budget constraints are limiting investment into infrastructure

The American Society of Civil Engineers (ASCE) assigned a D rating for the current state of US infrastructure ASCE estimates that $2.2 trillion needs to be invested over 5 years to bring the condition of the nations infrastructure to good Current size of the entire municipal bond market is approximately $2.8 trillion Estimated US Infrastructure 5-yr Capital Requirement 200920141
1,000 800

The federal budget deficit tripled to a record $1.4 trillion for FY 2009

in FY 2010 it is projected 48 states will face budget short falls state and local governments account for about 75% of public infrastructure spending new methods of financing infrastructure projects without increasing debt or raising taxes are essential

5-Year Need

Estimated Actual Spending

$ Billion

600 400 200 0 Roads and Bridges Transit Drinking Water and Wastewater Schools Aviation Public Parks Hazardous and Solid Waste Energy Rail Inland Waterways Levees Dams

Note: 1 American Society of Civil Engineers, 2009

PPPs Address the Infrastructure Problem

Financial innovation from the private sector can be utilized to address critical infrastructure issues Private capital in infrastructure has the potential to provide a number of benefits

Municipal bond issuance, the traditional mainstay of infrastructure funding, cannot on its own fund the investment gap 2 Key factors are limiting municipal issuers flexibility to fund infrastructure projects
I. II.

1 Private investment in infrastructure will free government dollars and create much needed jobs 2 Private investment has been proven to generate positive economic growth and can act as a stimulus by providing investment-grade projects in which to invest
3 As of 2009, the total equity private capital committed to infrastructure is in excess of $150 billion this translates to a leveraged purchasing power of more than $300 billion

Weakening credit profile of muni-bond issuers Challenging and uncertain market conditions

PPPs can be a key driver in relieving capital budget constraints and generating operational and economic growth

Challenges Facing the Traditional Municipal Financing Market

Traditional bond issuance alone will be insufficient to fund future infrastructure investment needs

Municipal bond issuers are facing weaker credit profiles Budget deficits are ballooning, with 46 states currently facing budget shortfalls1

Most states have addressed or still face gaps in their budgets totaling $196 billion for fiscal year 2010 Although improved from Q1 2009, $35bn (approx 34% of entire municipal issuance) of municipal issues have been downgraded in Q1 2010 States face a limited ability to raise taxes in a weak economy with rising unemployment There have been recent meaningful changes in traditional municipal issuance A flight to quality resulting from a lower risk appetite led to weakened investor demand

Q1 Municipal Issuer Upgrades and Downgrades 2007-10

90 80 70 60

$ (bn)

50 40 30 20 10 0 28 27 6 07Q1 08Q1 09Q1 10Q1 Upgrade Volume Downgrade Volume 21 3 8 75 35

The disappearance of monoline insurance to enhance the credit quality of new issues fueled declining investor perception

There has been Federal intervention to support municipal access to bond market funding through implementation of such programs as Build America Bonds (BABs) Of the $104bn municipal issuance in Q1 2010, 26% has been BABs issues

President Obamas fiscal 2011 budget proposes to permanently extend the BABs program at a reduced subsidy rate of 28% compared to the current 35% rate

Source: Moodys

1 Source: Wall Street Journal, May 2010

PPP is Increasingly Viewed as a Viable Alternative

Illinois Lottery (proposed) OHare Cargo Project (proposed) Chicago Metered Parking ($1.2bn 2008) Denver RTD (proposed) Northwest Parkway ($603mm, 2007) Midway Airport ($2.5bn, 2008, abandoned) Chicago Downtown Parking ($563mm, 2006) Chicago Skyway ($1.8bn, 2004) Pittsburgh Parking System (proposed) Philadelphia Ports (proposed) Pennsylvania Turnpike ($12.8bn, on hold) Harrisburg Parking ($215mm, 2008)

Port of Portland

Goethals Bridge (proposed)

New Jersey PPP Program (proposed) Port of Baltimore ($750mm, 2009) Indianapolis Airport Parking (proposed) Indiana Toll Road ($3.8bn, 2005)

Port of Virginia (unsolicited offer) Capital Beltway HOT Lanes ($1.5bn, 2008) Pocahontas Parkway ($611mmm, 2006) Doyle Drive (proposed) LA Parking (proposed) Port of Oakland ($700mm, 2009) Jacksonville Parkway (proposed) Alligator Alley (proposed) First Coast Outer Beltway (proposed) I-595 ($1.8bn, 2008) Grand Texas Parkway (proposed) South Bay Expressway ($635mm, 2007) TTC-69 (proposed) North Tarrant Expressway ($2bn, 2009) LBJ Expressway ($2.7bn, 2009) SH-130 ($1.4bn, 2008) Georgia PPP Program (proposed) New Orleans Airport (proposed) Miami Tunnel ($889mm, 2007)

Enacted State PPP Legislation

Bold indicates projects completed in 2009

Roads

Airports

Ports

Parking

Transit / Rail

Multiple

Other

SECTION 3

Overview of Public-Private Partnerships

What is a Public-Private Partnership?

Description of a Public-Private Partnership (PPP)
Typical PPP Structure Contractual Diagram

An arrangement in which essential, public infrastructure assets are designed, built, financed and/or operated through a partnership of a public sector entity and one or more private sector companies The private sector provides a public service and assumes substantial financial, technical, construction and operational risk in the project

Public Sector Authority

Availability Payment3

Upfront Payment3

Concession Contract Equity Sponsors

Project Revenue
Concession Company/SPV Bank/Bond Financing2

Construction Contract
Construction Company(ies)1

Operating and Maintenance Contract

Operating Company(ies)1

Typical PPP structure

A typical PPP is structured as a long-term agreement (Long-Term Concession), in which the public sector assigns to a private sector company the right to design, build, finance and/or operate the infrastructure asset for a defined period of time and per a financial arrangement

Sub Contractor3

Sub Contractor3

Sub Contractor3

Sub Contractor3

Notes: 1 May be part of the consortium awarded the concession 2 Organized by the sponsors 3 If/as necessary

11

Why Pursue PPPs?

To satisfy demand for new infrastructure and maintain existing facilities, many state and local governments are evaluating PPPs

Advantages of PPPs New Source of Capital Bring new sources of capital for investment in the public sector infrastructure Bring operating / maintenance cost benefits from private sector operation Transfer risks from the public sector to the private sector Increase accountability for the delivery and operation of an asset

Cost Benefits

Risk Transfer

Accountability

12

What Types of Assets may be Suitable for PPPs?

Transportation Infrastructure
Roads and Bridges Airports Ports Transit / Rail Parking

Social Infrastructure
Healthcare Education Correctional Facilities Judicial Court Buildings

Utilities
Power Water

Communication
Data Centers Communication Towers

Others
Lotteries

13

Alternative PPP Structures

Service / M anagement Contracts Long-Term Concession Not-For-Dividend Company

Structure Description

State enters contract with private sector to manage the entire business Improve efficiency

State assigns (for a fee) the right to operate for a defined period of time to a private sector concessionaire Mobilize private sector capital and efficiency Upfront / ongoing payments paid by private sector 20-99

State assigns (for a fee) the right to operate to a stakeholder-controlled entity for the benefit of the State Mobilize private sector capital and efficiency Upfront and potential ongoing payments based on revenue generated by asset 20-99 or Indefinite

M ain Objective of PPP Source of Payment to State

Revenue generated by asset Duration (Years)

15

Enforcing Public Policy

Contract / Public sector control Work done / Cost-plus and productivity bonus Public sector NA Private sector Public sector

Contract / State Regulatory System Revenue generated by asset / Availability payments / Shadow Tolls Public sector Private sector taxable debt and equity Private sector Private sector

Contract / State Regulatory System

Source of Revenue to Private Sector Ow nership Source of Financing

NA

Public sector Private sector taxable and potentially tax-exempt debt Private sector Public sector

M anagement Commercial Risk

14

Myths vs Reality: Overcoming Common Misconceptions About P3s

There are several common misconceptions about P3s that can be addressed through a well-structured concession

MYTH
REALIT Y

Cost of Capital for P3 is Substantially Higher than for Traditional Municipal Financing

Focusing on cost of capital alone fails to consider the many other risks and costs
P3s with availability payments drive down the private sector investors required returns by providing a more certain revenue stream Value-for-Money analysis based on whole-life project costs is a better measure

MYTH
REALIT Y

Concession Length is Unreasonably Long Length of a concession can be structured to fit the needs of the asset and government

MYTH
REALIT Y

Public will Lose Control of Asset Government will set the operations and maintenance standards and continue to monitor the asset Regulations governing toll increases are set out in the concession agreement

15

Myths vs Reality: Overcoming Common Misconceptions About P3s

There are several common misconceptions about P3s that can be addressed through a well-structured concession

MYTH
REALIT Y

Excessive Profits will be Enjoyed by Private Sector Operator Concessions can be structured to include revenue- or profit-sharing mechanisms and caps on windfall profits to the private sector

MYTH
REALIT Y

Large Upfront Proceeds from P3 will be Squandered Proceeds can be reinvested in new capital projects The use of shorter concessions, revenue sharing mechanisms and greenfield projects substantially reduces the risk of the misappropriation of upfront proceeds

MYTH
REALIT Y

Jobs will be Lost Concessions can be structured to ensure the retention of jobs for current employees Transactions can also include relevant procurement and employment standards such as Buy America and living wage provisions

16

Common Concession Agreement Provisions

The public sector authority will enter into a concession contract with a concession company under which the company is typically granted a long-term concession to design, build, finance, operate, maintain and transfer an asset Terms of the concession are negotiated between the public and private sector and vary depending on the objectives of the government and the assets/services to be provided For services which are not self-sustainable, the concession company receives financial support from the government (i.e. an availability payment); the terms of such support are negotiated in the agreement

the payment is often conditioned on the performance of the concession company

In Greenfield projects, shareholders of the concession company are usually composed of construction, facility management, and supplier companies The concession agreement outlines unique risks of the project and documents ways in which those risks are to be allocated amongst the various project participants

Construction Operation

The concession company is responsible for the construction of the asset and may subcontract some construction work

Financing

The concession company is responsible for operating and maintaining the asset and may outsource such activities through fixed-price contracts to 3rd party operators Tariff regimes as well as performance metrics / requirements are outlined in the agreement
The concession company is responsible for arranging the financing of the project

sources of funding will usually include equity sponsors and bank/bond financing

external financing may be lent via a financing vehicle

17

Common Concession Agreement Provisions

Performance M etric/ Penalty Asset Hand-back Clear, achievable performance metric including life and condition of asset on expiry Conditionality of subsidy to be within the concessionaires control The Hand-back arrangements will be designed to preserve the condition of the asset(s) Condition of the asset on expiry needs to be clear and achievable Regulated toll-setting mechanism that enables the concessionaire to set tariffs within a clear framework A private sector operator will prefer a degree of flexibility to manage tariffs Termination events, if applicable, should include appropriate cure periods and materiality thresholds Market standard compensation on termination Force majeure events are those that are likely to have a catastrophic effect on either partys ability to fulfill its obligations The purpose of the force majeure provisions is to give the party affected relief from liability and to give the parties an opportunity to terminate the concession The concessionaire may require a non-competition undertaking to ensure that its forecast revenues are not impacted by competing assets or government policy changes The concessionaire may be protected from policy changes or certain changes of law by being in a no better or no worse position post the change If project cash flows are unable to meet debt obligations, the project lenders may step in and take control of the asset from the concession company

Tariff Regime

Termination Events Compensation on Termination Force M ajeure

Non-Competition Policy Changes and Certain Changes in Law Lender Step-in Rights

18

Assessing P3 Projects: Value-for-Money

Background

Value for Money analysis is used by government agencies to determine if a PPP project provides an optimum combination of whole-of-life costs and quality compared to the traditional public sector procurement

Value for Money (VfM) analysis is a tool used by governments as a basis for the implementation of PPPs It provides a comprehensive set of procedures to evaluate a range of project delivery options and identifies the best outcome for the government and community It represents the optimum combination of whole-of-life costs and quality (or fitness for purpose) of the project
VfM Process Overview

While agencies differ on their specific approaches to carrying out VfM analysis, a number of fundamental principles guide the procedure Program Level Assessment Ensures that a PPP is only considered for use in those projects where it is appropriate and is likely to represent good VfM This assessment will determine whether the private sector is better equipped to handle the risks associated with the project

Project Level Assessment Requires an upfront procurement appraisal based on a public sector comparator Determines whether the PPP provides a better ratio of value to net life cycle cost than the best feasible public sector strategy This assessment determines whether the amount of capital and resources is sufficient to attract private sector interest
Procurement Level Assessment

Ongoing assessment during the procurement phase of a project to ensure that the desired project can be delivered in view of, for example, the competitive interest and market capacity
19

Source:

UK Treasury

Financial Justification for P3s Value for Money

Presidio Parkway Value for Money Illustration
Presidio Parkway is a 1.9-mile road that serves as an access route to the Golden Gate Bridge along Route 101 and was built 73 years ago January 21, 2010, the California Public Infrastructure Advisory Committee (PIAC) recommended a P3 procurement for a portion of the Presidio Parkway replacement project in San Francisco Project is valued at over $1.0 billion; funding will come from both private and public sources including: The PIAC performed a value-for-money analysis and determined that a P3 procurement would result in a 15% cost reduction for the project Value-for-Money Findings
Construction Cost ($ mm)
700 650 600 550 500 450 400 350 300 Traditional Procurement DBFOM Efficiencies Design Contingencies Private Transaction Costs Construction Risk Priced by Contractor Public Costs Public Retained Risk Reserve DBFOM 631 (55) (22) 16 23 16 (77) 532

Source:

Infra-Americas, ARUP, California PIAC

20

Why are Investors Attracted to Infrastructure/PPP Assets?

Essential, stable assets

Assets provide essential services and therefore, very stable, predictable returns Low demand elasticity

Low correlation to stocks and bonds

0.25 - 0.30 correlation with equities

0.00 - 0.20 correlation with bonds

Inflation hedge
Price/revenue formulas allow for inflation adjustments Limited competition often enable business to pass on inflation to user

High cash yields

Long physical asset life High margin businesses

21

Who Invests Equity in Infrastructure Assets through P3s?

Selected Infrastructure Construction / Concession Companies
Main Infrastructure Sectors Roads, Airports, Car Parks, Telecom Infrastructure Roads, Social Infrastructure, Water Roads, Rail, Social Infrastructure Roads Equity Value (US$m) 13,294 Main Infrastructure Sectors Equity Value (US$m)

Company

HQ Spain

Company

HQ

Greenfield or Brownfield P3

Spain

Roads, Ports, Social Infrastructure, Rail

Private

Spain

7,080

German y Spain US

Roads, Social Infrastructure Roads, Power Power, Transportation, Water Roads

4,939

Diverse Infrastructure Sectors

Spain

14,016

Private 3,323

Italy

13,217

UK

Roads, Social Infrastructure Roads, Rail, Ports, Oil & Gas, Power Roads, Social Infrastructure Roads, Social Infrastructure Roads

2,879

Spain

2,213

Global Operational and Construction Expertise

US

Private

Spain

Roads, Social Infrastructure Roads, Social Infrastructure

2,485

German y France

2,909

Sweden

7,088

16,341

Canada

Roads, Social Infrastructure Roads

7,036

Long-term Investor

Portugal

4,819

Australi a France

6,085

Spain

Airports, Roads, Car Parks Transportation, Oil & Gas

6,477

US

7,653

US

Roads, Car Parks, Airports, Social Infrastructure Transport, Energy, Water, Aviation, Ports

27,437

Private

India

Airports, Roads, Power

4,359

22

Note: Equity values from FactSet as of March 1, 2010

Who Invests Equity in Infrastructure Assets through P3s?

Selected Infrastructure and Pension Funds
Infrastructure funds

Generally Prefer Brownfield Assets

Diverse Infrastructure Sectors

Partner with Construction/Concession Companies

Pension funds

Long-term Investor

Often Target Low- to Mid-teen Equity Returns

23

Infrastructure Debt Financing Considerations

Several potential debt sources should be considered for greenfield P3s

Private Activity Bonds (PABs)

Bond market is becoming more favorable for project financing North Tarrant Express project awarded to Cintra/Meridiam for $2bn included the first major P3 bond issue in several months, with $400mm of tax-exempt PABs with a BBB-/Baa2 rating (Dec 2009) The IH-635 (Lyndon B Johnson Freeway) Managed Lanes P3 project in Texas will be the largest P3 financing in US history at nearly US$3 billion. PABs are expected to make up to US$500-800 million of the private financing, potentially alongside commercial bank debt in the mix

Traditional funding methods can be combined with alternative A number of deals have sold with A or triple-B ratings in the past several months, and project financings in the triple-B category in the $500mm range are becoming possible funding sources administrators should be Transportation Infrastructure Finance and Innovation Act (TIFIA) open to new methods of TIFIA loans have been a portion of all the major greenfield road projects undertaken since financing
2008 I-595: $678mm TIFIA loan Port of Miami Tunnel: $587mm TIFIA loan North Tarrant Express: $650mm TIFIA loan TIFIA loans have been issued for several highway concessions totaling over $5.2bn Recent indications from the TIFIA directors imply that going forward the focus of the program will be towards projects that improve livability and sustainability

Bank Loan Market

The bank loan market is available for properly structured transactions, though all major greenfield road transactions financed in the bank market since 2008 have been availability-payment based

I-595 transaction priced at L+300bps with step ups to L+400 using a club of 12 banks Port of Miami Tunnel transaction priced at L+325 using a club of 10 banks
USDOT FHWA website, The Bond Buyer, Dec 2009

Source:

24

Infrastructure Debt Financing Considerations

Lenders Requirements for Financing Infrastructure Projects
Lenders will require robust project economics and security package to fund any infrastructure project

Lenders requirements will depend on the credit quality of the project cashflows

Lenders will include ratio tests in loan documentation to either: restrict distributions in period of actual or forecast underperformance trigger a default In evaluating project credit, funders will require base case ratios comfortably to exceed specified levels and to maintain a margin above default levels under a number of extreme stress scenarios

Lenders require a security package which may include some of the following:

1st ranking pledge over all shares in the concession company 1st ranking pledge over project accounts / reserves held by the concession company assignments of all insurance and re-insurance policies and proceeds

Lenders may also seek certain project reserve accounts:

maintenance reserve account, usually funded on a look forward basis debt service reserve account, usually covers next six months debt service

Lenders may request indirect credit support:

parent company guarantee from contractors parent liquidated damages for delayed construction 3rd party performance bond during construction

25

Funding Alternatives 4(2) Private Placement

The 4(2) private placement market can offer unique structuring advantages The 4(2) market has been successfully accessed for parking and infrastructure projects in the past

4(2) Private Placement

The 4(2) market offers a more discreet funding source on a negotiated basis with selected, sophisticated institutional investors (insurance, pension funds, etc.) Precedent exists for structured parking and infrastructure transactions The market offers a high degree of flexibility to tailor terms of a transactions The 4(2) market can serve as an attractive source of investment-grade debt capital when public funding alternatives are not available

Examples:
Brandywine Equity Trust 30th Street Post Office Philadelphia, PA Ambassador Bridge Detroit, MI

26

Key to Successful Implementation of a PPP Program

PPPs require the following key ingredients to ensure they garner the political and public support needed to be successful
1

Strong Senior Political Sponsorship

Benefits of PPP must be persuasively communicated to various stakeholders Uncertainty surrounding political support for PPP transaction can be costly

Communications Strategy
Essential to maintain a transparent, open process Educate the public and key stakeholders as to the risks, rewards and benefits to the State of a PPP transaction

Understand Governments Economic and Policy Objectives for a PPP

Key to determining correct choices in tradeoffs among value, speed and risk transfer

Asset has to be Suitable for PPP

Risk / Return Size Ability to finance PPP transaction

Protection of Public Interests

Appropriate oversight to ensure safety, environmental and social standards Input from stakeholders

Certainty, Clarity of Process, Terms of the Deal and Timetable

Well organized and structured process will give confidence to private sector PPP investors and ensure strongest execution

27

SECTION 4

PFI/PPP in the UK

PFI/PPP in the UK
The UK experience shows that PPP delivers price certainty for the public sector and timely delivery of good quality assets
Since the introduction of the Private Finance Initiative (PFI) in 1992, the UK has used PPP to procure projects involving the construction of assets needed to deliver public services PFI contracts have been used across a wide range of sectors: transport, hospitals, schools, defense, leisure, culture, housing and waste In 2003, a study by the UK National Audit Office found that PFI have consistently demonstrated good value for money Following its success in the UK, the PFI model and guidance has been used as a reference globally Construction projects where cost to the public sector exceeds the price agreed at contract
80% 60% 40% 22% 20% 0% Traditional procurement PFI projects 73%

Construction projects delivered late to the public sector

80% 60% 40% 20% 0% Traditional procurement
Source:

70%

24% 1

PFI projects

National Audit Office (PFI: Construction Performance, February 2003)

Notes: 1 In only 8% of PFI projects surveyed was the delay more than two months
29

PFI/PPP in the UK
The principal vehicle for delivering Public-Private Partnerships (PPP) in the UK is the Private Finance Initiative (PFI), which has been widely developed in the UK over the past decade
Up to the end of 2008, the UK had signed a total of 935 PFI / PPP projects, with a capital value of 66bn over 500 of these projects are now in operation four sectors - transport, health, defense and education have contributed three quarters of total projects by value The UK closed 59 infrastructure deals for US$13.1 billion in 2009; around 71 projects are currently seeking funding At present, 43 projects are past the shortlist stage and 57 can be expected to name a preferred bidder in 2010 or 2011 The current UK government has laid out ambitious renewable energy plans that will see billions of pounds invested in offshore wind farms Other sectors are also targeted such as healthcare, education, telecoms and waste management. Overall, PFI / PPP has accounted for about 10-15% of infrastructure investment since 1996
Source: International Financial Services, PFI in the UK & PPP in Europe, Partnerships UK, IJOnline

Number and value of UK PPP / PFI 8 projects

Capital value (bn)
7 6 5 4 3 2 1 0 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Capital value No. of deals

80 70 60 50 40 30 20 10 0

Source: 2007 Pre-Budget Report and Comprehensive Spending Review, HMT Note: 1 Signed PFI deals, according to HMTs database of infrastructure projects. Excludes London PPP underground projects
30

No. of deals

Lessons learned from UK PPP/PFI experience

Government needs to take a leading role to attract investors and allow PPP/PFIs to develop effectively

Lessons learned from PFI/PPP in the UK

Value for money is maximized by allocating risks to whoever is best able to handle it Risk and control must go together; whoever is allocated risk must have freedom to choose how to handle it Risk allocation must reflect what the market can bear. There is no point in aiming for tomorrows risk allocation in todays market Sharing rewards and risks provides a common focus on success, gives value for money and can help get more deals signed faster

Construction and operational risks, rightly allocated to the private sector under PPP/PFI concessions, are a sizeable slice of a projects total risks
Taking account of and pricing all genuine risks at the outset is essential to allow flexibility through the life of the contract

Favorable PPP/PFI project characteristics

Output/service-delivery driven Substantial operating content within the project Significant scope for additional/alternative uses of the asset Scope for innovation in design Long contract term available Committed public sector management Political sensitivities manageable Risks primarily commercial in nature

Substantial deals (though mega-projects have their own difficulties)

Complete or stand-alone operations to allow maximum synergies

Source:

Confederation of British Industry (CBI) Policy Brief

31

SECTION 5

Implementing PPP in Florida

Implementation of PPPs in Florida

Florida has had statutory authority to enter into PPPs at the state and local level since 2002. Under Floridas Home Rule1, cities and counties have jurisdiction over implementing their own PPP projects
Alligator Alley Alligator Alley was constructed as a two-lane, controlled access, 78-mile toll facility The Florida Department of Transportation (FDOT) sought a private sector party that would lease, maintain, operate, and collect tolls for the project in early 2009. However FDOT was unable to secure a private sector partner largely due to the global recession FDOT may re-tender the project as a PPP, and an RFQ is expected to be issued in early 2010 Port of Miami Tunnel Florida High Speed Rail The construction of Florida's High Speed Rail will start in the Tampa-Orlando-Miami corridor, with eventual state-wide service Part of the project may be procured via the PPP process An RFQ for the process is expected to be issued in early 2010

I-595
The I-595 PPP project consists of the reconstruction and widening of I-595 mainline and adjacent roads The private sector partner will finance, design and build additional lanes to the I-595 corridor by 2014, and operate and maintain the facility for an additional 30 years FDOT will set and retain tolls for the facility and in exchange shall provide the private operator with a milestone payment upon construction completion and an annual fixed payments for its services throughout the operation period (Availability Payment)
1 Florida Constitution Article VIII, Section 2(b)

The Port of Miami Tunnel PPP project consists of developing the tunnel itself as well as road improvements between the Seaport, I-395 and I95
The private sector partner will finance, design and build the Port of Miami Tunnel project by 2014, and operate and maintain the facility for an additional 30 years FDOT will set and retain tolls for the facility and in exchange shall provide the private operator with a milestone payment upon construction completion and an Availability Payment for its services throughout the operation period
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Considerations Regarding PPP Candidates in Florida

Asset Florida has viable PPP candidates that could deliver meaningful value to the State and its constituents
Roads Toll-road assets attract considerable investor interest PPP projects have been undertaken by Florida Dept. of Transportation (FDOT) recently $1.8bn I-595 Corridor Improvement Project $889mm Port of Miami Tunnel Project on-going long-term concession lease process for the Alligator Alley Forthcoming PPP projects announced include the following: upcoming PPP projects being contemplated by the Miami-Dade county upcoming PPP projects being contemplated by the FDOT Jacksonville Outer Beltway concession lease Ports Florida is an important maritime destination in the US approximately 1,190 miles of coastline, representing ~10% of total US coastline Florida needs to invest around $3.5bn in ports assets through 2012 State has budgeted for only $2.2bn to be spent on these assets for the period Two major port authorities have already announced PPP plans for future expansion strategies

PPP Feasibility

In 2008, Jacksonville Port Authority (JAXPORT) Port Manatee Other assets that might be viable PPP projects include Jacksonville Port, future expansions at Port of Miami, Port of Tampa, and Port Everglades

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Considerations Regarding PPP Candidates in Florida

Asset
Airports Airport PPPs have started to gain momentum in the US In September 1997, Congress established the Airport Privatization Pilot Program (Program)

PPP Feasibility

Program allows for four regional airports and one major hub airport to be privatized all airport PPP procurements require consent of 65% of the carriers at the airport airport assets at Miami, Fort Lauderdale, Tampa, Jacksonville and Orlando would generate tremendous interest among potential investors assets include long-term leases for cargo facilities, parking, car rentals, and other non-aviation related businesses

Investment opportunities outside of the current Program could also be potentially viable

Orlando Sanford International already has a long-term concession in place with a private operator - Abertis - for managing some terminals and car-park facilities Water Management

Population growth is straining Floridas vital water resources

States water infrastructure investment needs are estimated to be $15bn by 20221 Floridas water systems industry is highly fragmented1 Public-sector water assets could qualify for potential PPP programs

private sector partnership can be secured in areas such as water treatment, water distribution, water conservation

In addition, the State can also consider private sector partnership in the following fields: exploring alternative sources of clean water
Notes: 1. Source: American Society of Civil Engineers 2008 report card on infrastructure in Florida 2. Serving 5,000 people or more
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waste-water recycling and treatment

Considerations Regarding PPP Candidates in Florida

Asset
Parking Many municipalities across the US are currently exploring PPPs for their parking assets Floridas cities already have experience with PPPs

PPP Feasibility

the Miami Parking Authority is working with private companies to meet projected parking needs throughout the City of Miami

New parking technology has made equipment upgrades more desirable as it helps to relieve congestion, provides aesthetic improvements and offers users more efficient parking options by mobilizing private capital, Floridas cities can bring implement new technology faster and more effectively new parking options will need to be made available to accommodate the growing population Other Assets Other State-owned assets that are emerging as viable targets for PPPs include: urban infrastructure waste management and recycling facilities social infrastructure assets hospitals and healthcare facilities educational institutes and student accommodations (e.g. Florida A&M University) military housing prisons and courthouses

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SECTION 6

Case Studies

Port of Miami Tunnel

Transaction Overview Asset Overview

The PPP Project for the development of Port of Miami Tunnel was awarded to the Miami Access Tunnel (MAT) consortium in March 2007 The $903mm project is being financed through term loans, credit facilities and TIFIA loans with a debt to equity ratio of 81:19 The concession will last for 35 years

35-year DBFOM project includes the development of the Port of Miami Tunnel as well as road improvements between the Seaport, I-395 and I-95 in Miami The project will widen the MacArthur Causeway Bridge and construct a tunnel to provide a direct highway connection to the Port of Miami on Dodge Island from Watson Island The payment structure comprises of: Milestone payments during and at the end of construction Availability payments that start at completion of construction and escalate annually for 30 years The project is expected to commence operations in 2014 Currently, no tolling is anticipated for the use of the tunnels
Project Map

About the Consortium

The Miami Access Tunnel consortium consists of Meridiam Infrastructure and Bouygues Meridiam Infrastructure is financing 90% of the equity contribution while the balance is provided by Bouygues Bouygues construction arm has been subcontracted by the consortium to construct the tunnel for $659mm Transfield has been subcontracted to provide operation and maintenance (O&M) services to the Port of Miami Tunnel project for $260mm
Source: P3Americas, Factiva, Infrastructure Journal

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Florida I-595
Timeline Concession Details Project consists of the reconstruction and widening of I-595 mainline and adjacent roads

Florida I-595 is the first availability paymentbased PPP project in the US

In October 2007, the Florida Department of Transport (FDOT) released a Request for Qualifications (RFQ) for the I-595 Corridor Roadway Improvements DBFOM project By December 2007, FDOT short-listed four consortia: Babcock and Brown-led group ACS Dragados-Macquarie Partnership OHL and Goldman Sachs-led group Skanska and Fluor-led group In February 2008, Skanska and Fluor-led group withdrew due to uncertainties about the risk profile of the proposed concession agreement In June 2008, FDOT allegedly reduced milestone payments for the project by a few hundred million dollars however, interest from remaining bidders continued to remain strong

corridor has been divided and prioritized into 18 independent project segments

Preferred Bidder will: finance, design and build additions to I-595 corridor by 2014 operate and maintain it for an additional 30 years Preferred bidder will receive: lump-sum payment of $685 million once construction is completed availability payments of $64 million / year for the life of the concession Key Highlights Project is the first availability payment-based PPP in the US FDOT will set and retain tolls, effectively taking on the toll risk Transaction reached financial close in extremely turbulent market conditions

FDOT received final proposals in September 2008 from two of the three consortia OHL and Goldman Sachs-led group declined to bid on concerns over the performance security bonds
In October 2008, the ACS DragadosMacquarie Partnership was named the Preferred Bidder to undertake the project

Strong interest in the deal reinforces Florida's status as an active PPP market, with many sponsors and developers touting the State as their focus for PPPs

Source: P3 Americas

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Chicago Downtown Parking Garages

The deal marks the first privatization of a municipal parking system in the US
Project Description Financing Overview

Morgan Stanley Investment Management and LAZ Parking won the concession in 2006 Entered into a 99-year lease with the City to operate the Parking System and collect parking, advertising and retail concession revenue The concessionaire must carry out certain improvements, particularly the rehabilitation of the East Monroe Street garage within five years. The Citys estimate of the cost is US$65m The parking system, located under the Grant and Millennium Parks in downtown Chicago, is the largest downtown underground public parking system in the US and believed to be the largest underground parking system in the world Grant Park North Garage: three-level facility with two underground levels providing parking for 1,850 cars with 830,000 sq ft of garage space The garages had an income of US$16m in 2005, which equates to an earnings multiple of 35x based on the bid price of US$563mm Equates to an earnings multiple 39x based on the bid price plus US$65mm needed to rehabilitate the East Monroe Street garage

The syndication for the deal was carried on during April 07 and the following debt facilities were arranged: US$402mm facility, with Socit Gnrale as the facility agent DEPFA Bank and MCC each underwrote US$100mm of the credit facility, which comprises a US$350mm term loan and US$52m capex tranche

The debt was arranged as a 10-year facility which is fully expected to be refinanced in years three or four
Timeline

In May 2006, the City of Chicago kicked off the tender process for the concession and lease of the Chicago Downtown Public Parking System In May 2006 RFQs were released by the City In October 2006, the City received bids from four groups and named Morgan Stanley / LAZ Parking as the preferred bidder In November 2006, the Chicago City Council approved the concession and lease In December 2006, the deal reached financial close and made the upfront payment of US$563m to the City

The lease enabled the City to defease the bonds associated with the garages
Source:

Infra-News, P3Americas, Factiva, Analysis of long term leasing of Chicago Parking Meters System by the City of Chicago and University of Illinois

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Chicago Parking Meters

This one of a kind deal follows as a continuation of the Citys strategy to balance its budget
Project Description Key provisions in Concession Agreement

Chicago Parking Meters LLC, led by Morgan Stanley Infrastructure Partners, won the concession in 2008 The project comprises the operation, maintenance and right to collect revenues on 34,760 on-street metered parking spaces concession period is 75 years

Limits parking operation by other parties in downtown Chicago Morgan Stanley Infrastructure Partners has the rights to set all parking rates without restrictions from the Government Morgan Stanley Infrastructure Partners has opened many ancillary businesses such as car detailing, dry cleaning, and other services
Timeline

City of Chicago received a one-time payment of US$1.15bn

Chicago's metered parking system comprises: 106 pay and display machines 31,200 electronic and mechanized single-bay parking meters 1,420 electronic double-bay parking meters

In February 2008, the City of Chicago issued a request for qualifications (RFQ) In March 2008, ten groups submitted RFQs including Morgan Stanley, JPMorgan, Lehman Brothers, the Carlyle Group, and partnerships led by Macquarie Capital Group and Cintra In November 2008, the City received bids for the concession and lease In December 2008, the procuring authority awarded the lease to Chicago Parking Meters LLC (Morgan Stanley led consortium) The deal reached financial close in February 2009 and LAZ has assumed operation of the meters

These are capable of metering approximately 36,000 parking spaces on arterial streets and 1,215 spaces in 17 metered lots throughout the City
The system generated total operating revenue of US$22.9mm in 2007, with net income of US$18.9mm The Concession Agreement allows for increases in meter rates over the next five years

Due to the nature of the current credit environment, market sources were expecting the deal to be 100% equity financed
Source: Infra-News, P3Amerias, Factiva, Chicago Reader article (Apr-09)

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New York Coordinated Street Furniture Franchise

Project Description

In 2006, Cemusa (a subsidiary of FCC Group) was chosen as the concessionaire for New York City's Coordinated Street Furniture Franchise Under the terms of the 20-year contract, Cemusa will build and maintain 3,300 bus shelters, 330 newsstands, 20 automated public toilets 37 Sheltered Bike Parking Structures and provide $1.4 billion in new revenue to New York City Cemusa offered $924 million in guaranteed cash and nearly $400 million in free advertising In exchange for providing these facilities to the City, Cemusa is able to sell advertising space on these facilities and share in that revenue with the City
About Cemusa

Founded in 1984, Cemusa represents 111 cities and municipalities throughout Europe and the Americas, and is quickly gaining a presence within the U.S. with secured contracts in New York, Miami-Dade County, San Antonio and Boston Cemusa has designed, built, installed and maintained more than 100,000 urban furniture elements, which include bus shelters, clocks, public information panels, newsstands, automatic toilets, special trash containers and electronic panels

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APPENDIX A

Pending US PPP

Selected Pending US PPPs

Project Name Roads / Bridges First Coast Outer Beltway Goethals Bridge I-75/ I-575 Northwest Corridor Upgrade Presidio Parkway Puerto Rican Toll Roads Tappan Zee Bridge Parking Hartford Downtown Parking Indianapolis Airport Parking Las Vegas Parking Los Angeles Parking Garages New Jersey Transit Parking Pittsburgh Parking Social/ Other Long Beach Courthouse

State FL NY GA CA PR NY

Greenfield/ Brow nfield Greenfield Greenfield Brownfield Greenfield Brownfield Greenfield

Estiamted Value (US$ mil) 1,300-1,800 1,500 1,500 1,000 1,500 TBD

Project Name Airports Louis Armstrong - New Orleans Louis Munoz Marin - San Juan Rail ARTIC Denver FasTracks Eagle P3 Florida HSR Los Angeles Metro Transit Authority (LAMTA) Ports Philadelphia Southport Port of Galveston Port of New Orleans Water Big Chino Water Delivery Carlsbad Desalination Plant

State LA PR

Greenfield/ Brow nfield Brownfield Brownfield

Estiamted Value (US$ mil) TBD TBD

CA CO FL CA

Brownfield Greenfield Greenfield Greenfield

TBD 2,500 5,100 TBD

CT IN NV CA NJ PA

Brownfield Brownfield Brownfield Brownfield Brownfield Brownfield Brownfield

TBD TBD TBD TBD 200-300 TBD 300-500

Indianapolis Downtown Parking IN

PA TX LA

Greenfield Brownfield Brownfield

TBD TBD TBD

AZ CA

Greenfield Greenfield

TBD 300

CA

Greenfield

300

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APPENDIX B

Biographies

Team Biographies
STEPHEN PAINE Managing Director Global Head of Infrastructure Group +44(20)7568-5763 2 Finsbury Avenue London, UK EC2M2PP stephen.paine@ubs.com

Mr. Paine joined UBS in 1994 to work in the Project Finance team and moved to the Infrastructure Group in 1999. He serves as Global Head of the Infrastructure Group. In the road sector, Mr. Paine advised Road Management Group on its financing in the capital markets of two shadow toll road projects, which was the first bond financing of a PFI project in the UK. He also led the team advising Scutvias on its successful bid for and the financing of the 800 million Beira Interior road project in Portugal. In the rail sector he was project director of Network Rails successful 9 billion bid for Railtrack in 2002 and has subsequently advised them in relation to their 20 billion debt issuance program. He also advised London & Continental Railways on the raising of finance for Section 2 of the Channel Tunnel Rail Link. In 2004, he advised Tube Lines on its 2.1 billion refinancing. In air transport, he advised Serco on its bid for the stake in National Air Traffic Control in 2001 and led the teams advising on the Istanbul airport terminal financing and the New Scottish Air Traffic Control Centre. Mr. Paine has worked on more than 40 PPI transactions. Mr. Paine has an M.A. in Law from Cambridge University and an M.B.A. from Insead. He is a qualified solicitor. THOMAS R. OSBORNE Managing Director Head of Americas Infrastructure Group (212)-821-2343 299 Park Avenue New York, NY 10171 tom.osborne@ubs.com

Mr. Osborne has 23 years experience as an infrastructure investment banker. He is Head of the Americas Infrastructure/ Privatization Group and has worked on transactions with a total value exceeding $50 billion. Mr. Osborne has extensive experience in U.S. equity and fixed income capital markets and in structuring and advising on major M&A and strategic advisory transactions in the infrastructure (roads and ports) and utility & power sectors. His career experience includes 9 years in the Utilities Group at PaineWebber Incorporated, where he ultimately held the title of First Vice President, and 5 years as a Director in the Power and Energy Group at Credit Suisse First Boston. He joined UBS Investment Bank in 2001 as a Managing Director in the Power and Utilities Group, and was named Co-Head of the Infrastructure Group in July 2006, abd Americas Head of that group in 2008. He holds Series 7, 63 and 24 registrations, and a BA with honors from University of Virginia, Phi Beta Kappa.

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Team Biographies
ALEX GREENBAUM Associate Director Americas Infrastructure Group (212)-821-6395 299 Park Avenue New York, NY 10171 Alexander.Greenbaum@ubs.com

Alex Greenbaum joined UBS in 2005 and has covered municipal infrastructure and public-private partnerships since that time. He advises both public and private sector clients on a variety of infrastructure assignments, including the structuring and financing of public-private partnerships, and the acquisition, sale and financing of public and private infrastructure related companies. Mr. Greenbaum has worked with clients such as the Commonwealth of Puerto Rico, State of Illinois, and was a member of the State of New Jersey's Infrastructure Finance Study team. Previous to his tenure at UBS, Mr. Greenbaum worked in the US Supreme Court and US Congress. He holds a BA with honors from Harvard University.

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