Co-head of Pillsbury's Energy Industry team Rob James and project finance partner Philip Tendler recently published 2014 Project Finance - United States. In it, they discuss collateral, how security interests are perfected and prioritized, liens, and enforcement of collateral. In addition, they touch on bankruptcy, foreign exchange, remittances, repatriation, offshore and foreign currency accounts, foreign investment and ownership restrictions, insurance, and natural resources. They conclude with a section on financing of recent public-private partnership (PPP) transactions in the United States.
Reproduced with permission from Law Business Research Ltd. This article was first published in Getting the Deal Through - Project Finance 2014 (published in August 2013; contributing editor Phillip Fletcher, Milbank, Tweed, Hadley & McCloy LLP).
We previously reported that, in August, Maryland announced plans to utilize a public-private partnership ("P3") to build and operate its $2.2 billion light rail project known as the Purple Line, which will run between Montgomery and Prince George's Counties. This past Tuesday marked the deadline for companies competing to be the project's private partner to respond to a Request for Qualifications to design, build, finance, operate, and maintain the Purple Line project.
According to the Maryland Department of Transportation ("MDOT"), six groups comprised of local, national, and worldwide private companies made submissions. Those groups are: (1) M-PG Connect LLC (Plenary Group USA Ltd. and Bechtel Development Company Inc.); (2) Maryland Purple Line Partners (VINCI Concessions, Walsh Investors, InfraRed Capital Partners, ALSTOM Transport, and Keolis S.A.); (3) Maryland Transit Connectors (John Laing Investments Limited, Kiewit Development Company, and Edgemoor Infrastructure & Real Estate LLC); (4) Purple Line Development Partners (CSCEC and United Labor Life Insurance Company, Inc.); (5) Purple Line Transit Partners (Meridiam Infrastructure Purple Line, LLC, Fluor Enterprises, Inc., and Star America Fund GP LLC); and (6) Purple Plus Alliance LLC Proposer (Macquarie Capital Group and Skanska Infrastructure Development Inc.).
In January, MDOT plans to select no more than four of these groups to submit a detailed proposal for the Purple Line project by next fall. MDOT will then choose the winning proposal by early 2015. The private partner is expected to contribute between $400-900 million, and additional funding for the project will come from the federal government. If that federal funding is obtained, MDOT predicts that construction of the Purple Line will begin in the spring of 2015 with services planned to begin in 2020.
We have previously reported on Maryland's efforts to modernize its public-private partnership ("P3") law. Our own Jeff Gans has had considerable involvement with the new legislation, and, at the request of the Lt. Governor's office, has testified before Maryland Senate and House committees considering the P3 legislation. The new law is about to be put to good use.
Last month, Maryland Governor Martin O' Malley announced plans to utilize a P3 to build and operate a $2.2 billion public transportation project. The project is a light rail line - the "Purple Line" - which will run from Bethesda in Montgomery County to New Carrollton in Prince George's County and tie into the existing Metrorail, MARC, and Amtrak train lines as well as bus routes.
Maryland will provide $400 million for construction of the 16-mile, 21-stop route, plus $280 million for right-of-way acquisition and finalizing design. The private partner is expected to contribute between $400-900 million, and additional funding for the project will come from the federal government.
The Milwaukee Public Museum's 8-story tower's marble façade facing West Wells Street is being replaced with 234 solar panels. It was reported that, over the past 50 years, the Museum's heavy marble façade on the south wall facing West Wells Street has weathered and become less stable. Milwaukee County, which owns the building, reportedly elected to use solar panels as the replacement option because of the energy-generating potential of solar. The Museum's solar wall is expected to generate 77,533 KW hours of electricity per year, the equivalent of having 442, 60-W light bulbs on for 8 hours every day for an entire year. For now, the Museum will be the only building in Milwaukee with a full solar wall that is generating electricity.
It was reported that Milwaukee-based manufacturer Helios USA has been contracted to produce the Museum's solar panels. Construction is expected to last approximately 5 months, commencing Monday, July 29. The initial phase, which will involve removal of the existing marble façade, is expected to take 4 weeks.
Since the California Mechanic's Lien Law was established more than 100 years ago, it has been black-letter law that a contractor or materials supplier has no right to assert a mechanic's lien against public property. Thus, contractors and material suppliers (and even legal practitioners) have resigned themselves to the notion that the only available remedies on "public projects" are claims against payment bonds and the enforcement of stop notices. Within the last few years, however, the inflexible rule that "you cannot lien public property" has begun to change. In connection with the rise of construction projects arising from public-private collaboration, courts have begun to allow claimants to assert liens against private interests in publicly-owned property.
In the 2010 South Bay Expressway case, a bankruptcy court considered whether a general contractor that built a publicly-owned toll road could pursue a mechanic's lien against a private developer's leasehold interest in that public road. The California Department of Transportation had entered into a long-term lease with the developer, whereby the developer would construct the toll road and thereafter collect tolls and operate the public road. The court held that, as long as the lien claimant sought only to encumber and foreclose upon the developer's leasehold interest, the lien was valid.
This recent legal development offers new hope to contractors that are not paid on "public projects." In the wake of the South Bay Expressway decision, claimants are successfully recording and foreclosing upon mechanic's liens on a variety of projects built on public land. For example, we've seen liens successfully asserted against, among other interests, a concessionaire's leasehold interest in concession space at a public airport and a solar company's long-term rights to operate a solar facility and sell electrical power to a municipality. In many such cases, absent the ability to enforce their lien rights, the contractors would have had no ability to enforce their rights to payment.
The bottom-line is this: a contractor should no longer assume that it has no lien rights simply because its work was completed on public property.
On July 17, 2013, New York Governor Andrew M. Cuomo announced that the State University of New York's (SUNY) College of Nanoscale Science and Engineering (CNSE) will revitalize a vacant Kodak cleanroom building in Rochester, "transforming it into a first-of-its-kind CNSE Photovoltaic Manufacturing and Technology Development Facility (CNSE MDF) for crystalline silicon photovoltaics, part of a $100 million initiative that will attract solar energy jobs and companies to the Greater Rochester Area." This effort will also include the acquisition and relocation to the CNSE MDF of "the assets of Silicon Valley solar company SVTC as part of a $100M initiative that will create over 100 high-tech jobs and positions New York as the national leader in accelerating innovative solar technologies."
The project is expected to set "a precedent for further investment in this green industry in New York State" and to "attract additional investments from companies around the world and accelerate our development and use of solar energy," growing New York's clean energy economy. It is reportedly the "first initiative as part of the project will relocate a critical component of the U.S. Department of Energy's (DOE) SunShot initiative from California's Silicon Valley to Upstate New York, positioning New York as the recognized national leader in accelerating the development and use of solar energy nationwide."
Renovation of the former Kodak's MEMS inkjet facility is underway to transform the 57,000-square-foot building at 115 Canal Landing Boulevard in the Canal Ponds Business Park. The initiative will include the fitting up of a state-of-the-art, 20,000-square-foot cleanroom. The press release confirms that a late fall opening is anticipated.
As part of the CNSE MDF project, it was reported that "over $19 million in cutting-edge tools and equipment formerly utilized by SVTC, a Silicon Valley-based solar energy company, are being relocated to the CNSE MDF and will constitute the foundation of the manufacturing development line, a result of the acquisition of SVTC's assets by CNSE." It further confirmed that the U.S. Department of Energy "is providing nearly $11 million in cash funding to support procurement and installation of high-tech tools and equipment, with investment from private industry partners expected to exceed $65 million to support the development and operation of the CNSE MDF." In addition, it was reported that, "[t]o support the project, New York State will invest $4.8 million through the New York State Energy Research and Development Authority (NYSERDA)." New York's investment is to be directed entirely to CNSE with no private company to receive any state funds as part of the initiative.
This is to be the solar industry's first full-service collaborative facility dedicated to advancing crystalline silicon, or c-Si technologies. The CNSE MDF will provide a range of services and equipment, including complete manufacturing lines, access to individual tools, secure fab space for users' proprietary tools, and pilot production services in an intellectual property secure environment. It is expected that the CNSE MDF will attract solar industry companies to New York to access a state-of-the-art resource that will dramatically reduce the cost, time, and risk associated with transitioning innovative solar technologies from research to commercial manufacturing of crystalline silicon photovoltaics. It is also expected to play a critical role in the national effort to develop a strong photovoltaic (PV) manufacturing industry, and serve to accelerate the introduction and use of solar energy in homes and businesses across the country. Among other things, it is expected to enable education and training to support the expansion of the highly skilled workforce required by the U.S. PV manufacturing industry.
The establishment of the CNSE MDF for c-Si PV technology is also expected to complement and expand the capabilities and expertise of the national U.S. Photovoltaic Manufacturing Consortium (PVMC), headquartered at CNSE as part of the DOE's SunShot Initiative. The PVMC is reportedly leading the national effort to reduce the cost of installed solar energy systems from $5 per watt to less than $1 per watt over the next 10 years.
Governor Cuomo's announcement comes on the heels of his July 9, 2013 announcement that $54 Million will be awarded to fund 79 large-scale solar power projects across the State of New York, adding 64 MWs to the state's solar capacity.
UPDATE: The Huffington Post, California More Than Doubles Solar Energy In 2013 (Jan. 13, 2014): "California installed more megawatts of solar energy in 2013 than it did in the last 30 years combined, the California Solar Energy Industries Association reported ... 'Today, California is closing out the year with more than 2,000 MW of rooftop solar systems installed statewide,' CALSEIA executive director Bernadette Del Chiaro said."
On July 10, the California Public Utilities Commission (CPUC) issued its California Solar Initiative Annual Program Assessment on the progress of the California Solar Initiative (CSI). The Assessment reflects that the program has installed 66% of its total goal with another 19% reserved in pending projects. This is an estimated 1,629 MW of installed solar capacity at 167,878 customer sites in the investor-owned utility territories through the end of the first quarter of 2013. The CPUC estimates that this is enough to power approximately 150,000 homes and avoid building three power plants. To read the Assessment, click California Solar Initiative Annual Program Assessment.
In January 2007, California began an $3.3 billion ratepayer-funded effort to install 3,000 MW of new solar over the next decade and transform the market for solar energy by reducing the cost of solar generating equipment. The CPUC's portion of the solar effort is known as the CSI. The CPUC boasts that is the country's largest solar program and has a $2.2 billion budget and a goal of 1,940 MW of solar capacity by the end of 2016.
In early July, the Bureau of Land Management (BLM) announced the withdrawal of lands identified for solar energy development in the West from new mining claims that could impede development of solar energy sites. Public Land Order No. 7818 (PLO 7818) withdraws 303,900 acres of land within 17 Solar Energy Zones in Arizona, California, Colorado, Nevada, New Mexico, and Utah. You can read the PLO 7818 here.
At the 2013 North America Intersolar Conference in San Francisco, California Governor Jerry Brown, and many others spoke confidently about solar opportunities in California. "Just within the last two months we actually recorded over 2,000 MW of solar energy being put into the grid...," Governor Brown reported. He also confirmed his "goal of 1 million solar rooftops." He encourages a call to action, marshaling "intelligence and collaboration and political response..." You can hear Governor Brown's 2013 North America Intersolar Conference Keynote Address here.
Governor Brown launched California's first round of solar incentives in 1978, during his first two-term tenure as the Governor of the State of California. California now puts more than 2,000 gigawatt-hours (GWh) of solar power into its grid, and Governor Brown wants to see 1 million GWh by 2025, to meet the 33% Renewable Portfolio Standard (RPS), a regulation that requires the increased production of energy from renewable energy sources, such as wind, solar, biomass, and geothermal. The state now has 130,000 photovoltaics (PV) installations on homes and businesses, growing toward Governor Brown's stated goal of a million solar roofs.
In a previous post, we reported that the American Society of Civil Engineers ("ASCE") released its 2013 Report Card for America's Infrastructure. America's cumulative GPA for infrastructure was a D+. One of the categories in this report focused on ports, which received a C grade. Now a new report goes into more depth on one particular part of our infrastructure: Ports. The question, it seems, is: CapEx or Capsize. More, after the jump.
There is no doubt that Public-Private Partnerships will play an integral role in improving this country's infrastructure in the coming years. By leveraging private investment, P3s have the ability to bridge the funding gap in many state and local governments. States are slowly recognizing that they can tackle critical infrastructure needs by partnering with the private sector. Some states, however, are still hesitant to commit to P3s.
Pillsbury's P3 practice has created a chart that lists which states have enacted significant P3 enabling legislation. This P3 Enabling Statutes chart is available on Pillsbury's P3 practice homepage. The statutes include links to the full text of the enacted legislation so that you can learn more about how you can take advantage of these P3s. In addition to listing the agencies and types of projects authorized, the chart also lists whether the statutes encourage unsolicited proposals. To promote ingenuity and entrepreneurialism, P3 legislation should continue to welcome unsolicited proposals from the industry.
We will of course continue to update this chart as more states pass P3 enabling legislation.
One of John F. Kennedy's best quotes was noting that "Washington is a city of Southern efficiency and Northern charm." When it comes to Public Private Partnerships, things have turned around in the last 50 years. The South leads the way in P3's with Virginia, Florida and Texas being notable standouts. The conventional wisdom has been that strong unions in northern states would continue to fight against more private involvement in state infrastructure. But the pressures of constrained state budgets are proving too strong.
So, earlier this year we saw Maryland almost pass a new P3 statute (alright, Maryland is South of the Mason-Dixon Line, but it's still a blue state with heavy union activity). Then Pennsylvania actually passed a law, and now New Jersey has entered the fray with a new law targeting colleges.
We'll take a look at the new Pennsylvania and New Jersey laws, after the jump.
Maybe this is the ying to the yang of the American Society of Civil Engineers report that Paul Levin blogged about earlier this week. The Urban Land Institute and Ernst & Young just published Infrastructure 2012: Spotlight on Leadership, in which they detail how state and local governments have decided not to wait for funding from the federal government. It has become like Waiting for Godot (or perhaps Waiting for Guffman). In a Presidential election year the federal government is even more gridlocked than normal -- if you can believe that.
But that gridlock doesn't slow down the rate of decay of our infrastructure, so state and local governments are finding ways to get'r done. These range from old fashioned taxes and bonds to Public Private Partnerships. Of course, no one likes taxes and some object to public private partnerships as selling off our infrastructure. But remember, when a private company finances a road, they can't roll it up and take it home.
If you don't have time to read the 70 page report, you can see a condensed writeup about it here.
The American Society of Civil Engineers (ASCE) just released a report titled "Failure to Act, the Economic Impact of Current Investment Trends in Electricity Infrastructure" and no, the results are not pretty. According to the report, the gap between the amount actually spent on infrastructure across America and the amount that needs to be spent to maintain the system will reach $107 billion by 2020 and $732 billion by 2040. The Southeast and the Western portions of the country are particularly vulnerable to infrastructure underinvestment, making up approximately half of the country's infrastructure deficit. Furthermore, don't forget about the 2003 blackout across large sections of the East Coast, including New York City, that showed the grid's vulnerability. This report comes on the heels of ASCE giving the United States a grade of "D+" in the Energy category in 2009. D+ seems pretty generous.
The ASCE report predicts that disruption and inconsistent service resulting from faulty electricity infrastructure will lead to a reduction in U.S. GDP of almost $500 billion and half a million fewer jobs in America by 2020. The calculations implicit in this report are simple: if we can spend $100 billion to address this problem over the next decade, the country on the whole will be half a trillion dollars better off. It seems so simple.
However, the crunch of budget deficits at both the federal and state levels means that these profitable long-term investments lose out to short-term cost cutting. President Obama, however, has championed doubling overall infrastructure spending that would also help spur job growth and make up for years of underinvestment, but it is not enough.
Public-Private Partnerships will play an important role in bridging this funding gap by leveraging private investment over the long-term. The private sectors sees this $500 billion in potential savings and the United States needs to think creatively to spur further infrastructure development.
We reported last month that Maryland was on the verge of modernizing its statutory framework for P3s, legislation heavily backed by Governor O'Malley's administration. The proposed legislation was projected to increase the State's capital budget by as much as $315 million and create as many as 4,000 jobs.
Unfortunately for Maryland's infrastructure and residents, the bill fell victim to partisan fights over the State's budget and failed to pass before the General Assembly session ended at midnight on April 9th. Although there is a chance Governor Martin O'Malley could call a special session to work on the budget and other measures, the P3 legislation will most likely have to wait another year. It looks like Jeffrey Gans, a partner in Pillsbury's Construction practice and among those leading Pillsbury's P3 practice, will have to return to Maryland's legislature to testify once again on the importance of Maryland taking advantage of P3 opportunities.