Response to Mercator Report Widen I-77 July 20, 2017

Agenda SC vs NC Overview County Overview Project Overview Report Response Q&A

SC Investments Billions invested in non-tolled infrastructure Tolls & Congestion GSP Expansion $115M I26 Widening ~20 Miles $300M I26 Widening (Proposed) ~6 Miles $480M “Carolina Crossroads” 14 miles 19 bridges 12 interchanges 134K AADT $1.3B Charleston Harbor Deepening (52’) $525M I26 Widening ~21 Miles Port Access Road Source: SCDOT Billions invested in non-tolled infrastructure

Truck Traffic in NC I-77: A vital economic artery Source: John Locke Foundation; WI77 analysis I-77: A vital economic artery

SC vs NC on Infrastructure “Several modes of transit were considered in developing the preliminary alternatives. While mass transit provides some relief to traffic, it does not solve the issues today as a standalone solution.” “We’re in a period that’s going to last for a while (with more toll roads) while we’re seeking transformational funding changes.” --NCDOT Chair Source: State DOT Chief Questions Toll Critics’ Goals, CBJ, June 9, 2015; SCDOT

NC Investments The “managed lanes strategy for the region” Source: CRRA & REBIC Presentation, Jan 14, 2016 Ned Curran, Warren Cooksey, Jean Leier; Fast Lanes Phase II Report, July 2009 The “managed lanes strategy for the region”

NC vs SC County Comparison HOT Lane 4 Lanes Tax Comparison 6 Lanes 8 Lanes 6 Lanes 6 Lanes 8 Lanes Basically tax neutral, but infrastructure disadvantaged

SH 130 Bankruptcy Settlement Original Capital Structure ($M) Outstanding Debt($M) $1.3B $1.5B ? ? ? Source: SH 130 Second Amended Plan of Reorganization, May 2017 What happens to the creditors?

Three Questions What happens to the senior debt? What happens to the taxpayer money? What happens to the equity?

SH 130 Settlement Outstanding Debt($M) $1.5B Buyout price: Question #1: Senior Debt Holders get ~$0.17 -0.35 on the dollar $260M What happens to the taxpayer?

NCDOT Position on Bankruptcy “Look, (bankruptcy) is a toxic word.  But it’s overblown.” NC Secretary of Transportation Mar 4, 2016 (WSOC) “We (North Carolina) would essentially be getting the project for pennies on the dollar.” NCDOT Director of Transportation Program Management LKN Citizen, May 30, 2013 Bankruptcy could be a favorable development…

SH130 Bankruptcy Lawyer "One of the criticisms that you hear periodically about public-private partnerships is that they somehow put the public at risk of having to cover private sector obligations.” "The fact is, if the agreements are structured correctly — and this is an example of one that was — then that risk to the public sector doesn't really exist."  Source: Texas Tribune, June 28th, 2017 But is the public no longer at risk?

SH 130 Bankruptcy Sold to Strategic Value Partners Cintra wipes $1.4B debt off balance sheet Private Tolls until 2062 TIFIA Lien not discharged A reasonable conclusion…

? X SH 130 Settlement Question #3: Equity holders get ???? Question #2: Taxpayers lose $400M Question #1: Senior Debt Holders get ~$0.17- 0.35 on the dollar $$ What happens private equity?

SH 130 Legal Structure ~40 separate legal entities to build a road Source: “The End of the Road”, San Antonio Express News, Sept 16, 2016 ~40 separate legal entities to build a road

Equity Recovery “To extend its existence, Transurban must buy or build new roads, requiring ongoing equity issues or increased financial leverage, given that the firm currently pays out all free cash flow as distributions to investors.” Source: “Transurban’s high quality core motorways attract, but new project introduce forecasting risk”, Morningstar, Nov 26, 2015

Equity is paid back first… Source: DBRS Credit Rating Agency Confirms “Equity Out First” Strategy

…and invested last 32% Complete; $1.1M Invested… Source: Ferrovial Q1 2017 Financial Report 32% Complete; $1.1M Invested…

I-77 Legal Structure Ferrovial International (?) Ferrovial Holding US Corp Cintra Holding US Corp Cintra I77 Mobility Partners, LLC I-77 Mobility Partners Holding, LLC Source: Ferrovial 2016 Annual Report I-77 Mobility Partners, LLC A 50 year contract with a shell corporation

SH 130 Lessons Learned Bankruptcy used as a financial strategy May not be the end of private tolling Taxpayer shoulders material portion of the loss In addition to NCDOT credit support Equity recovery is deliberately opaque Similar structure in place for I77

Conclusions I-77 tolls hamper NC’s competitivess vs SC Bankruptcy may not solve our problem

Mercator Report Reasons for Concern Reasons for Optimism Qualitative Assessment of Options Next Steps

Concern #1 Mercator misunderstands the scope of the solution WI77 has been explaining the difference for four years… Memo #1: We don’t need tunnels in Charlotte to move traffic through LKN

Concern #2 Mercator doesn’t understand the financial playbook Longest project in operation <5 years “Public confuses toll roads with toll lane projects”

Concern #2 (con’t) I-495 80 year term 8-10 lanes $230 million loss through 2014 Revenues increasing Source: “I-495 Express Lanes Endure Big Losses Early on Way to Potential Profit”, WAMU, Feb 20, 2015; TIFIA

Memo #2: I-77 is just another page out of the same playbook Concern #2 (con’t) I77 (toll lane) vs SH 130 (toll road) The same law firm wrote the same type of contracts for the same type of projects for the same company and Similar capital structure Similar loan deferral terms The same company booked a $46M gain on an earlier default The same company has sold 49.9% their interest in I77 a month into construction… Memo #2: I-77 is just another page out of the same playbook

We were never given a choice Optimism #1 We were never given a choice

Optimism #2 “The NCDOT can cancel the contract at any time if the Transportation Secretary determines it is in the public interest.” Finally

Optimism #3 Dec 2015 July 2017 Penalty: $300M Buyout: $289M Construction work: $0 July 2017 Buyout: $289M Construction work: $289M A buyout, not a penalty

Qualitative Assessment

Next Step

Thank You WidenI77 PO Box 792 Cornelius, NC 28031 wideni77@hotmail Thank You WidenI77 PO Box 792 Cornelius, NC 28031 wideni77@hotmail.com wideni77.org

Appendix

Source: NCDOT I-77 Express Lanes Response

CA

“Cintra has a track record of success on a global basis “Cintra has a track record of success on a global basis. They’re one of the largest providers of this type of infrastructure in the world. There are managed-lane projects in Texas that are successful.” NCDOT Chairman Ned Curran WBTV, March 4, 2016

Source: I77 Managed Lanes Update, Sept 9, 2014