Given that the deal was announced in the midst of a meltdown in capital and equity markets, Transurban's share price held up well. It closed 7c higher yesterday at $6.77.
Outgoing chief executive Kim Edwards said: "We see this deal as having the same impact as CityLink, which we put together 13 years ago.
"When we did CityLink it was the world's first fully electronic high-speed toll road, with only one of two in the world, it launched Transurban as an international toll road leader. From that we launched the business.
"I see this has having the same analogy because it is the largest greenfield HOT lane. The technology will be pioneering and it will set us up enormously."
Mr Edwards said US cities were increasingly turning to privately financed HOT lanes as the solution to urban congestion.
The project will be funded through debt and equity. It will be held in Transurban's US based co-investment vehicle, DRIVe. Transurban and its DRIVe co-investors will inject $US315 million in equity, drawn down over five years (including $US88 million at financial close). This accounts for 90 per cent of the equity in the project.
Fluor Corporation will hold 10 per cent of the equity. All up, Transurban will inject $263 million in equity over five years, which will be funded through its distribution reinvestment plan.
Given that Transurban has only sold 25 per cent of the equity in DRIVe to one external investor, financial close on this deal is an important step for the viability of the US investment vehicle.
Under the agreement, Transurban and Fluor will build two additional lanes in each direction on a 22.5km section of the road. The lanes will be up and running in the first quarter of 2013, when Transurban will operate the HOT lanes for 75 years.
Transurban is forecasting an internal rate of return of 13 per cent. Transurban will be reimbursed $US12 million in development costs, earn a base management fee of 1 per cent of net asset value and an additional $US14 million fee at financial close from DRIVe.
There are few examples of HOT projects, but the market generally considers them riskier than a standard toll road project which has fixed tolls and not adjacent free lanes.
HOT lanes operate alongside regular highway lanes. They deliver free-flowing traffic conditions by using toll prices to manage the flow of traffic choosing to use the lanes. When there is not much traffic, toll prices are low. When congestion increases, toll prices go up to regulate the number of drivers wanting to enter the lanes. In this case, the peak will be $US5 to $US6 and off peak, US5c to US10c.
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source: news.com
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