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NEW JERSEY: P3 Possibilities

2006-11-20

By Michelle Kaske, Bond Buyer

The state's Treasury Department Thursday released the first phase of UBS Securities LLC's report on the state's asset evaluation program that will be used to prepare the state for any public-private partnership agreements.

The study does not place price tags on some of New Jersey's larger assets, but does detail entities that UBS deems as very attractive candidates for a P3 transaction with the New Jersey Turnpike, the Garden State Parkway, the state lottery, and the Atlantic City Expressway as the strongest contenders due to potential market demand and readiness of the assets to enter the marketplace.

Marketable characteristics of the Turnpike and the Parkway include long operating histories, a diverse traffic base that offers critical links to the nation's highway system, and a current demand for toll-related assets, according to the report. The Expressway also offers a solid operating history, although updated traffic, revenue, and engineering studies are needed before the asset can access the market. The state lottery's economic strengths are strong cash flows and no existing debt along with its status as a stand-alone entity.

The report also describes the three different methodologies that investors commonly use for assessing values on government properties, including discounted cash flow analysis, internal-rate-of-return analysis, and multiples analysis.

'Among these three methods, depending on the terms, a trade sale would typically be expected to garner the highest range of estimated values, followed by a lease agreement, and an [initial public offering], respectively,' according to the report.

According to the UBS report, domestic and international investment demand for U.S. public infrastructure is very strong due to the low-risk characteristics of infrastructure assets, investor interest in equity securities that pay dividends, the relative decline in available structures oversees because most attractive infrastructure assets have already been privatized, and an increase of U.S., European, Australian, and Canadian pension funds looking for assets that garner reliable and recurring cash revenues over a long period of time.