The Financial Engineering of Infrastructure Privatization

Leasing government infrastructure to private investors has been proposed as a practical way to increase both public revenue and investment in aging facilities, yet questions remain regarding lease value. In particular, some recent private auction bids surpassed government's lease estimates for U.S. roads and parking systems by hundreds of millions of dollars. The authors argue such discrepancies are largely explained by the use of structured finance or financial engineering techniques; these lower capital costs and maximize quick investor payouts, yet are often ignored in lease agreements because governments do not understand them. The approach models the separate effect of several deal parameters on the investment return of a hypothetical tolled facility. The authors find even modest financial engineering (such as interest rate derivatives and swaps, deferred payment sweeps, or mark-to-market accounting practices) increases the current value of future facility revenues far more than changes in lease length, tolls, or operating costs. The public sector undercharges for its infrastructure when it ignores how private investors package and assess future revenue. When leasing public facilities, governments would be smart to better understand potential investors' capital structure and financial engineering strategies. Doing so avoids leaving money on the table; it also reduces the risks of future underperforming assets.

• Record URL:
  https://doi.org/10.1080/01944363.2012.715540
• Availability:
  • Find a library where document is available. Order URL: http://worldcat.org/oclc/4626214
• Supplemental Notes:
  • Abstract reprinted with permission from Taylor and Francis
• Authors:
  • Ashton, Philip
  • Doussard, Marc
  • Weber, Rachel
• Publication Date: 2012

Language

• English

Media Info

• Media Type: Print
• Features: Figures; References; Tables;
• Pagination: pp. 300-312
• Serial:
  • Journal of the American Planning Association
  • Volume: 78
  • Issue Number: 3
  • Publisher: American Planning Association
  • ISSN: 0194-4363
  • Serial URL: http://www.tandfonline.com/toc/rjpa20/current

Subject/Index Terms

• TRT Terms: Financing; Infrastructure; Investments; Leasing; Privatization; Toll roads
• Subject Areas: Administration and Management; Finance; Highways; I10: Economics and Administration;

Filing Info

• Accession Number: 01450040
• Record Type: Publication
• Files: TRIS
• Created Date: Oct 23 2012 9:12AM