Trey Cash

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Trey Cash Senior Vice President
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Asset Identification Valuation Process in
General

• Identify assets
• What is being sold
• Greenfield
• Brownfield
• What is not being sold i.e.
• Liabilities
• Residual cash flows after meeting financial
  performance tests
• Value of restrictive covenants
• Methods to value assets
• Discounted Cash Flow
• Comparable Sales transaction
• Replacement cost
• Develop assumptions and benchmarks

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Identifying Assets

• Revenue-producing assets
• Asset must be well defined and easy to isolate
  (i.e.)
• Complete system
• Specific alignment
• Sufficient size to cover transaction costs
• Useful life commensurate with structure of
  transaction
• Asset condition
• Ability to define operating standards
• Strategic impact of removing control over the
  asset from the governmental owner

4
Defining what is being sold

• Non-financial requirements need to be considered
  when modeling cash flows or developing
  peer-comparable transactions
• Time horizon
• Asset performance (historic and expected)
• Pricing limitations (i.e. maximum allowable
  annual growth of the toll or service charge)
• Impact on other governmental functions
• Risk aversion
• Asset control spectrum (impact of retained
  control on value to third party)
• Human resources
• Identification of responsibilities
• Exit strategy (value to have options to regain
  control)

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Develop financial model

• Identifying financial considerations in selecting
  alternatives
• Benchmarking assumptions to other comparable
  sales for which information is available
• Debt capacity analysis (public or private entity)
• Revenue and expense modeling
• Defining and comparing weighted average costs of
  capital under alternatives
• Physical condition of asset
• Limitations imposed by existing financial
  arrangements
• Ratings impacts

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Analyzing Traffic Forecast (Main Driver to
Valuation)

• Compare assumptions within forecast to actual
  results being experienced within the region
• Compare assumptions with other rated or enhanced
  transactions
• Identify key value drivers and limitations to
  growth
• Consider risk analysis of traffic forecast
• A study to determine the probability of a
  forecast achieving its forecasted outcomes both
  in terms of revenue and expenses
• This is usually done with a peer review by a
  traffic consultant that provides a range of
  possible outcomes

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Asset Sales and Long Dated Concessions

• Identify financial and market considerations
  related to potential sale or concession of an
  asset
• Asset definition
• Economic value
• Potential acquirers
• Ability to raise capital
• Access to credit capacity
• Value to potential acquirer(s)
• Financial versus strategic investment
• Potential ancillary benefits such as depreciation
  
• Acquisition financial risk profile and impact to
  seller
• Payment conditions and items that diminish value

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Potential mitigating factors that affect value

• Structure sale versus concession (length of
  concession)
• Ability to enjoy tax ownership
• Ability to avoid local taxes such as sales and ad
  valorem taxes
• Condition of asset condition upon return of asset
  at end of concession
• Limitations on revenue growth
• Cap on potential tolls increase
• Limitation on diversion of cars
• Ability to impose financial penalties if the
  asset is not available for public use

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Potential mitigating factors that affect value

• Greenfield Projects
• Alignment issues related to physical placement of
  facility
• Right of way acquisition risk
• Environmental and Regulatory approval process
• Brownfield Projects
• Restrictions on the use of proceeds from a state
  and federal level
• Required third party approvals
• Cost to release asset to be transferred
  (defeasance of existing debt)

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Global Investor Market Survey of Potential
Participants

• European Investors
• Abertis (Spain)
• Autostrade (Italy)
• Balfour Beatty (UK)
• Bilfinger Berger (Germany)
• Bouygues (France)
• Brisa (Portugal)
• Cintra (Spain)
• Vinci (Spain)

• Australian/Asian Investors
• AMP Capital (Aus)
• Access Economics (Aus)
• ANZ Infrastructure (Aus)
• Babcock Brown (Aus)
• Challenger Financial Services (Aus)
• Cheung Kong Infrastructure (Hong Kong)
• Colonial First Infrastructure (Aus)
• Hastings Funds Management (Aus)
• Industry Funds Management (Aus)
• Macquarie Infrastructure Group (Aus)
• Transfield Services
• Transurban

• North American Investors
• AIG (US)
• bcIMC (Canada)
• Borealis Infrastructure (Canada)
• CalPers (US)
• Caryle (US)
• CDP Capital (Canada)
• CPP Investments (Canada)
• Fortress (US)
• Kilmer van Nostrand (Canada)
• Ontario Teachers Pension Plan (Canada)
• OP Trust (Canada)

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First Southwest Companys Role

• Provide the resources and experience to assist
  governmental entities throughout all phases of an
  assets financial life cycle, including helping
  to
• Define the financial alternatives
• Develop and execute a rigorous process to compare
  the alternatives
• Develop and execute a desired path