Optimizing financial structure of transportation public-private partnership infrastructure projects based on traffic revenue risks: Case study of US DBFOM project

Infrastructure developments via public-private partnership has been used to remedy the lack of available government infrastructure funding by increasing the efficiency of project delivery. Private sector participation and investment are crucial to address the insufficiencies and fill the financial gaps left by the lack of government funds. However, private investors seldom participate in infrastructure investment projects because of a history of project failures due to unrealistic financial structures and infeasible traffic revenue forecasts. Therefore, this research project investigated traffic revenue risks and financial structures with the objective of developing a robust cash flow model with a steady revenue-generating structure for transportation infrastructure projects to attract additional private investors to the capital infrastructure investment projects. The developed baseline cash flow model that follows from the private activity bond (PAB) transcripts did not meet the repayment schedule and criteria due to insufficient traffic revenues and overestimated debt amounts. To solve these problems, an optimization model that included the four major financial sources -public funds, PABs, Transportation Infrastructure Finance and Innovation Act (TIFIA), and equity-was applied. Non-linear multi-objective optimization methods were applied with the goal of maximizing the internal rate of return (IRR) for equity investors and satisfying the repayment criteria for lenders. A toll price rate of increase of 2. 5% was assumed in the baseline model, and a sensitivity analysis was conducted on the toll price because this factor directly impacts the entire cash flow. This research concluded that optimized financial structures require an average of 7. 15% greater equity contribution than the baseline projection to satisfy both lenders and investors. However, the optimized IRR decreased by approximately 0. 3967% compared with the baseline model. Additionally, an average minimum increase of 2. 25% in the toll price was required to avoid project defaults. Furthermore, the TIFIA sensitivity results showed that maximum TIFIA participation is recommended together with a 2. 50% rate of increase in the toll price due to lower interest rates and flexible repayment schedules. Finally, additional equity contributions enable a stable financial structure but will result in a lower return. Thus, the debt and equity tradeoff should be optimized for proper infrastructure investment.