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1. Public-Private Partnership Case study—
Chicago Skyway, Illinois
Elle Y. Wang
PhD student
School of Public Policy
George Mason University
June 18, 2013
For 2013 IPF Conference in Politenico di Milano

2. Outline
•PPP in the U.S.
•Financial Structure
•Review of Performance and Risks
•Lessons for Policy Makers
•Conclusion

3. Background
•Public-Private-Partnership (PPP) in the United States
–Challenges in galvanizing financial resources to revamp old
infrastructure projects
•High-profile project bankruptcies
•Federal and state budget crisis
–Learning from best practices of PPP in Europe and East-Asia
•American Recovery and Reinvestment Act (2009)

4. US Definition of PPP
•Public-private partnerships (P3s) are contractual agreements
formed between a public agency and a private sector entity that
allow for greater private sector participation in the delivery and
financing of transportation projects (US DOT-Federal Highway
Administration)
•Explorative Period
–25 States have PPP-Enabling Legislation
–Since 1998, the US Department of Transportation's TIFIA (Transportation
Infrastructure Finance and Innovation Act) has become a major source of
loans and loan guarantees for transportation PPPs throughout the country

5. US DOT-FHA

6. PPP quickly adopted in the U.S. infrastructure
industry, particularly in transportation sector
Figure 2: Public-Private Partnership Investment in the U.S. Transport Sector

7. Figure 1:
Source: Macquarie Infrastructure Group 2008 Annual Report
Map of Chicago Skyway, Chicago, Illinois, United States

8. Introduction
•The Skyway started operating in 1959, but significantly
unused during the next fifty years.
–Operated and Maintained by the City of Chicago Department of streets and
Sanitation under financial loss
–In 2002 and 2003, the Skyway enjoyed a record revenue from motorists tolls
–In 2004, the City of Chicago issued a Request for Qualifications (RFQ) for
long-term lease
–After international competition, Skyway Concession Company Holdings, LLC
(SCC) won the contract

9. Significance
•Only toll highway in IL not operated by Illinois Toll Highway
Authority
•First long-term lease of an existing public toll road in the U.S.
•The agreement between SCC and the City of Chicago was the
first privatization of an existing toll road anywhere in the U.S.

10. The PPP Partners
•The Public Sector: The City of Chicago Department of Streets
and Sanitation
•The Private Partner: Skyway Concession Company Holdings,
LLC
–SCC formed specifically for the purpose of leasing, O&M
–55% by Cintra Concesiones de Infraestructuras de Transporte, S.A.
–45% by Macquarie Infrastructure Group/Macquarie Infrastructure Partners
•On January 24, 2005, SCC paid $1.83 billion lump sum cash
payment to the City of Chicago

11. Financial Structure
•The original financial structure, backed by toll receipts, was
comprised of $458 million of Cintra equity, $397 million Macquarie
equity, and $948 million bank loans.
•The project went through subsequent refinancing immediately and
the new financial structure was the following:
Cintra/Macquarie equity--$510 million
Capital accretion bonds--$961 million (21-year
maturity; 5.6% interest rate)
Current interest bonds--$439 million (12-year maturity)
Subordinated bank debt--$150 million

12. Financial Structure Cont’d
•The original lenders include:
–Banco Bilbao Vizcaya Argentaria
–Santander Central Hispano of Spain
–Calyon of Chicago.
–Citigroup also joined as a lender in the refinancing process (Aug 2005)
•SCC finances are privately audited by Deloitte.

13. Financial Structure Cont’d
•In addition, the project also involved bonds in financing.
–Before PPP took place, the Skyway involved revenue bonds, and defaulted
hundreds of millions of bonds due to insufficient net revenues to cover bond
payments.
–After drastic measures to increase toll revenue, in 2000, Fitch ratings
upgraded the Skyway revenue bonds, series 1996 from “BBB” to “A-”.
–The bonds carry an insured ‘AAA’ rating, which recognizes Skyway’s promising
outlook and helps attract private partners to bid on Skyway Concession.

14. Financial Structure Cont’d
•Under concession terms, SCC issued Rule 144 A senior secured floating-rate bonds
totaling $1.4 billion in two series.
–Series A in $439 million due in 2017
–Series B in $961 million due in 2016
•The bonds were purchased by:
–Citigroup Global Markets, Inc.,
–Goldman Sachs & Co,
–Macquarie Securities (USA), Inc.,
•Ratings of the bonds:
–AAA by Standard&Poor’s Rating Service
–Aaa by Moody’s Investors Service

15. Partners’ PPP Experiences
•Overall, both the public and the private partners demonstrated high-level of
willingness and capability in implementing the PPP project.
–The Cintra-Macquarie consortium placed such a high bid that showed confidence in
the Skyway PPP project.
–The city government used the upfront leasing payment to invest into public services
and to offset residual debts
•After the Skyway PPP experience, the city of Chicago launched two other P3
projects, and the three P3 projects provided nearly $3.6 billion for Chicago
residents and taxpayers
–An underground parking system
–A metered parking system

16. Allocation of Private Investment
As promised, the Skyway deal proceeds were allocated as follows:
•$500 million for a long-term reserve fund (27 percent)
•$375 million for a mid-term annuity that will serve as a rainy day set-aside to smooth the
effects of economic cycles on the city’s fiscal position (21 percent)
•$100 million to fund quality of life investments in city neighborhoods, including assistance
programs for needy residents, affordable housing and homeowner programs, job creation
programs, and facilities and programs for school children and senior citizens (6 percent)
•$463 million to refund existing Skyway debt (25 percent)
•$392 million to refund long and Short term debt and to pay other city obligations (21
percent)

17. Criticism
•Critiques of the allocation of private investment by the city
of Chicago
–Sponsors from transportation industry expressed concerns that
no specification was made to invest the funds in transportation
facilities.
–Critiques were also concerned that the state governments would
have little power of preventing the private concessionaries from
raising tolls.

18. Implication
•Major potential downside is that the city government does not specify
any basis for intervention in the concessionaire’s rights to set tolls.
–The Skyway is the only toll highway that is not operated by Illinois Toll
Highway Authority.
–From 2004 to 2017, rates can still go up 2.5 fold for cars and 3.5 fold for
commercial vehicles.
–By 2017, the compound average annual toll rate increase will be 7.3% over 13
years and 10.1% per year since 2005.
–The price for peak times can be 40% greater than maximum rates allowed as
long as the price during off-peak times is discounted.

19. Implication on Toll Rate
•The Current Toll is as follows:
•The next toll rate change took place on January 1st, 2013, and the rate will again
increase.

20. Implication on Traffic Flow
•Since the completion of construction work on the Skyway in
2011, the overall traffic flow is positively impacted.
•The following table presents an overview of revenue and
traffic changes in recent years:

21. Fiscal Impact
•Upon signing the Skyway leasing agreement in 2005, Chicago enjoyed
multiple credit rating upgrades and a stable rating outlook.
–In 2012, Moody’s affirmed Aa1 letter of credit-backed ratings of the City of Chicago
General Obligation Variable Rate Demand Bonds, Series 2002B-3 and 2002B-5.
–Moody’s also gave Aa3 underlying rating for Chicago’s GO bonds.
•Recently, the State of Illinois is experiencing an abysmal fiscal crisis
and holding the second-lowest credit rating.

22. Risk Analysis
•During the Skyway Concession period, the public will keep facing
contingent risks:
–Hiking toll fares
–Service performance
–Environmental risks
–Potential credit risk
•SCC could also be subject to certain liabilities, claims, and
commitments in the ordinary course of business.
–The ongoing financial and budgetary risks
–Insurance for property and casualty risks

23. Lessons for Policy Makers
•The Skyway PPP project would be considered a relatively
successful public-private-partnership because the initial goal—
transferring risks and collecting capital—set by the city of
Chicago was obtained.
•The project attracted foreign investment in such large volume,
which also benefited the US economy.
•The transaction process was transparent and fair, and the private
partners to provide good services and safety
•The city also allocated the capital gains in public service

24. Conclusion
•In a nutshell, under the right conditions and with transparent processes,
public sectors can consider privatization of public transportation assets.
•The winning bid for the Skyway project also proved ample international
interests in US transportation P3 projects.
•Certain policy issues should be promptly addressed in PPP, such as:
–loss of public control over toll rates,
–loss of public sector revenue streams,
–channeling toll proceeds away from transportation purposes.
•Policy makers also need to be realistic about their real financial gain/loss
over the long-term lease since it is very difficult to calculate present value
of a 99-year lease.