Skan­ska to Drop Out Of U.S. P3s

The Bond Buyer - - Front Page - BY SHELLY SIGO

In a blow for the fu­ture de­vel­op­ment of P3s in the U.S., an in­ter­na­tional player plans to end its in­volve­ment in the sec­tor be­cause the “risk-re­ward” is no longer at­trac­tive.

Skan­ska Pres­i­dent An­ders Daniels­son made the an­nounce­ment Oct. 19 dur­ing a pre­lim­i­nary third-quar­ter earn­ings re­port, say­ing that losses on two ma­jor U.S. projects led the com­pany to reeval­u­ate its par­tic­i­pa­tion in pub­lic-pri­vate part­ner­ships.

“The risk-re­ward is not at­trac­tive for us,” he said in a con­fer­ence call with an­a­lysts.

The Swe­den-based com­pany will re­lease its fi­nal earn­ings re­port for the third-quar­ter Nov. 8.

Daniels­son said the com­pany will stop bid­ding on new mega P3s af­ter tak­ing $100 mil­lion in write­downs on two projects he de­scribed as about 50% com­plete.

“The project write downs are caused by ad­di­tional cost over­runs due to low pro­duc­tion rates and de­lays,” he said, adding that prob-

lems are iso­lated to those P3s. “De­spite the write-downs, the Skan­ska group re­mains fi­nan­cially strong.”

In ad­di­tion to sus­pend­ing work on P3s, Skan­ska will also stop bid­ding on engi­neer­ing, pro­cure­ment and con­struc­tion projects and will ex­plore di­vest­ing its op­er­a­tions in the power sec­tor.

Daniels­son, who de­scribed the two trou­bled P3s as “large and com­plex,” said Skan­ska has se­cured fi­nanc­ing to com­plete them. He would not iden­tify the projects “out of re­spect” for the com­pany’s clients.

Skan­ska is in­volved in a num­ber of on­go­ing P3s, in­clud­ing one of its largest — the $4 bil­lion over­haul of New York City’s LaGuardia Air­port — and Florida’s $2.3 bil­lion re­de­vel­op­ment of In­ter­state 4 through Or­lando.

Both projects have ex­pe­ri­enced some de­lays and unan­tic­i­pated costs.

The LaGuardia project is be­ing built by LaGuardia Gate­way Part­ners LLC, a spe­cial pur­pose com­pany owned by Van­tage Air­port Group LLC, Skan­ska In­fra­struc­ture De­vel­op­ment, Meridiam In­fra­struc­ture North Amer­ica and JLC LaGuardia LLC. LGP has a 34-year lease on the P3 with the Port Au­thor­ity of New York and New Jer­sey.

In a July 24 anal­y­sis af­firm­ing LGP’s Baa3 rat­ing and stable out­look, Moody’s In­vestors Ser­vice said the joint ven­ture missed a mile­stone in May to com­plete work on half of Ter­mi­nal B be­cause of pro­duc­tion is­sues re­lated to in­stalling ex­te­rior glass on the build­ing.

Moody’s said liq­ui­dated dam­ages were as­sessed be­cause of the late de­liv­ery.

The New York Trans­porta­tion De­vel­op­ment Corp. sold $2.4 bil­lion in spe­cial fa­cil­i­ties bonds on May 17, 2016 for the project, which in­cludes a new 35-gate Ter­mi­nal B, cen­tral hall and a con­nect­ing con­course. Sub­stan­tial com­ple­tion on the project is slated for 2022.

Skan­ska is also a ma­jor player in Florida’s largest P3, a project called the I-4 Ul­ti­mate that is also over bud­get and ex­pe­ri­enc­ing de­lays. I-4 Mo­bil­ity Part­ners, a ven­ture be­tween Skan­ska In­fra­struc­ture De­vel­op­ment Inc. and John Laing In­vest­ments Ltd., is re­con­struct­ing 21 miles of in­ter­state in the densely pop­u­lated Or­lando area. The project was fi­nanced in 2014 with a $949 mil­lion Trans­porta­tion In­fra­struc­ture Fi­nance and In­no­va­tion Act loan, $486 mil­lion in bank loans and eq­uity.

In June, Moody’s re­vised the out­look to neg­a­tive on I-4 Mo­bil­ity’s Baa1 rat­ing be­cause of a re­quested 245-day de­lay in reach­ing the sub­stan­tial com­ple­tion date caused pri­mar­ily by drilled shaft fail­ures due to com­plex sub­sur­face ge­o­log­i­cal con­di­tions.

The out­look change also re­flects I-4 Mo­bil­ity’s claim for $100 mil­lion in com­pen­sa­tion filed with the Florida Depart­ment of Trans­porta­tion, and a high level of points as­sessed for non­com­pli­ance events such as fre­quent lane clo­sures due to flood­ing. As a re­sult, Moody’s said FDOT has in­creased its over­sight of the work.

In July, U.S. Reps. Dar­ren Soto, Val Dem­ings and Stephanie Mur­phy, all Democrats, wrote a joint let­ter to FDOT Sec­re­tary Mike Dew say­ing they were con­cerned about Moody’s re­port. They also re­quested a sta­tus up­date on why the I-4 Ul­ti­mate project is “over eight months be­hind sched­ule and $100 mil­lion over bud­get.”

In a one-page re­ply Aug. 10, Dew said I-4 Mo­bil­ity sub­mit­ted re­lief event claims for more time to com­plete the project and for more com­pen­sa­tion, which FDOT is con­tin­u­ing to eval­u­ate. “The fil­ing of the claim in and of it­self does not mean that the project is ei­ther de­layed by the amount of ad­di­tional time I-4 Mo­bil­ity is seek­ing or that the project is in ex­cess of the depart­ment’s bud­get,” Dew said.

Soto said Thurs­day that it con­tin­ues to ap­pear that the project will be late and over bud­get, and that po­ten­tial con­struc­tion prob­lems with cracks in var­i­ous foun­da­tions had been dis­cov­ered.

“FDOT de­nied crit­i­cal fi­nan­cial, safety and time con­cerns re­gard­ing I-4 Ul­ti­mate, and ba­si­cally said ‘trust us’ with­out pro­vid­ing even a bare min­i­mum amount of in­for­ma­tion to ver­ify,” Soto told The Bond Buyer. “The pub­lic de­serves to know all the facts.”

In ad­di­tion to prob­lems dis­cussed by Moody’s, cen­tral Florida driv­ers have com­plained about the lengthy dis­rup­tion caused by the work on I-4. As of May, 475 dam­age claims had been filed by driv­ers, ac­cord­ing to the Or­lando Sen­tinel.

The I-4 Ul­ti­mate project will add four variable-rate, tolled ex­press lanes while main­tain­ing free gen­eral use lanes, and con­struc­tion on 15 in­ter­changes and 124 bridges. Work started in 2015 and is due to be com­pleted in 2021 un­der the orig­i­nal sched­ule. ◽

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