Easing complex transactions: Project finance case studies

July 06, 2022

Project finance is complex, which is a why a corporate trust partner with comprehensive capabilities is a critical piece of the puzzle.

Improving the country’s aging infrastructure is a top priority, and the $1 trillion Congress recently committed to infrastructure spending will likely kickstart a host of new building projects. At the same time, the American Society of Civil Engineers estimates that the United States needs to spend $4.5 trillion by 2025 to “fix” the country’s infrastructure.

What that means for stakeholders across the infrastructure industry is a growing pipeline of projects, along with the need for project finance expertise to help move projects forward. Bringing those projects to a successful close requires proven expertise, experience and strong communication processes, as well as an ability to work seamlessly with a number of parties and an ability to understand and navigate project finance risks.

As a leading global corporate trust provider, U.S. Bank has experience working on many complex transactions.

“We’ve seen many different approaches to these financings, and we have the ability to come to the table, apply our expertise from prior transactions in the documentation process, and help our clients reach the best outcome on how they’re going to put these complex financing packages together,” says Bob Kocher, managing director, U.S. Bank Global Corporate Trust.

That expertise was recently highlighted in two major project finance projects, where U.S. Bank served as a trustee in bond issuances in the capital stack of the Red River Diversion Project at the Minnesota/North Dakota border and the Central 70 Project in Colorado.


Red River Diversion project

In an infrastructure industry that is no stranger to large, complex projects, the Red River Diversion Project is a notable standout. The $3 billion project is more than a decade in the making, with numerous stakeholders and a mix of funding sources. It’s also a landmark public-private partnership (P3) project in the water infrastructure industry.

The Red River Diversion project represents the first use of the U.S. Army Corps of Engineers’ P3 Pilot Program to reach financial close. The aim of the program is to improve collaboration between the public and private sectors, as well as develop a more efficient alternative financing model for future Corps infrastructure projects.

The Red River Diversion project intends to provide permanent, reliable flood protection to the Fargo-Moorhead metropolitan area. The Red River serves as the state border for much of Minnesota and North Dakota and cuts through the center of Moorhead, Minnesota, and Fargo, North Dakota. Spring flooding in the Fargo-Moorhead metro has been a chronic problem for decades.

The solution is the development of a 30-mile diversion channel. The Army Corps of Engineers is overseeing design and construction, with completion scheduled in 2027.

The Red River Diversion project involved a number of intricate financing sources that were woven together, including developer equity, federal and state funding and $1.1 billion from local tax levies. The Metro Flood Diversion Authority worked with the U.S. Environmental Protection Agency to obtain one of the largest Water Infrastructure Finance Innovation Act (WIFIA) loans in the program’s history, at $569 million. In addition, project financing included $273 million in tax-exempt senior bonds issued through the Wisconsin-based Public Finance Authority.

According to the Corps, the Red River Diversion P3 was an “innovative approach leading to significant gains in efficiency, productivity and resiliency” that saved the federal government $277 million and shortened the construction time by 10 years.

As part of a competitive bid process, U.S. Bank was selected in April 2021 to serve as the bond trustee on the bonds issued by the Wisconsin Public Finance Authority, as well as filling additional roles as the account bank, collateral agent and dissemination agent.

Once U.S. Bank was selected as trustee, it needed to get up to speed quickly with all documents, provide comments regarding duties and liability and communicate to all parties its views on how the transaction should work as it related to the daily activities of the trustee.

“This trustee deal had a tremendous amount of document turnarounds as a result of the complexity of the transaction. It required attention to detail to ensure changes were consistent throughout all the documents,” says Angela Davis, relationship manager, Global Corporate Trust at U.S. Bank.

Keeping communication and workflow on track is a testament to the U.S. Bank team’s diligence in tracking documents, as well as its proactive approach to the collection and distribution of project information and covenants.

“Through our hands-on partnership and ability to work efficiently with other business lines inside of U.S. Bank, our client received everything they needed to keep this project moving forward,” says Davis.

Collectively, the U.S. Bank team will serve as the operational and administrative end of the financing, following the documents, administering the movement of funds and making sure the money is moved from account to account properly. U.S. Bank will be responsible for the billing and collecting funds to pay holders of the bonds and senior notes through 2056.

“P3 projects are the wave of the future, and U.S. Bank is at the forefront of that shift in how infrastructure projects are financed,” says Kocher.

“We can come to the table, apply our expertise from prior transactions in the documentation process, and help our clients reach the best outcome.” Bob Kocher, managing director, U.S. Bank

Central 70 project

Interstate 70, between I-25 and Chambers Road in Denver, is a key corridor that services nearly 1,200 businesses and provides an important regional connection to Denver International Airport. The Central 70 Project will reconstruct a 10-mile stretch of I-70, add one new Express Lane in each direction, remove the aging viaduct and create a four-acre park over a portion of the lowered interstate between Brighton and Colorado Boulevards.

The Central 70 Project involves the refinancing of a 2017 Transportation Infrastructure Finance and Innovation Act (TIFIA) loan, along with the financing of additional costs. As part of the refinancing, the U.S. Department of Transportation’s (DOT) Build America Bureau provided a new TIFIA direct loan with a reduced interest rate, allowing for additional loan principal increase to facilitate project completion.

Besides TlFIA, the project is backed by the proceeds of tax-exempt private activity bond and taxable bond issuances, as well as contributions from the state DOT, the Colorado Bridge and Tunnel Enterprise, the High Performance Transportation Enterprise, and local and state entitiesThe Series A bond issuance totaled $51,670,000 and the Series B bond issuance totaled $464,955,000.

U.S. Bank served as bond trustee and acted in ancillary roles as the collateral agent and intercreditor agent, paying agent, registrar, transfer agent and dissemination agent. In addition, because bondholder approval was needed to issue the new debt in 2021, U.S. Bank stepped in and served as the tabulation agent for the existing investors.

Key to a successful project finance deal is finding a partner with the expertise, resources and systems to streamline the process, such as tracking necessary compliance requirements and providing online reporting for the client. In addition, these complex deals often require a higher level of client relationship management.

“There is a lot more client interaction than a typical municipal financing, because there is always something going on, whether it is requisitions being paid or the sponsor needing to post financials or updates that need to be disseminated to the market,” says Gretchen Middents, relationship manager, Global Corporate Trust at U.S. Bank. “So, it is a much more hands-on relationship as compared with other assignments that don’t have the same scope of documents and requirements.”

In addition, working with a third-party trustee and agent to perform all project finance roles can produce numerous efficiencies, such as streamlining operations, coordinating workstreams from various parties and providing assistance for investors at every stage of the project lifecycle. Finding a partner with extensive experience servicing all debt vehicles can help guide decision-making with strategic insights and proactive solutions.

“These projects are more of a team effort because of the complexity,” adds Middents, “and being able to rely on others within our organization is key to our success.”


U.S. Bank administers a variety of infrastructure asset types and has the dedicated expertise to assist investors at every stage of the project finance lifecycle. See our extensive suite of services for debt financing here or contact Lars Anderson at lars.anderson@usbank.com or Alejandro Hoyos at alejandro.hoyos@usbank.com.

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