CHICAGO – A consortium of Canadian pension funds will take over the lease rights to the Chicago Skyway toll road for $2.8 billion.
The three funds -- Canada Pension Plan Investment Board, Ontario Municipal Employees Retirement System and Ontario Teachers' Pension Plan – announced on Friday an agreement to acquire the Skyway Concession Company LLC.
SCC manages, operates and maintains the 7.8-mile toll road under the 99-year concession agreement that runs until 2104.
Chicago entered into the concession contract, a first of its kind in that it leased an existing city-owned asset, in 2005 for $1.8 billion. The once-struggling toll road links the southeast side of Chicago to northwest Indiana. It generated about $80 million in tolls last year.
Under the deal announced Friday, the three funds will each hold 33.33% stake in SCC and contribute an equity investment of approximately $512 million each. The transaction is subject to regulatory approvals including City Council approval.
The funds said the toll road offered an attractive investment.
"Skyway represents a rare opportunity for us to invest in a mature and significant toll road of this size in the U.S.," said Cressida Hogg, Managing Director and Head of Infrastructure, CPPIB. "This investment fits well with CPPIB's strategy to invest in core infrastructure assets with long-term, stable cash flows in key global markets."
The concession is currently owned by Cintra, a subsidiary of Ferrovial, Macquarie's Atlas Roads Group, and Macquarie Infrastructure Partners.
"The new consortium is expected to continue operations of the Chicago Skyway as usual, with no impact to the driving public," Ferrovial said in a statement.
Mayor Richard Daley's administration struck the deal in 2004 through a competitive bid process with qualified investors.
The city used $430 million of the deal's proceeds to defease Skyway toll-backed debt. Another $500 million went to create the city's first formal budget reserve. Another $392 million of debt was retired. The city created a $375 million annuity that was tapped over eight years for budgetary purposes, and another $100 million went to fund investments in neighborhoods.
The establishment of the reserve helped the city win credit upgrades that have since been overshadowed by its credit deterioration over its $20 billion unfunded pension tab.
The city later leased its parking garages and its parking meter system. Daley used most of the proceeds from much maligned $1.15 billion 75-year lease of the parking meter system to balance his last few budgets before leaving office in 2011.
Under the original Skyway deal, Cintra contributed $500.5 million and Macquarie $409.5 million with $1.2 billion coming from a syndicated credit deal from Spain's Banco Santander Central Hispano and Depfa Bank in Germany. The concession-like deal marked an evolution of sorts of the lease-leaseback and sale-leaseback transactions that then had come under heightened federal scrutiny.
The $1.82 billion price tag underscored a dramatic turnaround for the Skyway.
Chicago defaulted on interest payments and faced eventual default on principal for the original debt sold in the 1950s. The city crafted a refunding in the early 1990s to avoid default and then watched as Skyway traffic grew, picking up overflow from nearby thoroughfares.
The Skyway acquisition follows the acquisition by Australian fund manager IFM Investors of the Indiana Toll Road lease in a $5.72 billion deal that marks the largest price tag for an existing U.S. asset. That deal, which closed earlier this year, marked the first time that major U.S. pension funds invested in American infrastructure.
The new owners bought the rights to the toll road lease from ITR Concession Company, which declared bankruptcy last year. ITR paid Indiana $3.8 billion in cash for the 75-year lease in 2006, the largest privatization to date at that time. The Indiana lease now has 66 years remaining.
