Infrastructure (Toll Roads) Query

I too am interested - bump.

Hi all, bump!

Thanks :)

Edit:

I had another question, as per the link:

http://www.macquarie.com.au/au/mig/news/attachments/westlink%20M7.pdf

This comment:

"A distribution of $87.4 million will be paid to Westlink M7 shareholders in December 2007. The distribution represents the balance of the ramp-up reserve and other cash reserves less a small amount to be retained for working capital."

As per your explanation and the comment regarding the distribution from the balance of the ramp-up reserve (above), is the ramp-up reserve pre-funded by debt or equity? IF it is debt funded at what point is it repaid, and what are the typical financing terms?

I think I'm missing something - if its debt funded, how can it just be paid out to equity holders? Don't the debt holders demand that in the case the ramp up reserve is not required, that it be repaid? Its effectively like recapitalizing a company with debt and just using the entire proceeds to pay dividends?

I don't know if I should be commenting on such an old post, but I was researching infrastructure and this is an interesting question I saw.

I believe that the ramp up reserve is paid out because the extra debt cannot be repaid early, even if it could, the project has already gone forward with the assumption that the debt is going to be on the books and repaid on a schedule.

As a result, the cash is paid out to equity holders and debt holders will instead receive their regular payments per the payment schedule.

Also, from the linked page, you can see it says that the lenders approved the payment, so if the lenders were worried about a default, they could stop the payment but they felt the project was stable enough that it wasn't a concern.

To summarize, you can't just pay debt down early, so you either hold on to and invest cash which investors don't want, or you pay out shareholders. In this case, bank/lender had to sign off and they did.