Saving the partnership would also benefit the state, experts say, because the Maryland Department of Transportation would not have to find a new private partner to complete construction of the light rail, which would increase time and cost.
If the partnership dissolves, the state will have to find another way to fund the remaining $1 billion in construction. MDOT may also have to provide cash to the concessionaire to repay its $313 million in obligations. With early termination costs, that could add up to $367 million, depending on the outcome of lawsuits filed against each other by the state and the dealership, according to recent court testimony from MDOT’s chief financial officer. . The money could be hard to come by at a time when the state has proposed cutting nearly $3 billion from its capital transportation budget over six years due to the coronavirus pandemic.
The chances of reaching a settlement remain uncertain, as both sides have remained mum on the talks. The concessionaire, Purple Line Transit Partners (PLTP), recently terminated his 36-year contract with MDOT after a three-year dispute over a reported $800 million in unpaid cost overruns resulting in more than two and a half years of delay. Each party is suing the other for breach of contract.
In a notice to bondholders filed last week, PLTP said so and US Bank, the bondholder trustee, had agreed not to take any action for a month. PLTP said it extended its September 30 agreement, in which the bank said it would take no enforcement action against PLTP, and PLTP said it would not seek any remaining bond proceeds.
Experts say the US Bank likely wants PLTP to take more time to try to preserve the partnership because it would protect the investors who bought the project’s $313 million in private activity bonds. Bondholders have a better chance of being paid in full, ideally with interest and over many years, if MDOT and PLTP resolve their differences and avoid a lengthy court battle, experts said. These bondholders are typically mutual funds, pension funds, and other institutional investors.
PLTP and US Bank declined to comment on the forbearance agreement. PLTP is made up of Meridiam, Star America and Fluor Enterprises.
MDOT spokeswoman Erin Henson asked about the agreement at the PLTP, saying MDOT and the Maryland Transit Administration “are not a party to it.” Even so, she said, “negotiations with PLTP are still ongoing.”
The state recently assumed some of PLTP’s subcontracts to advance some work. However, most major construction came to a halt after the contractor left PLTP in September, leaving behind 16 miles of torn roads and partially constructed railroad bridges and a rail line between Montgomery and Prince George counties.
PLTP said it ended its partnership with the state on September 10, but the state is challenging that termination via its lawsuit. Meanwhile, the bonds and other debts incurred by PLTP to build the purple line remain.
Roddy Devlin, a public-private partnership lawyer for law firm Nixon Peabody, said he could not comment on Purple Line’s forbearance agreement because he was not involved in it. However, he said, bondholders generally want projects to be completed so they can start generating the revenue needed to make bond payments.
“There’s a benefit for everyone in taking a deep breath and stepping back and giving the parties a chance to get things back on track,” Devlin said of the forbearance agreements.
The collapse of the Purple Line public-private partnership drew national attention as it was one of the first mass transit projects in the United States to include private financing.
The bonds were issued in 2016 by Maryland Economic Development Corp., a state-owned entity, on behalf of PLTP. PLTP is responsible for repaying the debt, MDOT said. However, under the partnership agreement, MDOT would provide PLTP with the money to do so, either through periodic payments over 30 years after the Purple Line began carrying passengers, or as part of a termination payment if the partnership dissolves.
Scott Zuchorski, head of the North America infrastructure group for Fitch Ratings, said bondholders are likely worried about how much they will be paid. If MDOT and PLTP fail to reach a settlement, he said, a court ruling could result in MDOT paying them a maximum of 80 cents on the dollar.
“If they can continue with the project, they can get 100% payout, rather than less,” Zuchorski said.
The Purple Line was originally scheduled to start carrying passengers in March 2022, but PLTP said it won’t open until at least the end of 2024.
Maryland Gov. Larry Hogan (right) said the state would complete the Purple Line through his densely populated Washington suburbs. If MDOT fails to reach a settlement with PLTP, it has two options: hire its own construction contractor and fund the remaining $1 billion of work itself, or seek a new, longer-term private partner to manage the rest. construction and provide financing. .
MDOT said it was exploring all options, but did not specify how much any of them would add in terms of cost and time.
Delegate Marc A. Korman (D-Montgomery), who has followed Project Purple Line, said he saw the forbearance agreement as a message of “everyone hold their breath, and see if we can figure it out.” that”.
Korman said the additional time also allows MDOT to explore whether the state or a new private partner could take over PLTP’s low-interest federal bonds or loan if negotiations with PLTP fail.
“They need to look at the options and find the most cost-effective and efficient way to complete the project and protect taxpayers,” Korman said.