High-Speed Train Builders: System “Open for Business” Outline Funding Strategy to Seek Private Investment

The 220 mph system will traverse 800 miles across the state and will be built with a combination of state, local, federal and private financing

SACRAMENTO, Calif.--(BUSINESS WIRE)--Finance executives from the Infrastructure Management Group and Lehman Brothers, today met with private investors and board members of the California High-Speed Rail Authority, outlined a funding strategy to build the high-speed train system.

“State support will be critical to mitigate risks and attract needed funding as private sector partners will seek returns commensurate with perceived risks. Federal financial and regulatory support is also crucial to the project’s success.”

“We already know that high-speed trains will be good for business, now we can say that the system is open for business. This is the first step in securing the private investment that the Governor and our financial planners believe will allow us to build this system,” said High-Speed Rail Authority executive director Mehdi Morshed.

Officially dubbed a “Request for Expressions of Interest for Private Participation,” the public session was convened to discuss the public-private partnerships (P3) approach that will be used to help fund the train system. More than 70 private contractors, equipment vendors, operators and financiers were in attendance to hear an outline of the funding strategy from the system’s financial advisory team.

The finance team, including Infrastructure Management Group, Lehman Brothers, and Sperry Capital, was retained in January 2007 with the objective of developing a financing strategy and model for the full implementation of the high-speed train system. Led by Sasha Page, Vice-President for Finance, Infrastructure Management Group, Inc., the advisors concluded that a viable funding strategy for California’s high-speed train requires both an up-front commitment of state funding and significant investment of political capital to obtain other needed funding.

According to Morshed: “State support will be critical to mitigate risks and attract needed funding as private sector partners will seek returns commensurate with perceived risks. Federal financial and regulatory support is also crucial to the project’s success.”

Based on initial discussions with private operators and investors, the financial advisors outlined their belief that public-private partnerships could serve as a source of financing for a portion of the high-speed train system and absorb various risks.

The advisors believe that private parties can bring project debt, vendor finance, private equity, design-build approaches and operational skills to the project.

Morshed underscored that public ownership of the system would not be jeopardized: “High-speed trains in California will always be owned by the public and regulated accordingly. Binding contracts will be put in place to protect important safety rules and operational regulations that will guarantee high-quality service to the public. At no point will partnering with the private sector involve a complete sale of taxpayer assets or a diminishing of the responsible regulation of California’s system of high-speed trains.”

A $9.95 billion bond is scheduled for the November 2008 ballot, which, if approved will allow construction on the system to begin as early as 2011. The bond measure, which is within the Schwarzenegger Administration’s current debt capacity guidelines, will provide nearly $1 billion for improvements to local and regional passenger rail projects that complement and connect with the high-speed train system.

By law, state funds will not be made available until matching funds from additional sources are obtained. Federal funding is projected to provide 25% – 33% of the construction costs. To that end the United States Senate passed “The Passenger Rail Investment and Improvement Act” which included a direct federal program for funding high-speed trains that does not currently exist. The legislation is pending approval in the House of Representatives.

The California High-Speed Rail Authority is responsible for building high-speed train service that is integrated with the state’s inter-city trains and bus networks, covering 800 miles at speeds over 220 MPH. That includes conducting engineering and other studies, evaluating alternative high-speed train technologies, establishing criteria for awarding a franchise, preparing a detailed financing plan and selecting franchisees, a train route and terminal sites.

By linking all major cities in California with a state of the art new transportation option, high-speed trains will move people and products across our state like never before. California's planned high-speed train system will increase mobility while cutting air pollution and reducing the greenhouse gas emissions that cause global warming.