Anatomy of a deal: Georgia toll road paves the way in P3 category

It turns out being stuck in traffic has an upside — it can help convince potential investors of the need for a massive express lane project aimed at reducing congestion in one of the country’s most car-snarled metro areas.

The deal team for Georgia’s State Road 400 Express Lanes project invited investors to the city and took them on a drive as part of an extensive effort to build a book for what marked the largest tax-exempt bond offering in several years.

“They sat in standstill traffic for a good chunk of our roadshow, demonstrating the value proposition of the road, while also talking to management about what the future of the asset might look like,” said Taylar Hart, executive director at J.P. Morgan, the deal’s senior underwriter.

The winner in the public-private partnership category of The Bond Buyer’s Deal of the Year awards, the SR 400 project adds new, barricade-separated, dynamically tolled lanes along 16 miles of the heavily traveled SR 400 north of Atlanta. It’s the first of a string of similar toll lane P3s that Georgia is undertaking as a way to relieve congestion in metro Atlanta, which idles in the top 10 U.S. cities with worst traffic. The structure provides a template for future projects in the Peach State and other states eying similar projects.

The $12 billion deal set many records.

The $3.4 billion bond issue marked the largest issuance of tax-exempt private activity bonds to date, and the municipal market’s largest tax-exempt bond offering in years. The $4 billion Transportation Infrastructure Finance and Innovation Act loan was the largest single TIFIA loan in history. The $3.8 billion upfront concession fee was the largest for a greenfield transportation project, and the $3.36 billion equity investment also marks the largest private equity investment in a greenfield highway P3 in U.S. history. 

“This was really a true test for the municipal market to rise up to a really large financing challenge and show that we are truly an infrastructure financing market that can compete with the depth of global capital markets,” said Ben Djiounas, managing director at J.P. Morgan, calling it a “signature deal” for the toll road sector. “Frankly, it wasn’t particularly easy, but it’s a deal that the municipal market should be able to look back on and say, ‘We got it done at a size and scale we haven’t seen before.'”

As Georgia’s first revenue-risk P3, the deal lays the groundwork for future express lane P3s and maintains the state’s status as a leader in the P3 toll road space. Next on tap is the I-285 East express lanes project, which is currently in procurement.

“The SR 400 deal continues the successful DBFOM P3 model of managed lanes projects in the U.S.,” said Jonathon Dingle, executive director at Meridiam, part of the SR400 Peach Partners LLC consortium that includes ACS Infrastructure, and Acciona Concesiones.

“With the more balanced approach to certain construction risks it is an evolution of the model which encourages further innovation by private managed lane developers,” Dingle said. “In this regard it serves as a good model for future projects, provided those projects still maintain the key characteristics necessary for a privately-developed managed lane with congestion and capacity needs in a strong economic region.”

The team plans to begin major construction work by the end of July 2026 and complete construction in February 2031.

The road to financial close on SR-400 was not a straight one, said Jay Gillespie, director of Alternative Finance at the Georgia Department of Transportation.

Several years after pitching it as an availability-payment P3 with the state taking on the toll revenue risk, the State Transportation Board ended up halting the project in 2021 after it failed to attract bids within its budget.

“There was a feeling like we just can’t afford this right now so the department decided to end the procurement,” Gillespie said.  After getting feedback from the industry, in 2022 Georgia dropped the availability-payment feature and redesigned the deal as the state’s first revenue-risk P3, which gives the private consortium access to toll revenue in exchange for an upfront concession fee. In August 2024, the State Transportation Board approved the final selection of SR 400 Peach Partners LLC.

During contract negotiations the state agreed to some shifts on risk items, Gillespie said. That included the state’s responsibility for increases in material costs, a potentially major issue that has pressured contractors in recent years. “It does go both ways, so if prices go down, it could be savings for us,” he added.

The project also proved the power of federal financing tools, Gillespie said.

“One big lesson learned is the power of TIFIA and of private activity bonds,” he said. “With the largest TIFIA loan in history, it provided a lot of value and the flexibility of the TIFIA program is very helpful to any project of this size.”

Interest in SR 400 confirmed the appetite for private capital interest in the toll lane space in the U.S., said Dingle. States like North Carolina and Tennessee are lining up similar projects to address their own congestion problems.

“There is already a strong pipeline moving forward of similar projects. We anticipate that this will continue to build, though likely naturally spaced out due to the size and complexity of initiating a procurement process of this magnitude,” he said. “Given the pacing of projects, it is likely that there will be sufficient construction capacity to deliver the works, though this capacity will remain a key consideration by each state’s procurement team in their outreach in advance of a procurement.”

RBC Capital Markets served as joint bookrunner and KeyBanc Capital Markets served as co-manager. Wisconsin’s Public Finance Authority served as the conduit issuer for the $3.4 billion borrowing. The bonds received a Baa3 rating from Moody’s Investors Service and a BBB-plus credit rating from Kroll Bond Ratings Agency.

Given the size of the deal and its low investment-grade ratings, the banking team started building the book weeks ahead of the late-August sale, Hart said. They posted a notice of financing a month ahead of the preliminary statement so that potential buyers could prepare for the financing.

“Considering this was such a large transaction targeting a relatively narrow part of the municipal market, we wanted to tap into the widest universe that are eligible to buy credits like this,” Hart said. “We were trying to prime the market to create opportunities for investors to set aside cash to the extent they were interested.”

The team structured the $3.4 billion of PABs as four term bonds with multiple coupons and maturities in 2060 and 2065. The long tenor follows the length of the concession, which will last 50 years after the road becomes operational.

Each term bond came with a 5.75% coupon and a 6.5% coupon with various price points that ranged from 93.6 to 103.5 dollars in order to appeal to “different segments of the investor base,” Hart said. 

In the end, nearly 100 institutional investors, including high-yield muni funds and crossover buyers from the corporate market, placed orders.

“One of the prominent themes [among investors] was just how much the managed lanes sector has matured in the U.S. We’ve worked on transactions like this for well over a decade now. And over the last decade we’ve seen the value proposition be proven out,” she said. “The questions we used to get about things like who’s going to use the roads, we’re not getting anymore.”