Presentation by Willaim Blair at Privatization Conference

March 14, 2012The Civic Federation andThe Federal Reserve Bank of ChicagoBeyond Parking Meters: the Future ofPublic-Private Partnerships in Illinois

Asset Valuation Done Right

Availability Payment Structures - Overview An Availability Payment combines the design, construction, financing, operation and maintenance of an asset into a single agreement and payment stream funded by a payment from a governmental entity Often utilized for “social infrastructure” or assets that generate no revenue Can be utilized for assets that produce revenue when the governmental entity does not want to give up revenue control of the asset 40 Operating Cost Profile 30 Capital Costs $ 20 Operating Costs 10 0 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 Years 1

Availability Payment Structures - Valuation Analysis Value for Money = Traditional Cost – P3 Cost Net Present Value Cost Potential cost impacts of P3 Procurement Transferred Value for Money Risks  Financing Retained Retained  Life Cycle Costs Risks Risks  Operating Efficiencies Capital Capital Transferred Risks Expenses Expenses  Operating & Capital Expenditures  State of Good Repair Operating Operating Retained Risks Expenses Expenses  Policy  Regulatory Traditional Financing P3 Procurement 2

Revenue Monetization Structures - Overview A Revenue Monetization combines the design, construction, financing, operation and maintenance of an asset into a single agreement with a payment stream funded from asset revenues  Revenue-Sharing  Augmented availability payments Generally speaking, the governmental entity agrees to a specific set of revenue terms 60 Net Operating Profile Gross Operating 50 Net Operating Income Income 40 $ 30 Capital Costs 20 Operating Costs 10 0 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 Years 3

Revenue Monetization Structures – Valuation Analysis Asset valuation, in its most simple form, is the net preset value of asset cash flows  Operating Expenses  Capital Expenses  Revenue Value for Money analysis of a revenue monetization is similar to an Availibity Structure analysis with the addition of both asset revenue and transferred revenue risks  The reserve price of an asset monetization should reflect the risk-adjusted value of the asset William Blair utilizes a multi-variable analysis to produce a range of valuation outcomes  By virtue of a competitive procurement process, the winning bidder will often be the one with the most optimistic/aggressive valuation assumptions 4

Presentation by Willaim Blair at Privatization Conference

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