1. (a) Purpose. Transportation Code, §371.101 requires a toll project entity having rulemaking authority by rule to develop a formula for making termination payments to terminate a comprehensive development agreement under which a private participant receives the right to operate and collect revenue from a toll project. A formula must calculate an estimated amount of loss to the private participant as a result of the termination for convenience. The formula must be based on investments, expenditures, and the internal rate of return on equity under the agreed base case financial model as projected over the original term of the comprehensive development agreement, plus the agreed percentage markup on that amount. A formula may not include any estimate of future revenue from the project that is not included in the agreed base case financial model. This section prescribes the formula required by Transportation Code, §371.101 that shall be used in comprehensive development agreements subject to that section.

2. (b) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise.

   1. (1) Adjusted equity IRR--The equity IRR plus a number of basis points as set forth in the comprehensive development agreement.
   2. (2) Base case financial model--The financial model identified and agreed to by the department and the private participant under the comprehensive development agreement at or about the time the agreement is executed.
   3. (3) Department--The Texas Department of Transportation.
   4. (4) Equity Internal Rate of Return (Equity IRR)--A blended nominal post-tax rate of return on equity over the full term of the comprehensive development agreement equal to that projected in the base case financial model. For this purpose, equity may include unsecured capital contributions to the developer by affiliates or other equity investors in the developer, and secured project debt subordinate in priority to project debt included in the definition of senior debt termination amount.
   5. (5) Net present value--The aggregate of the discounted values, calculated as of the valuation date, of each of the relevant projected distributions, in each case discounted using the equity IRR.
   6. (6) Post-tax--After the payment of or provision for federal income or state margin taxes at assumed rates as described in the comprehensive development agreement.
   7. (7) Senior debt termination amount--The amount necessary to repay the outstanding principal, accrued unpaid interest, including any interest owed through the prepayment or redemption date, and breakage costs respecting senior lien debt and first tier, unaffiliated subordinate debt secured by the developer's interest in the project, including TIFIA financing, as may be more particularly defined and described in the comprehensive development agreement.
   8. (8) TIFIA--The Transportation Infrastructure Finance and Innovation Act of 1998, codified at 23 U.S.C. §601, et seq.
   9. (9) Valuation date--The date established by the comprehensive development agreement as the valuation date. The valuation date may not be earlier than the date the department gives notice of termination for convenience.

3. (c) Compensation amount. A comprehensive development agreement under which a private participant receives the right to operate and collect revenue from a toll project shall provide that, if the department chooses to exercise its option to terminate for convenience the comprehensive development agreement and lease, the compensation to the private participant respecting the termination may not exceed the amount determined under the following formula:

   1. (1) the senior debt termination amount; plus
   2. (2) the amount necessary to reimburse reasonable and documented demobilization costs (if applicable) for the developer and third party contractors, as may be more particularly defined and described in the comprehensive development agreement; plus

   3. (3) the amount computed using the formula A+B (assuming, for purposes of the calculation, that the distributions projected to be made under the base case financial model between the date the comprehensive development is executed and the valuation date have been made), where:

      1. (A) A is the net present value of the distributions projected to be made under the base case financial model between the valuation date and the date the original term of the agreement expires (without taking into account the effect of the termination for convenience); and
      2. (B) B is an incremental adjustment in the form of one or more special distributions that, when added to A, would increase the equity IRR to a blended, nominal post-tax rate of return on equity equal to the adjusted equity IRR; plus
   4. (4) the net increase in costs the developer will incur to provide training, instruction, and assistance to the department or its designees in the use and operation of project systems and programs as part of the transition of operations resulting from the termination for convenience, as may be more particularly defined and described in the comprehensive development agreement; plus
   5. (5) the amount that will put the developer in the same post-tax position as it would have been had the payment under paragraph (3) of this subsection not been subject to tax, as may be more particularly defined and described in the comprehensive development agreement; minus
   6. (6) cash and credit balances held by or on behalf of the developer, as may be more particularly defined and described in the comprehensive development agreement.

Source Note:The provisions of this §27.10 adopted to be effective December 6, 2007, 32 TexReg 8859.