Toronto:A Centre ofP3 ExcellenceDeveloped in cooperation

with The Canadian Council for

Public-Private Partnerships

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With two decades of experience, a critical

ecosystem of P3 expertise has been

established in Canada. Toronto is a centre

of excellence, home to leading national and

international developers and construction

companies as well as financiers, architects,

engineers, lawyers, asset managers and

consultants. There are currently 34 P3

projects in operation in the city. Another

17 are under construction, including the

$9.1-billion Eglinton Crosstown LRT, the

largest investment in public transit in Canada,

while six more are in the procurement stages.

With a steady pipeline of projects and a well-

respected procurement process, Canada has

become a popular market for national and

international P3 players.

As Canada’s financial and business capital,

Toronto provides a gateway for global public

and private sector participants to reach

members of the country’s P3 infrastructure

community. At the same time, Toronto’s P3

community is actively seeking opportunities

abroad to apply its expertise.

Three of the world’s leading infrastructure

developers operate from offices in Toronto,

along with two of the world’s major

infrastructure advisory firms and three of

the world’s 60 biggest pension funds. As

global leaders in infrastructure financing,

they have invested for the last two decades

in infrastructure projects around the world.

In the process, they have engaged Canadian

partners such as banks, legal and accounting

firms, and other advisors.

A Made in Canada Approach to P3The need for construction and renewal of public infrastructure has become critical throughout the world. Addressing this need over the next 25 years will cost as much as C$75 trillion. Faced with such prospects, governments have turned to partnerships with the private sector to design, build, finance and maintain infrastructure projects. Canada is increasingly being recognized as a world leader in establishing successful public-private partnerships (P3s) to address its infrastructure deficit.

To date, there have been more than 220 projects worth over $70 billion developed using the P3 model across the country.

220+

In Toronto and elsewhere in Canada, the

benefits of P3 infrastructure initiatives

have become readily apparent. They include

value for money, innovation, on-time,

on-budget delivery and the benefits to local

communities of new and renewed state-

of-the-art facilities that will contribute to

their economic future and quality of life for

decades to come.

Recognizing the country’s leadership,

governments around the world have turned

to Canada for support in undertaking their

own P3 infrastructure projects. Toronto, for

example, has welcomed representatives of

developing countries, where more than a

million people a week are moving into urban

centres and raising demand for essential

services that can be addressed only if

their governments invest in infrastructure.

Toronto has also welcomed public- and

private-sector leaders from developed

nations, whose sustainable economic growth

depends on the repair and replacement of

aging water, power, transportation and other

public facilities. All of these nations are

looking at new ways to deliver much-needed

infrastructure and maximize government

investment, and they have discovered a

world-leading source of expertise in Toronto.

FACTS ABOUT TORONTOToronto is Canada’s financial and

business capital and the fastest-growing

financial centre in North America.

Toronto is home to the head offices of

Canada’s five largest banks, three of

which rank among the world’s largest

25 banks by market capitalization.

Canada’s banking system has been

ranked as one of the soundest in the

world by the World Economic Forum

(WEF) for nine consecutive years.

Toronto is headquarters for six

of Canada’s top insurers, which

manage more than 90 per cent of the

industry’s assets, and five of Canada’s

largest pension plans, with combined

assets in excess of $300 billion and

extensive investment experience in P3

infrastructure projects.

Toronto is home to the TMX Group, the

third-largest stock exchange group

in North America and among the

largest in the world based on market

capitalization.

The 57 P3 projects in the Greater

Toronto Area, with a total value of

$28.6 billion, account for about one-

quarter of the financial value of all

P3 projects in Canada.

The Canadian Council for Public-

Private Partnerships Annual

Conference is held in Toronto yearly.

It began in 1993 and is now recognized

as the premier event on public-private

partnerships (P3) in the world. For

more information, go to p3-2016.ca

“Our Made in Canada P3 approach is garnering international attention and offers opportunities to take our industry experience and expertise global.”Mark Romoff President and CEO of The Canadian Council for Public-Private Partnerships

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Bridges to the world: Canadian pension funds and P3 infrastructure.

Having refined their capabilities as direct

investors in P3 infrastructure programs,

CPPIB, OMERS, OTPP and other major

pension funds in Toronto have attracted

global attention from governments

around the world. Every year, government

representatives from the UK, India, China

and elsewhere visit Toronto to encourage

these funds to invest in their domestic

infrastructure.

“OMERS’ long-term strategy [is] to diversify

internationally,” says Michael Rolland,

President and Chief Executive Officer of

Borealis Infrastructure, which was formed by

OMERS in the late 1990s with a mandate to

invest in infrastructure as a separate asset

class. “We bring to investee companies the

experience gained through managing a large

infrastructure asset portfolio as well as the

relationships we have with governments,

lenders, other investors and members of the

business community.”

Equally important, the funds attract leaders

from the business and financial communities

to sit on their boards and compensate their

managers at rates competitive with the

private sector.

Independent from government involvement

or influence, Canada’s major pension funds

operate with private-sector priorities,

managed by professional directors chosen

solely for their experience and capabilities.

“They understand what it takes,” says Romoff,

“to build and operate a sophisticated

investment-management organization, and

[they] have adopted policies to enable and

promote a high-performance culture.”

“When opportunities arise anywhere in the world, Canada’s major pension plans hear about them first. If you’re the first call, you’re going to get the pick of the litter.”

Ron Mock President and CEO of OTPP

infrastructure projects, pension funds aim

for higher returns for their members than

they would receive from publicly traded

stocks and bonds.

Although they often participate with

private-equity firms as co-sponsors,

Canada’s public pension funds have a longer

investment horizon than their private

counterparts. They are also good owners

of infrastructure assets since they have the

incentive to reinvest in them to maintain

their capabilities for generating cash flow

over many years. “We invest in infrastructure

assets because they generally offer stable

long-term cash flows linked to inflation,”

says Jane Rowe, Senior Vice-President of

Teachers’ Private Capital, part of the OTPP.

As Mark Machin, President and CEO of

CPPIB, explains, large funds readily invest in

long-duration infrastructure assets, because

their portfolios span multiple generations.

“We have no intention or need to sell them,”

Machin says, “and indeed, every incentive to

reinvest in them to ensure they continue to

fulfill their intended purpose and generate

cash flows over many years for our fund.”

Because they often take years to

complete, major infrastructure projects

require patient, long-term financing. In

Canada and in other parts of the world, a

significant source of this financing is the

country’s large public pension funds.

“These funds are important sources of long-

term capital for much-needed infrastructure

investments,” says Mark Romoff, President

and CEO of The Canadian Council for Public-

Private Partnerships, “which are critical to

economies and societies globally.”

In Toronto, the Canada Pension Plan

Investment Board (CPPIB) along with the

Ontario Teachers Pension Plan (OTPP)

and the Ontario Municipal Employees

Retirement System (OMERS) have all

participated with the private sector in

global P3 infrastructure projects.

These pension funds run their portfolios

internally and invest directly. At CPPIB, for

example, almost 1,300 people in Toronto, as

well as in London, New York, Mumbai, Sao

Paulo, Luxembourg and Hong Kong, put

the fund’s public and private investment

initiatives into effect. By investing in

P3 Financing: The Bond Solution

For investors, “these bonds are designed as

low risk and stable long term investments,”

observe Catherine Doyle and Tim Murphy of

McMillan LLP in Toronto, “backed by cash

flows generated from core government

infrastructure assets and are often seen

as defensive plays in times of economic

uncertainty.”

Project bonds issued in connection with

P3 transactions also offer a yield premium

when compared to traditional government

or quasi-government debt issuances. “For

institutional investors focusing on lower-risk

portfolios, they can enhance overall return,”

observe Doyle and Murphy in a report on the

Canadian market for P3 bonds.

Having participated in transactions

involving more than $7 billion in broadly

marketed P3 bond issuance, Toronto’s legal,

investment and advisory communities

have become a centre of expertise for P3

infrastructure financing. To a large extent,

these professionals have standardized their

documentation and the principles of risk

allocation involved in P3 infrastructure deals.

They have also established templates that

enable ratings agencies to evaluate deals

within a standardized context.

While legal, tax and accounting regimes may

differ, public- and private-sector participants

have acknowledged the feasibility of bond

financing for P3 infrastructure projects in

other jurisdictions. As Little and Morley

observe, Canada’s bond financing experience

“may offer some guidance to [overseas] P3

projects in search of these solutions.”

At the same time as governments have

increased their support and capital

contributions, a market has also developed

for project bonds as a source of long-term

funding.

“The evolution of the Canadian P3 market

over the last five years shows that bond

financing can be an effective and value-

enhancing source of financing, without the

necessity of a monoline-style wrap,” say

Little and Morley in a paper written for

“PPP International”.

Bond financing for a P3 infrastructure project

comes with some stipulations, including

a minimum size of about C$150 million to

C$200 million per tranche and a rating for

the project of A to BBB from at least one

recognized rating agency. Bond issues must

also meet higher regulatory requirements

governing such factors as disclosure.

A key precondition for infrastructure

development is access to stable, adequate,

long-term financial resources. During the

recent global financial crisis, financial

institutions curtailed their long-term

lending for P3 infrastructure projects,

putting future developments at risk.

“Tough conditions in European financial

markets are forcing government agencies

responsible for public infrastructure

procurement to look beyond traditional forms

of non-equity funding, such as long-term

bank debt financing or wrapped monoline

insurance financing, to undertake the next

round of P3 deals,” say David Little and Sean

Morley of Fasken Martineau LLP, a law firm

with offices in Toronto and Vancouver.

In response, organizations such as RBC

Capital Markets, BMO Capital Markets, CIBC

Capital Markets, TD Securities, Scotiabank

and Stonebridge Financial Corporation,

based in Toronto, have developed specialized

financial solutions for P3 infrastructure

ventures. Stonebridge, for example, has

developed two infrastructure debt funds with

the objective of investing in long-term, fixed-

rate, senior debt financings of infrastructure

assets. Insurance companies based in

Toronto, such as Manulife Financial and Sun

Life Financial, have also become involved in

P3 infrastructure financing.

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Specialists in infrastructure development

Another major infrastructure developer

with an international presence and offices

in Toronto, Carillon Canada Inc., has

participated as developer, financier, equity

investor and service provider in seven P3

infrastructure projects in Canada, including

hospitals, a correctional facility and a

university learning centre, while Plenary

Group Canada has participated in P3

infrastructure projects in Canada, the U.S.,

Australia and Singapore, valued at more

than C$10.5 billion.

As long-term investors, builders and

operators of public infrastructure, these

companies participate in financing, planning,

designing and constructing P3 projects

throughout the world, as well as acting as

developers and asset managers.

P3 infrastructure projects require specific

expertise in property development,

including skills in finance and

management. From hospitals to roads

to water treatment plants, development

expertise not only enhances the efficiency

of the project, it also accommodates the

risks involved for public- and private-

sector participants.

In most P3 infrastructure projects, a

procuring agency signs an agreement with

a special-purpose project company led

by a developer following a competitive

procurement process. Once the agreement

is signed, the developer creates value by

developing an efficient project plan, bringing

together a team of experts to design, build,

finance, maintain and in some cases operate

the asset for 20 to 30 years.

From its headquarters in Toronto, EllisDon

Corporation, for example, a global

construction services company, has become

an industry leader in P3 infrastructure

projects such as the Surrey Memorial

Hospital in British Columbia and the

Confederation Line transit project in Ottawa.

Canada’s public sector drives P3

Based on the success of Infrastructure

Ontario and similar provincial agencies, the

federal government created PPP Canada Inc.

to build on their example in developing P3

infrastructure projects. PPP Canada began

operating in 2009, managing a C$1.25-

billion P3 Canada Fund, the first national

infrastructure program in the country

dedicated to supporting infrastructure

projects delivered through a P3 approach.

The federal government has allocated another

C$1.25 billion through 2018 to renew the P3

Canada Fund and remains committed to P3s

as a way to add value in the development of

large-scale federal infrastructure projects

and in the development of projects at the

municipal level.

Federal and provincial governments in

Canada have made their support clear in

other ways, as well, for P3 infrastructure

deals. At the federal level, the Canadian

government continues to evaluate selected

infrastructure projects to encourage greater

involvement of the private sector and to

determine whether better value for money

can be achieved through P3 procurement.

Ontario and British Columbia apply value-

for-money assessments to substantiate the

financial benefits of their P3 programs.

Canada’s experience in P3 infrastructure

projects extends to all relevant areas of

the public sector.

“The most important feature of the

Canadian market and where they excel is

in the caliber of their central infrastructure

agencies [such as] Infrastructure Ontario,”

says James Stewart, chair of global

infrastructure at KPMG and former Chief

Executive of Infrastructure UK. “The state

has invested heavily in developing the

capability – bringing in people from the

private sector, being prepared to pay for

those people and creating a critical mass

of expertise in the agencies.”

Unlike some jurisdictions, Canada’s

governments empower these infrastructure

agencies to actually do the work,” Stewart

adds. Rather than simply advising other

agencies of government, they drive P3

projects and control procurement.

Infrastructure Ontario, for example, based

in Toronto, oversees the largest amount of

P3 infrastructure spending in Canada. The

organization has authorized more than 75

projects and over C$30-billion of spending

since 2006. It also has committed

more than C$7.5-billion through its loan

program to more than 2,100 projects.

“Canadian governments and companies are now global leaders in the implementation of P3s. They are also leaders in adapting the model to emerging market opportunities.”Mike Marasco CEO of Plenary Concessions the holding company for all project-specific initiatives of the Plenary Group

A source of sound P3 advice

provide advice on structured finance,

financial modeling, tax strategy and

accounting treatments. They also provide

feasibility, risk and options analysis; project

procurement; bid preparation, contract

negotiation and funding assistance.

As advisors to governments and

corporations, for example, PwC has gained

extensive experience in structuring and

arranging limited-recourse financing for

private and public infrastructure projects.

“When working with the public sector,

PwC services include: business case and

feasibility analysis, transaction structuring,

financial analysis, transaction execution,

and assistance in the transaction closing,”

the firm says. With the private sector, PwC

will develop the bid strategy, structure the

transaction, raise financing and assist in the

transaction closing.

From investment banks, law firms and risk

advisors to cost consultants, architects

and insurance experts, the involvement of

Toronto’s community of P3 experts over

20 years in developing, constructing and

operating successful P3 infrastructure

projects has distinguished them as world

leaders in the sector.

In fact, says Mark Machin, President and CEO

of the Canada Pension Plan Investment Board,

“there is every reason to think that Toronto

can rival London and Sydney as a centre of

expertise in this sector in the years ahead.”

Because of the sustained involvement

of Toronto’s business and financial

community in P3 infrastructure projects,

in Canada and throughout the world, the

city has generated an ecosystem of expert

advisors with world-leading capabilities.

At the centre of Canada’s legal profession,

for example, law firms based in Toronto such

as Weir Foulds LLP, Norton Rose, Fasken

Martineau DuMoulin LLP and others ensure

that concession agreements, design-build

agreements, operation and management

agreements and other contracts address all

contingencies of a P3 project over its lifetime.

They also advise on development, financing,

acquisition and divestiture of P3 projects.

Since a P3 infrastructure project aims to

increase project value by managing the risk,

Toronto’s risk advisors play a critical role in

assessing and allocating project risk to the

party most qualified to assume it.

For example, a private developer may be

better qualified than a public partner to

operate and maintain an asset, while the

public partner may be better positioned to

assume the risk of environmental approval. By

allocating these risks effectively, advisors can

help to eliminate uncertainty and maximize

the value of a project to the public sector.

Meanwhile, Toronto’s major consulting

firms such as Deloitte, Ernst & Young

Orenda Corporate Finance Inc. and

PricewaterhouseCoopers LLP (PwC)

The involvement of Toronto’s community of P3 experts over 20 years in developing, constructing and operating successful P3 infrastructure projects has distinguished them as world leaders in the sector.

20+ YEARS

The Toronto Financial Services Alliance (TFSA) is a unique public-private partnership dedicated to building Toronto as a global financial services centre.

For more information on the TFSA and Toronto’s

financial services sector, please visit tfsa.ca

or call 416-933-6780.

For more information on the Canadian Council for

Public-Private Partnerships, please visit pppcouncil.ca Dec

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