An Overview of the Chicago Skyway Transaction Joseph Seliga Mayer, Brown, Rowe & Maw LLP Northern Border Finance Conference Chicago, Illinois May 15, 2007

The Chicago Skyway: Background Chicago Skyway

The Chicago Skyway: Background 7.8 mile highway and bridge over the Calumet River on the Southeast Side of Chicago Opened in 1958 Designed to connect with the Indiana Toll Road Constructed, owned and operated by the City of Chicago One toll plaza, with manual toll collection in both directions

Skyway History: Early Financial Troubles... Recent Financial Successes Construction of free interstate highway alternatives soon after Skyway opening Ridership and revenue fall far below estimates Proposed federal government takeover in 60s and default on bonds in 70s Turnaround begins in 80s and 90s with congestion and construction on free alternatives By 2003, revenues of $38.7 million and EBITDA of $28.3 million

The City’s Decision to Consider Privatization Operations Benefits Operating Skyway is not a core City competency Private operator offers benefit of operating efficiencies Private operator can act in economically rational manner in generating revenue Financial Benefits City can recover its equity in Skyway and redeploy it elsewhere City budgetary issues create great need for additional funds to shore up financial position Focus on long-term financial benefits

Initial Steps Analysis of financing alternatives In-depth precedent review Review of state law issues  Property tax exemption legislation Review of federal law issues  Amendment of FHWA Agreement

The Privatization Process: Instilling Bidder and Public Confidence Retention of legal and financial advisors Corporate auction style process  RFQ issued – 10 responses  Intensive due diligence – 5 qualified bidders Final bidding based solely on price and on same agreement terms for all bidders City reserved right not to accept bids and to cancel process at any time City Council approval at end of process

Chicago Skyway Concession and Lease Agreement: Concessionaire Pays Upfront Rent to City for Right to Collect Tolls on Skyway for 99 Years Upfront Rent  Rent Not Purchase Price: City Retains Ownership of Asset  Single Payment  Maximizes Upfront Benefit to City Right to Collect Tolls  Concessionaire Retains All Toll Revenue  Subject to Certain Toll Limits  City Retains Right to All Other Revenues (Except Restaurant) 99-Year Term  Tax Ownership: Concessionaire Can Benefit from Depreciation  Effect on Value

A Careful Balance Between the Interests of the City and the Concessionaire Value comes into play on both sides City driven by policy objectives intended to protect the interests of its citizens Concessionaire focused on an agreement that is fair and that it can take to market An agreement for a long-term working relationship

An Agreement Balancing City and Concessionaire Interests City Interests Detailed operating standards Compliance with hiring and contracting requirements Interview existing employees No competing road restriction Shift of liabilities Reimbursement of police costs City retains non-toll revenue Concessionaire Interests Flexibility in interpreting operating standards Clarity with respect to hiring and contracting requirements No obligation to hire existing employees Protection against State, City and County “adverse actions” City retention of pre-existing environmental liability City police protection Retention of all toll revenue

Tolling Regulation: Clear and Indisputable Toll limits increase from $2.00 to $5.00 each way in specific increments to 2017 Thereafter, toll limits increase annually by greater of:  2%  CPI increase  increase in GDP per capita Regulation modified in response to bidders Minimal public reaction to initial toll increase

The City’s Use of the Proceeds: An Investment, Not a Spending Spree City’s Use of Proceeds $465 million Skyway debt defeasance $500 million permanent reserve—5% annual growth greater than prior Skyway excess revenue $390 million City debt repayment $375 million “annuity” for operating budget over 8 years $100 million for human service programs The Market’s Response Soon after Skyway closing, rating agencies improve City’s financial outlook In August 2005, rating agencies increase City’s bond rating to AA and AA- Repayment of debt reduces City’s debt load Reserve fund provides cushion against downturns in tax collections or emergency expenditures

A Concession Model for the United States First privatization of an existing United States toll road A model for privatizing an existing asset— new transportation assets may be different Not the hiring of a private operator as much as a process to recover public equity by transferring right to operate asset to a qualified operator Focus on maximizing:  upfront revenue to government (to use for the long-term)  long-term toll revenue of private operator (within limits)

Contact Information Joseph Seliga Mayer, Brown, Rowe & Maw LLP 71 South Wacker Drive Chicago, Illinois (312)