Three of the country's largest pension investors have struck a $2.8-billion (U.S.) deal to acquire a toll road that links downtown Chicago and its southeastern suburbs in an 88-year agreement.
Canada Pension Plan Investment Board (CPPIB), Ontario Municipal Employees Retirement System (OMERS) and Ontario Teachers' Pension Plan (OTPP) will each contribute $512-million for a one-third stake in Skyway Concession Co. LLC, which owns the asset. Under the agreement, the pension funds will collect tolls paid by drivers and will be responsible for operating and maintenance expenses.
Infrastructure investors like toll roads for their ability to generate stable income in different market conditions.
"Skyway is a critical asset for the Chicago region that will provide inflation-protected returns to match our liabilities and further diversify our infrastructure portfolio," Andrew Claerhout, senior vice-president of infrastructure at the OTPP, said in a statement.
He added that the long-dated nature of the deal's contract with the City of Chicago matches well with investment horizons of the three funds.
The 12.5-kilometre toll road that spans the Chicago Skyway Bridge was built in 1958. By 2003, after undergoing a reconstruction, more than 17 million motorcycles, cars, trucks were passing through and $39.7-million in tolls were being collected, according to the company's website.
"Skyway represents a rare opportunity for us to invest in a mature and significant toll road of this size in the U.S.," Cressida Hogg, head of infrastructure at the CPPIB, said in a release.
The pension funds will own the toll road through a concession agreement, in which property rights are given over by the local government for a certain amount of time. In this case, the investors could hold the asset until 2104.
The toll road was run by the City of Chicago for several decades. Then in 2005, a 99-year operating lease was sold to Skyway Concession, which was backed by Spanish transportation infrastructure group Cintra SA and divisions of Macquarie Group.
These investors paid $1.83-billion for the asset – a price that the U.S. Department of Transportation said was 2.6 times the amount offered by the next highest bidder, a group that included French and Canadian investors.
The deal made history in the United States because the country had never before privatized an existing toll road through a long-term lease.
Infrastructure assets have held extra appeal in recent years as asset managers search for yield in an environment of lower interest rates and uneven markets.
"Our investment in Skyway also fits with our goal of growing our assets under management in the North American infrastructure space," Ralph Berg, global head of infrastructure at OMERS Private Markets, said in a statement. The fund has set a target to boost infrastructure investments from 14.7 per cent of the portfolio as of its 2014 year to 21.5 per cent within a few years.