Valuation of Buyout Options in Comprehensive Development Agreements
Author(s):
G. Power, M.W. Burris, S.R. Vadali, D. Vedenov
Publication Date:
December 2009
Abstract:
This project investigates the feasibility of and develops an economic valuation model for buyout options in Comprehensive Development Agreements (CDAs). A CDA is a form of public-private partnership in which the right to price and collect revenues from toll roads is leased to a private entity for a finite but lengthy period of time in exchange for providing local and state governments with a quick influx of cash and/or additional infrastructure. Uncertainty associated with such long-term leases is of substantial public concern. In particular, there is a sentiment that the state and/or municipal governments may not be sufficiently compensated for the forfeited development opportunities and the possibility of lost revenue due to higher-than-expected future growth during the lifetime of the lease. An under-studied aspect of the problem is the feasibility and economic value of an option for the government to buy back the leased infrastructure at a future date prior to lease expiration. Such an option would give the public sector additional control over the future use of leased facilities and address potential concerns regarding long-run uncertainty and possible unforeseen windfalls for the private sector. The developed buyout option valuation model can aid transportation policymakers in decisions on leasing public infrastructure. Project deliverables include: feasibility assessment of buyout options, an economic valuation model for buyout option in a CDA, and identification of methods, data, and parameters required to apply the model to evaluation of buyout options in actual (planned or existing) CDAs.
Report Number:
UTCM 08-04-12
Electronic Link(s):
Document/Product
http://utcm.tamu.edu/publications/final_reports/Power_08-04-12.pdf
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