Good morning or afternoon, everybody. This is Silvia Ruiz speaking, and I will call to discuss the recently awarded I-24 project in Nashville. I am joined here today by our CEO, Ignacio Madridejos, and our CFO, Ernesto López Mozo. Just as a reminder, the presentation has been made available on our website. At the end of the presentation today, there will be a Q&A session, and you will be having the opportunity to ask questions live. In order to do so, you will need to join the call through the conference call channel and press star five on your phone keypad. If you prefer, you can send questions through the forum included in the webcast, and I will be reading them out loud at the end of the Q&A session.
Before starting, please take a moment to look at the Safe Harbor statement included in the presentation, and please bear in mind that the presentation contains forward-looking statements and expectations that are subject to certain risks and uncertainties, so actual figures may differ. With all this, I will hand over to Ignacio. Ignacio, the floor is yours.
Thank you, Silvia, and hello, everyone. Today, I will present the I-24 Choice Lanes project in Tennessee, an important milestone for Ferrovial with the potential to create significant value. We were selected to deliver the project in August, reached commercial closing on the 30th of September, and now we are working on the financial close. The I-24 Choice Lanes is Tennessee's largest ever capital investment and its first public-private partnership transportation project. The corridor extends 26 mi between Nashville and Murfreesboro from the I-40 area to I-840. The project will add two choice lanes in each direction alongside the four existing general-purpose lanes. The project is a 50-year design, build, finance, operate, and maintain concession. TDOT retains responsibility for customer service, toll collection, and maintenance of the four existing general-purpose lanes that remain toll-free.
The project has an estimated construction cost of approximately $9.2 billion, with an expected eight-year construction period and service commencement expected in 2034. Turning to the corridor fundamentals, let me start with the growth profile of the Nashville area. Nashville is one of the fastest-growing metropolitan areas in the U.S., supported by robust demographic and economic fundamentals. The region has consistently exceeded macroeconomic growth expectations, which reinforces our confidence in the project. The metropolitan area reached approximately 2.2 million residents in 2025, following sustained population growth of around 2% per year over the last decade. Over the last 10 years, real GDP grew at a 4.6% compound annual rate, while median household income reached approximately $88,800 in 2025, around 9% above the U.S. average.
The region combines a diversified economy, a deep talent pool supported by more than 20 universities, a strong graduate retention, and continued corporate investment and relocations. Today, Nashville is home to five Fortune 500 headquarters and has attracted 35 corporate relocations since 2018, further strengthening employment and economic activity. Growth across logistics, technology, finance, healthcare, and entertainment continues to reinforce the region's economic resilience and long-term competitiveness. These demographic, employment, and economic trends are important drivers of long-term travel demand and support the attractiveness of the I-24 corridor. Moving on to the next slide, I-24 is a gateway corridor serving multiple economic and mobility needs across the region. The corridor is a key freight and logistics route. Nashville is one of only six U.S. cities where three major interstate highways converge, and heavy vehicles account for approximately 12%-16% of corridor traffic.
I-24 forms part of the Atlanta to Chicago and St. Louis freight corridor, linking the Southeast and Midwest, with around 50% of large trucks traveling long distances. Beyond freight, the corridor supports daily travel demand along the Nashville to Murfreesboro growth axis, serving a fast-growing residential area and providing access to Nashville. The corridor also provides direct access to Nashville International Airport, which handled a record 26.7 million passengers in fiscal year 2026 and has grown at an 8% annual rate over the last 10 years. Our analysis shows that users travel approximately 10 mi per trip on average, while truck trips are longer than the corridor average, underscoring the corridor's importance for both regional connectivity and freight activity. Development activity has also been significant, with approximately 178 million square feet of new developments along the corridor between 2020 and 2026.
Overall, these demand drivers position I-24 as a strategic corridor underpinned by multiple and diversified sources of traffic demand, supporting the long-term fundamentals of the project. On the next slide, we can see the scale and persistence of the corridor's congestion challenge. The corridor currently carries approximately 150,000-190,000 vehicles per day. The analysis shows approximately 8 to 11 hours of congestion on a typical weekday with peak conditions lasting around four hours in each direction and the speeds falling below 20 mph . The heat maps compare weekdays traffic conditions in 2016 and 2026. Areas shown in red colors indicate more severe congestion and longer delays. What is important is not only the intensity of congestion, but also its expansion across the corridor.
Compared with 2016, congestion today is more intensive, lasts longer during the day, and affects both directions of travel over longer stretches of the corridor. The maps also show that congestion is no longer limited to traditional peak periods, with traffic conditions remaining constrained for much of the day. The westbound morning peak illustrates the geographic extent of the bottleneck across the corridor. Under current traffic conditions, users can experience delays of 36 minutes during peak periods. The new managed lanes will help to alleviate congestion, thereby bringing a reliable option to local residents. Looking ahead to 2034, when the asset is expected to begin operations, the traffic case is supported by three factors: expected strong regional growth, latent demand currently constrained by limited capacity, and the gradual user adoption we typically observe following capacity expansion.
Starting with the regional outlook, the slide shows third-party forecast compound annual growth from 2025 to 2034 of approximately 1% for population, 2.1% for real income per capita, and 2.8% for real GDP. One important point to highlight, as mentioned in previous slide, is that Nashville has consistently exceeded previous macroeconomic growth forecasts. This track record provides additional support for the region's long-term growth fundamentals. We also see evidence of suppressed demand along the corridor. Between 2010 and 2024, traffic grew by approximately 1% annually in the northern section of I-24, compared with more than 3% growth in sections where capacity is available. The most congested areas exhibit the lowest observed growth. This pattern shows demand being shifted to other routes or other times. This suggests there is latent demand that can return to the corridor once additional capacity becomes available.
Based on that, we expect a fast period of initial user adoption. According to our experience in our managed lanes portfolio, users typically take approximately two to three years to become familiar with a new route configuration and the benefits it provides. Together, expected regional growth, the release of suppressed demand, and anticipated progressive user adoption support the traffic assumptions for the asset following its expected opening in 2034. Turning now to connectivity, this is one of the principal differentiators of our design, as stated by TDOT. When comparing the TDOT reference design with the Drive TN design, the number of interchanges connected more than doubles from 7 to 15. With that, the share of corridor trips in-scope increases from approximately 70% in reference design to 90% in our design, which represents 1.4 x more in-scope trips than under the reference design.
Entries and exits increase from approximately $0.8 per mile to approximately $1.2 per mile. The design includes more direct connectors instead of T ramps and longer acceleration lanes designed to accommodate heavy vehicles entering safer at speed. These features make it easier for users to access the choice lanes across the corridor and create greater connectivity and thereby travel convenience. At the same time, the optimized design reduces right of way requirements and lowers community impacts. Overall, the design allows more trips to access the choice lanes with greater travel convenience for users and fewer impacts on surrounding communities. Moving to the pricing framework, the objective is to manage congestion and preserve reliable travel times as traffic conditions change. I-24 uses dynamic pricing that responds to real-time demand with no ceiling rates.
The pricing framework establishes a soft toll cap, and pricing goes above the soft cap when defined traffic or speed conditions are met. Toll rates above the soft cap can increase without a defined formula and with no maximum. Above certain pricing levels, a portion of the revenue is shared with TDOT. The developer retains 100% of toll revenues up to $3.2 per mile. Above that level, revenue is shared with TDOT through the bands shown on the slide. The developer retains 50% between $3.2 and $4.8, 25% between $4.8 and $6.4, and 10% above $6.4. The main soft toll cap starts at $1.6 per mile. There is also a lower soft cap of $0.8 per mile when volumes are below 500 passenger car equivalents per lane per hour. Also, most traffic across our portfolio operates above that level.
The soft cap is scaled annually at the greater of 2.5% or the average of Tennessee GDP growth, U.S. CPI, and 3%. An uncapped pricing event may be triggered when traffic exceeds 1,500 passenger car equivalents per lane per hour or when speed falls below 55 mph . This is substantially easier to surpass based on our experience improving level of service to users. In addition, when a trigger is reached on one segment above soft cap, pricing may also apply in the preceding segment. This allows the pricing response to extend across connected sections of the corridor, helping manage congestion before it spreads further throughout the network. Heavy vehicles are subject to high pricing multiples from three times for extended vehicles to eight times for large trucks. These multiples reflect the greater capacity used by larger vehicles.
Overall, the combination of dynamic pricing, preceding segment pricing, annual escalation, and differentiated heavy vehicle multipliers provides substantial operating flexibility, while keeping the framework focused on reliable service for users. Our projections for I-24 are grounded in extensive benchmarking against our 60 managed lanes portfolio. NTE 35W is the most relevant comparable, particularly given its similar traffic mix. Importantly, if the I-24 pricing framework and connectivity were applied to NTE 35W current traffic profile, its revenues per lane per mile will significantly increase. While this is an illustrative comparison and not intended as a forecast, it provides additional support for the I-24 pricing framework, and together with our operating experience, supports our confidence in the assumptions underlying our projections and expected returns adequate for the risk of the project.
Let me now turn to the project's construction and the measures we have taken to improve delivery visibility and reduce project impacts while mitigating inflation risk. Our innovative outside lane design is aimed at improving connectivity while reducing construction cost and minimizing disruption to assisting users and surrounding communities. Approximately 30% of advanced design development has already been completed, increasing engineering visibility and pricing confidence. The delivery plan benefits from an early engagement with a significant local subcontract network and the capabilities to self-perform some activities. Inflation risk is mitigated through developer and grantor protections, together with additional cost contingency. Moving on to the next slide. Our managed lanes operational expertise provides differentiated know-how and unique operating insights and benchmarks. Estimating revenue requires a detailed understanding of several key variables, and this is where our traffic data analysis and insights from our operating portfolio give us differentiated perspective.
Specifically, there are important factors, such as actual capture rates by vehicle type and time periods, the impact of connectivity and network access, and how to increase in-scope traffic, how quickly users adapt a new road configuration and how to improve capture rates, understanding suppressed demand and how traffic returns when additional capacity becomes available, understanding how often pricing moves above the soft cap, how long it lasts, and how users respond, estimating customer response to toll rate changes, understanding how segmentation configuration can be optimized to manage demand and maintain service quality. I would also like to mention that the bid has been also supported by partners, and our consortium includes the two most experienced managed lanes operators, bringing complementary knowledge to both underwriting and the future operation of the asset.
In short, the I-24 bid is underpinned by extensive proprietary traffic data analysis, proven operating experience, and a detailed understanding of how managed lanes customers behave in practice. Turning to future enhancements, the concession creates a structured path to consider additional extensions over time. These potential enhancements were not included in the bid or in our projections. The agreement provides a structured path to develop potential northern, eastern, and southern enhancements with TDOT. Any development is subject to TDOT approval. The developer holds the right to begin negotiations with TDOT. I-24 and any negotiated enhancements will form one connected network. The northern enhancement is identified as the first potential enhancement in the development sequence. Moving now to the next steps, this slide sets out the main milestones from commercial close through service commencement. As you all know, commercial close was completed on the 30th of September .
The next major milestone is financial close. The contractual deadline is July 2027, and we currently expect completion before that date. Groundbreaking is expected in early 2029, with design and early construction works expected to start after financial close. Service commencement is expected in 2034, when the 50-year concession term will begin. In terms of interest rates, protection from the bidding submission up until the financial close, the financing framework includes agreed protection for base rate risk and a substantial portion of margin risk from bid through financial close, varying by debt instrument. For private activity bonds and taxable bonds, TDOT bears all base rate risk and 85% of margin risk. The developer bears the remaining 15% of margin risk and the volume risk for taxable bonds. For TIFIA debt, TDOT keeps the risk of both amount and base rate risk.
TDOT requires an investment-grade credit rating for the project debt bidding proposal. We cannot disclose information about equity and debt requirements or concessional payments until financial close due to confidentiality rules. Once we reach financial close, we will be sharing information on concession value and financial structure, that it is expected to provide adequate returns to equity even for third-party projected revenues below our internal projections. This is expected to be a solid project with adequate returns even under more negative scenarios. Let me close by bringing together the key messages from today's presentation. I-24 serves a highly congested corridor with multipurpose demand and a favorable pricing framework to manage congestion and preserve reliable travel time. Solid demographic, employment, and economic growth prospects support the long-term outlook for the Nashville region. The differentiated design, advanced engineering, and disciplined construction assumptions are aimed to support cost efficiency and risk mitigation.
They have been supported by operating insights and extensive experience across our managed lanes portfolio. We have maintained our disciplined approach to capital allocation, targeting a double-digit equity IRR calibrated to the project's risk profile and complexity, considering that this type of project is riskier than others. We also have a strong balance sheet capacity, and we intend to source the funds for the equity commitments for this project and, if successful, I-285 in Atlanta, mainly with cash generating our operations and to a lesser degree with additional corporate debt, all within the framework of our BBB rating and excluding any equity raised at the Ferrovial level. We believe the market is at risk of overestimating the equity requirements of the I-24. Details will be disclosed upon financial close.
Lastly, we are excited about the attractive pipeline, and we are looking forward to the new managed lanes opportunities ahead, including I-285 East and I-77 South. Thank you for your attention, and I will now hand the presentation back for questions.
Ladies and gentlemen, we will now begin the Q&A session. If you would like to ask a question, please press star five on your telephone keypad. If you change your mind, please press star five again. Please ensure that your device is unmuted locally before proceeding with your question. Our first question comes from Cristian Nedelcu from UBS. Your line is now open. Please go ahead.
Hi. Thank you very much for taking my questions. Could I please ask you in terms of the capture rates, roughly could you give us an idea? I think based on public information, it seems that in Texas, your capture rates of the general purpose traffic is around 17%-28%. I don't know if that's correct, but can you give us a bit your expectations here? Secondly, ballpark, how many years does it take to reach 1,500 vehicles per lane hour? Just any color you could help us there. In terms of the long-haul trucking, is it fair to assume that it could be more volatile than local traffic as there are more different options to choose when going for long-haul traffic rather than local traffic that is captured in the area? Do you agree or disagree maybe with this? Thank you.
Hello, Cristian. Yes. About the different questions that you asked. The first about capture rates. We are not disclosing, as you know, any information about our managed lanes, but of course, the information that we have from the managed lanes that we are operating today was taken as a base, as a reference for the bid that we have submitted and estimated the revenues. But we are not disclosing today any information about that. I was not clear about the second question. I think the traffic that you commented, the 150,000, this is the information that was submitted by the TDOT, and it was the information, if I remember well, of 2025. So I don't know, well, what you were asking about that question specifically. Yes. Go ahead. Yeah.
Sorry to interrupt. Apologies, I didn't express my question very clear. I was talking about the soft cap. I think the soft cap is reached when, per hour per lane, there are 1,500 vehicles. In regards to that, roughly how many years do you think it could take to reach that type of traffic per hour per lane and trigger the soft cap above $1.6 per mile?
Sorry, because I misunderstood you. I understand that you are meaning about the soft cap. What we did, honestly, is take what we are seeing now in our managed lanes, specifically where we have the soft cap, that is the case of Dallas, and applying with this level of traffic to this specific case. Our estimates are based on what we are seeing today, but we are not disclosing how we are seeing it. But as we commented, it's substantially easier to surpass. Compared to what we have in the Dallas-Fort Worth managed lanes today, that is a higher number. This also looks closer to the previous one. It's substantially easier to surpass under any situation. And of course, we have this reference with the 407 ETR and other assets that we have. Regarding long- haul, yes.
The difference is that in this case, it's more related to the U.S. GDP, but it's a route that is actually being used very frequently, and it's a corridor that is extensively used and is the main alternative, as commented previously for some routes. But it's not the only source of traffic to the corridor, because as commented, this is a logistic area with some sort, holes, some distance in the area, a logistic center in the area, and also is a lot of commuters, and also the traffic and airport. I think we see that it's very solid in terms of growth because there are different sources, both linked to Nashville and how it's growing in terms of population and economic activity, and also related to the U.S. GDP, as could be more the long-haul traffic.
Thank you very much.
Our next question comes from Patrick Creuset from Goldman Sachs. Your line is now open. Please go ahead.
Hi. Can you hear me?
Yes, we can hear you.
Great.
Yes, we can.
Hi, Ignacio and Ernesto. Three questions, please. First is just to better understand, without being very specific, just in rough proportions, the $24.8 billion concession value promised to TDOT. Would it be correct to say that out of that $25 billion, roughly, there's some upfront payment, and then when I look at your slide nine, that the bulk of that concession value would come essentially from revenue-sharing payments? Also, are they basically referring to future value, or is it discounted value of revenue-sharing payments that you take into account?
Yeah. Hi, Patrick. No, I think you are missing things. What is the concession value that, as we have commented previously, is something that will be disclosed at the time of the financial close, so we cannot give any additional information. What you have on page nine is what you are sharing above a certain. When you are above the 1,500, know that you are above the soft cap, then you can increase. It's your decision how much and how fast you can increase to certain levels, the price. If you are certain thresholds, then you share something with the grantor. This is independently—
Okay
—of any concession value.
Right. Are you saying this would come on top of the concession value you've committed? So when I look at the 50%, 75%, 90% profit shares, potentially at higher price points, that would come on top of the $25 billion, or is it included somewhere in the $25 billion? That's all I'm asking.
I will say that is independently of the concession value, if you go above those numbers.
Okay. Second question, the soft cap of $1.60, is that a future value? Are you like a 2035 value or value today that inflates until you start collecting tolls?
It's our 2025 value.
It inflates until 2035? Okay.
Yes.
Okay. Third question, regarding the mandatory mode trigger level of 1,500 vehicles per hour, is that calculated alongside the entire road, or can you look at specific segments of the road and then basically trigger on parts of the road, depending on traffic level?
It is triggered by segment, and as commented, then it is triggered also for the preceding segment. So in one segment, you are reaching this 1,500 or 55 mph , that both of them are below what we see in the Texas managed lanes, then it is triggered in that segment, and then you can go above the $1.6 cap, and you can apply that not only to that specific segment, but also to the preceding segment.
Thank you.
Our next question comes from Dario Maglione, from BNP Paribas. Your line is now open. Please go ahead.
Hi. Thank you. Thanks for taking my question. Actually, just one question on construction cost risk. The $9.2 billion, is this a fixed price? Can you explain to us exactly what is the potential risk for Ferrovial share? Let's say this construction goes from $9 billion, it's $1 billion more, how much would be absorbed by Ferrovial? Thanks.
As you know, the construction cost is something that we estimated by three teams independently and with a quite advanced design, the 30%, that is unusual in these specific cases, and we have been working for this project for a long period of time. Also with the understanding what is the local supply chains and getting quotations from them and also analyzing those self-performing activities. With that, we came with a fixed price that has some inflation risk mitigated by the developer and by the grantor to a fixed amount, and then with the contingencies. In that price, we built enough contingencies, of course, for the risk that we see today and also for things that potentially we don't know. So we feel comfortable with this price, that is a fixed price, but also has some mitigation in case of pricing escalations, as commented previously.
If there is a cost overrun, how is that split between the partners?
This is a fixed price, as commented, with some escalations. Yes, if the price is at the end, you have a profit or loss, it's the construction company who bears the risk. Yeah.
Okay. Can I just ask a quick one, just a follow-up on the previous question? The $ 24.8 billion payment, is that an NPV calculation, or is it a nominal amount?
No, as commented previously, we cannot disclose any figure right now, and we have to wait to see with the financial close. We have signed a confidentiality agreement, as commented, and we cannot disclose anything more about that.
Okay. Thank you.
The next question comes from Elodie Rall from JP Morgan. Your line is now open. Please go ahead.
Hi. Good afternoon. Thanks for taking my question. I have still a few follow-ups and more questions. You mentioned that the start of the concession will be at the end of the construction phase. Does that mean that if there are delays in the construction phase, the 50-year start will be delayed as well? Second, is there any way you could share a bit of information that you think that competitors were missing in their bids to explain the difference in the bid level there? Third, what additional information would you provide at financial close? Would you get us some idea on IRR that you target? Could you share with us already how the debt-to-equity is split? Is it two-third debt, one-third equity? Is that assumption fair?
Lastly, unrelated to that, but I think important, do you have a partner for the I-285 East project now that Transurban is out? Thanks very much.
Okay. I will answer the first two questions, and then Ernesto will comment about what happened, information about financial close. Yes, the 50 years commence at the time of starting operations, so it will be whenever. If it's early, it's early, and if it's later, it's later. Regarding the competitors, of course, it's highly speculative because we don't know exactly what they did. One of the things that you should consider is how competitive the bids were, in the sense if they have capital limitations or other kind of limitations when they place the bids. Some of them could have been bids just to get the stipend that is paid for presenting the bid. It's very difficult to know what the level of information and benchmark they could do about managed lanes, especially with this pricing mechanism that is very different to previous ones.
It's very difficult to try to extrapolate the situation to other managed lanes and try to get some values. But as I mentioned, it's highly speculative. What I can tell you is what we did. We presented an offer that we expect is going to create a lot of value for the company, and even an offer that, as we commented, that we expect that also financial close, it will get an adequate return, even in situations that are more negative than our assumptions, as the ones that we have seen in the market. For partners, I think for the I-285, well, this is something that I don't know what has been disclosed. Of course, we have communicated that Transurban decided a long time ago not to continue, and that they will continue with the Tikehau.
It does not mean that at some point we may bring other partners. It could be before commercial close, or could be after financial close, or could be when we open the managed lanes. We can always incorporate partners at different times, of course, at different prices, too. Ernesto, you can comment about the information disclosure.
Yes. Thanks. Normally at financial close, you will have the IRR that is the output of what is called the escrow business plan. That is usually what you see. Right? There will be also an opportunity to apply the capital structure to other sorts of projections that are in the market, as Ignacio mentioned before, and you will then see the returns that can be achieved even in that downside projections.
Sorry. Okay, thanks.
The next question comes from Graham Hunt from Jefferies. Your line is now open. Please go ahead.
Yeah. Thanks very much for the presentation. Just two questions from me. First one, you mentioned in the final remarks slide, the attractive pipeline of new opportunities ahead. Should we take that to mean that, obviously, you've got a bid on for the I-285. If you were to win that, do you feel like you would be comfortable with your current balance sheet to fund that as well? If you were to win I-285 as well, should we assume you would still pursue additional opportunities in the U.S., like the I-77 South? Second question, I just wanted to ask, you mentioned a couple of times that your IRR analysis was obviously adjusted for the scale and risk of the project.
I don't know if there's any more color you can add to that, just insofar as thinking this is a project which is an order of magnitude larger than, if not more of your existing projects, how you adjusted your risk assessment to accommodate that and ensure you achieve your targeted returns even in sort of downside scenarios. Thanks.
Yes. Thank you, Graham. I will answer the first question about the pipeline. Yes, of course, we commented that we bid for both projects, the I-24, I-285 is both under assumption that it will not need any capital increase, and we can fund it with the cash flows from our operating assets today, and limited extent also with some additional corporate debt at holding level. Yes, we'll continue bidding for more projects. I think this is a very attractive pipeline. Very good opportunities ahead. Yes, I think that we'll continue bidding. Of course, the I-77, as you know, it was both gained in favor by the Charlotte Transportation Authority. So we expect that this project will continue ahead, and we'll get the RFP by the end of the year, and then will be tendered hopefully at the end of the year or the beginning of 2028.
We think it's a very attractive project. As you know, we have a consortium, and as part of it, we will bid for this project. Also hopefully, we can win, similar to the I-285, and we can create value with these additional projects.
Well, regarding, Graham, the equity IRR hurdle, of course, is high in terms of what is needed for these projects. We won't mention other specifics that recently maybe were a little bit tighter than this one. It's similar. What we've done is also look at many other things to support the bid, right? Like, of course, all the benchmarking that Ignacio was mentioning before. By the way, one of the things that is important to clarify is that the hurdle for the 1,500 vehicles is checked every five minutes. It's not that you have to wait for an hour for that. Right? We have ample data for that. So we've looked at all the different segmentation that we have in our different assets to assess for affordability and other stuff, right?
It's not only the hurdle rate per se, but also all the analysis of these sensitivities and backing to have the solid backing of our expectation.
Understood. Thank you.
Our next question comes from José Manuel Arroyas from Santander. Your line is now open. Please go ahead.
Thank you, Ignacio and Ernesto. A couple of questions, if I may. First, you mentioned earlier that the market could be underestimating the equity payments associated with I-24. Could you please tell us what Ferrovial's capital allocation policy might be after I-24? In particular, I wanted to ask you about the EUR 600 million or so of annual share buybacks that Ferrovial is currently implementing as part of its shareholder remuneration. Do you expect to maintain that policy? Could we expect a shift to scrip dividend? If so, when would that happen, if at all? Also, how would these plans change if you were to win I-285 East in a couple of weeks' time? Second question is about the financial close.
I know you are not going to provide details, but qualitatively, is there any scenario that could prompt Ferrovial to reconsider your willingness to underwrite this project, the I-24? Especially, what levels of PABs or TIFIA loans would you consider at a minimum to underwrite this project? Thank you.
Thank you, José Manuel. I will answer the first one, and then Ernesto will answer the second one. Yes, as commented, I think that the comment that the market may overestimate the equity payments of this project. As commented, we expect that with our operating cash flows from our portfolio today and also holding debt by maintaining the BB B rating, we think that we can do this project and we win the I-285 and also additional projects in the future. So we are comfortable with that. Regarding the distribution policy, I think that it's not going to change in the sense that the board will continue taking decisions every year, and it will be based on the expectations and the opportunities we see of investments and also considering the cash flows that we see in the future.
Of course, considering as usual, rotation of mature assets with more value to third- parties than to us. Also as we usually do with the potential investments and opportunities that we may see in the future. So we don't expect to see a change to what we have been doing in the past. Also as a reference, historically, we have always given a dividend. Ernesto, you can go to the next.
Yes. You were talking specifically what happens with the financial close depending on the availability of different financing structures. The first one, you mentioned also TIFIA. TIFIA was covered during the presentation, is the grantor's duty, and also the bidding documents clearly specify what can be done if there is less availability of TIFIA, for instance. Regarding PABs and taxable loans, the first thing is that all the bid is submitted with investment grade rating from a variety of rating agencies. So our projections have been checked for their, let's say, lender's case with whatever shortage of revenues they considered, and we had that investment grade. So with investment grade, we also have, let's say, the assessment of bulge bracket investment banks about the size of what can be placed in the market.
Therefore, with the market is not being closed, investment grade and that assessment, we should be in good shape for the financial close with these instruments.
Our next question comes from Cristian Nedelcu from UBS. Your line is now open. Please go ahead.
Thank you very much for allowing me to follow up. Could I ask you mentioned it is easier to trigger mandatory modes on I-24 relative to some of your other roads. Could I ask you to elaborate there? Which are the arguments? And secondly, just to come back at the TIFIA. You have this slide with the TIFIA volume risk sits with the Department of Transport. Just to make sure, could you elaborate what that means? Do you know exactly how much TIFIA loan you will get? Or that is still subject to change? And could you elaborate what does the volume risk sits with the TDOT mean? Thank you.
Thank you, Cristian. Yes, about the 1,500, the soft cap that we need to trigger to get uncapped pricing events. In the other managed lanes it is different, where we have a soft cap that is higher than these numbers, is 1,800 and also 60 mph . Of course, with our traffic data analysis and insight, we have been able to analyze how often and for how long and under which events this will happen based on the analysis that we have. With that, we have taken the assumptions in order to estimate the revenues that we have placed in our offer. Of course, we cannot disclose how easier it is to surpass. It is not linear. Do not think that it is a small difference. It is quite large, the difference.
But of course, we cannot share any information that is something that we do not want to share with the market in general. But of course, it is based on data and analysis, and it has taken us to precise information that is included in our estimates. But it is nothing that we can share with you today.
Okay. Regarding that the TIFIA volume price lies with the grantor and the final amount of TIFIA is not known yet?
For what that implies in terms of what the grantor responsibility, you will have to wait for the financial close, and there all the capital structure will be clear. I am sorry, but we cannot comment at this point in time.
Thank you very much.
The next question comes from Nicolas Mora from Morgan Stanley. Your line is now open. Please go ahead.
Yeah. Good afternoon, gentlemen. A few from me. As José Manuel said, you put in the slide, you feel the market overestimates the need for equity on the project. Do you mind sharing what that level is for you in terms of what you think consensus expects for equity? That would be helpful. Second one, we understand you're pushing a fair amount of risk on the financing and funding to TDOT, but in the current market where the rates are and the spreads are, and they've moved a lot since early July when you filed the offering, how much would you cut the upfront payment today? Could you give us an idea of how much basically the current conditions in the market today would lead you to cut the offering of the upfront?
Last point, in terms of tariff capture, apparently the key documents show there's relatively low propensity to pay per user, in Nashville. Is that something you expect as well? Last point, can you just confirm the stake you have in the project? That'd be helpful. I think it's 65%, but just a confirmation. Thank you very much.
Thank you, Nicolas. I will try to answer. Let me know if I do not answer all the questions because of the four of them. The first one, I think unfortunately we cannot give any more details right now of what our estimates are. It is something that we will disclose at the financial close. You have to wait until then, and even now it is an estimate, and we will not know the final figure until everything is closed. As we commented, the risk of funding is very mainly on the grantor. According to the bidding rules, it is clearly how it is adjusted in case it is moving. It is a clear definition in the bidding rules about how it is adjusted in case it is changing. To see the final numbers, we have to wait until the financial close.
About the propensity to pay, to me what is very relevant in this case is several things. One is that the delay now in peak times is 36 minutes, so it is quite a long delay. Income per capita is higher than the average of the U.S.. I think that, of course, we have taken the consideration about the willingness to pay and how it is evolving over time. That is related also about the evolution of the income per capita, how congestion is going to increase in the future. We have taken all these assumptions as part of our model, and of course, we have incorporated it in our estimates. The stake that we have, yes, I confirm you that we have 65% in the consortium that is the preferred bidder for the I-24. I do not know if I missed anything, Nicolas.
No. Well, actually on the first question, because you assess we are overestimating the need for equity, I just wanted to know what your base is in terms of how much you think the market thinks you need equity. Is it EUR 7 billion, EUR 8 billion on your share? Something around that? Just to know by how much we may end up being wrong by July next year. Also just one follow-up. You talk about the potential extension, I think that got a few people excited early on. Any kind of extension, especially to the north, closer to Nashville and to the airport. Can you clarify, this is fundamentally almost an independent project?
You would have some preferential rights, but you would basically have to almost re-bid on these projects if that comes to market, or you generally have a kind of first refusal rights on any extension be north or south of the asset?
Yeah. So about the first question, we cannot say more than that. I think that you have to wait until then, and as commented, we cannot give any idea about how much now is overestimated. About the second is, there are enhancements. One is an extension to the north. That is a very highly congested area. Of course, now users are asking for additional capacity, and I think for TDOT is a very good opportunity that is negotiating with the winner of the I-24 in order to build this extension. The way it works, you have, if I remember well, two or three months, no? When the winner has to show that they are interested in proceeding with this project, and then once you do that, they will need to do then the initial designs.
Because there is no NEPA, still no environmental permit for this segment, so it will be needed an analysis of a potential design, an estimate about cost and revenues. With that, identifying if there is a payment or a subsidy, and based on that, will be negotiated with TDOT. If approved after the negotiation, then they will proceed with environmental permits and with a project that will be part of the I-24 project. But after a negotiated process with the Tennessee DOT. It's similar to what we saw in the 35W, that we have several extensions later because it's under the geographic scope of the concession, and you negotiate with the DOT. Of course, they need to approve at the end, and they have to agree with what is proposed and what we plan to do. But you have the right to negotiate with them.
This is not in the base case?
It's not included in our base case, any enhancements, no.
Okay. Thank you very much.
Each of them, they have to be profitable by themselves, and each of them, they have to create value. Mm-hmm.
Our next question comes from Graham Hunt from Jefferies. Your line is now open. Please go ahead.
Yeah, thanks for the follow-up. It was just on capital allocation again, and squaring with your obvious appetite to bid on more of these projects. Can you just remind us the scope of assets that you could potentially divest? Ones that are currently, let's say, ready for disposal? And also, would you consider maybe reducing your stake in some of your existing assets in order to meet equity commitments on these new projects? Thanks.
Yeah. Hi, Graham. So, basically, when we mentioned that we are funding this with our operating cash flow, it basically comes from dividends from projects. We are not really looking to divest core assets or things like that. Of course, there's some type of business that we rotate more frequently. Let's say you need lots of photovoltaic investment, that's usually ripe for rotation pretty quickly. But in our numbers, what we have built for this funding, we haven't included anything like that, like what you're suggesting. So we can divest assets based on merits of the transaction per se and capital allocation. Not that we have really thought of that as a source of funding. That is super important.
Very clear. Thank you. Thanks.
The next question comes from Marcin Wojtal from Bank of America. Your line is now open. Please go ahead.
Yes. Thank you. I've got several follow-ups. So maybe firstly, just on funding, what is the maximum amount of leverage at the corporate level of Ferrovial that you would be comfortable to operate with? Can you just remind us what are the leverage metrics that you are most closely monitoring? My question number two, I wanted to come back on slide nine, where you disclosed those revenue-sharing mechanisms, depending on the pricing. But can you just explain, is it the only revenue-sharing mechanism that exists within I-24, or is there a separate revenue sharing that is relating to the total revenue that the asset will generate irrespective of pricing? That would be quite useful to know. And maybe the last one, if you allow me a follow-up on your slide nine.
You are disclosing that based on your design, you see 1.3x to 1.4 x more trips compared to the reference design of TDOT. Do you have visibility as to how your design compares to the design of other consortia that were also participating in the process? Is your design providing essentially significantly more traffic? I do not know if you can comment on that, but thank you.
I will answer the last two, and then Ernesto will answer the first one. About any revenue sharing, for that, I think you have to wait till the financial close to see that, so we cannot comment any further about that today. About the connectivity, what I can say is that, of course, I think there are two things here. One is in-scope traffic. As commented, it is 95%, so it is most of the traffic that is using the corridor is in the scope, so at some point of time could access the managed lanes. This is something that we have evolving through time. Other assets that we have today, like it could be the 35W today that has in the scope trips, the corridor in the scope is in the 70s.
It is much lower in some cases because you do not have physical space, or in other cases, you need the permission from the grantors. For different reasons, you may have a full scope. In this case, we have been able to find technical options that allow us to capture most of the traffic in the corridor. The second that is also equally important is the capture rates. Because it is not only that the traffic is in the scope, but that the length of the ramps is adequate. They are placed in the right position that you have second chances. The type of intersection that you have. These type of things are also relevant. All these things are based on our knowledge and experience in previous managed lanes.
We are quite comfortable with the design that we have, that we think is going to help us to increase the traffic to the managed lanes, and also because of the design, that the managed lanes are outside of the highway. Also that will help to reduce also the expropriations that are going to be needed and it is going to facilitate the construction during the traffic, during the construction. We are quite comfortable. I think that we have large teams that have been working about this project for a quite long period of time. 30% of design is quite unusual for this type of project. It is expensive too, but I think it is worth it because help us to identify opportunities that is difficult to say that others thought them or not.
But what I think is that this is the result of years of experience managing and bidding for managed lanes.
Okay, regarding the metrics for the corporate debt, we have a proxy that is not exactly what the rating agencies do. We always talk about a proxy being 2 x net debt- to- EBITDA, and here the EBITDA is mainly the dividends that we get from projects, and also the EBITDA from construction, let's say, and other divisions. So what you need to bear in mind, this is a long construction period and the equity is back-ended. And the growth of our dividends in the portfolio keeps supporting all the needs. That's the reason why we say that the main source is the dividends that we get from projects, and then to a lesser degree, additional leverage at the corporate level.
There are no further questions at this time. I will now hand the line back to Silvia at the Ferrovial team. Thank you very much.
Hello. Sorry. We have many questions here in the webcast. I'm starting reading. First set of question comes from Víctor Acitores from Bernstein. First question, what explains your construction cost far below ACS consortium offer?
As commented previously, what we estimate the cost with the three independent teams and with the very advanced design and also with the connection with the local supply chains and local subcontractors, also we have been preparing to self-perform in this area. I think we have been preparing for a long period of time, and we came with these numbers. The number that we have is very close to one of the bids that we're not asking almost, we're considering not a payment to the grantor. We think that a very conservative one, and our construction cost was very close. It's true that was one offer that was lower, one that is higher. To me, at EUR 12 billion, that is EUR 4 billion above the lowest looks an outlier. More than that is the norm.
I think that the other thing to consider is that if lowest bidder with the construction cost is correct, with these EUR 4 billion, the construction companies will pay zero equity. It's something that you have to consider because maybe there are other reasons for this high price.
Okay. Next question from Víctor as well. How much flexibility did bidders have in designing the timing profile of concession payments? How confident is Ferrovial that the concession payment structure change is fully protected from legal challenges by unsuccessful bidders? What level of chances do you see to appeal structure changes? How much time could take an appeal, just in case?
About that, as commented previous, we cannot give further details about the concession payments. It's something that will be disclosed at the time of the financial close. What I have to say, everything that we are negotiating today is something that is usual when you have a financial close and nothing exceptional. Of course, everything that you may negotiate is according to the bidding rules. Because of that, we don't have expectations today that there could be any challenge after financial close. Anyhow, you never know. I don't know exactly how it will work because we are not now considering that alternative. I think that everything is according to the bidding rules, so we feel very comfortable about that.
Next question from Víctor. What happens if financial close is not reached? What are currently viewed as the principal risks to timely financial close? Could the equity requirements be reduced over time through syndication or the entry of infrastructure investors? Could award of the I-285 East affect the view of financing the project?
Okay. Thanks, Víctor. Basically, as I mentioned before, the project has investment-grade rating from multiple agencies. Investment-grade projects are financed in the capital markets regularly. We also have the assessment of investment banks about the size. This is a great project and we expect it to close normally. Super unlikely event that the financial close is not reached. Of course, there's flexibility in the contract to move away. But I will insist, this is a great project and that's what we expect to happen. Regarding the equity requirement, this is like any other asset, right? We have the merits on its own risk-return adjustment. Ask me this question after financial close and you'll see. Of course, we are open in different circumstances for partners. In terms of the award of the I-285E affecting the view of financing the project, no. We see similarities.
If we are lucky to win, we would be looking forward to maybe a similar process.
Okay. Last question from Víctor. What traffic and revenue growth are you assuming after ramp-up? Are you expecting average toll per mile far away your other managed lanes assets? What percentage of revenues do you expect from light vehicles versus heavy vehicles?
Well, about the first question, about the traffic and revenue growth after ramp-up. We explained before what you have to do to estimate the 2034 traffic and at least to consider that period of time with the growth in this period of time, and also the suppressed traffic and also ramp-up. After that, what you have to look mainly is about Nashville and how the city could be growing and how the activity, the income per capita is going to evolve, the population and economic activity. I think that's something important that you have to consider because I think that we see Nashville as a region which could grow a lot and I think that is relevant for the future. Regarding the other question, how it was compared the toll per mile compared to the other managed lanes.
What we commented that probably the most relevant comparable to the I-24 is the 35W. In this case, 35W is a corridor with long-haul heavy traffic. It is also an area with a lot of logistics centers and activity, and also you have downtown that has a lot of commuters. It is very congested. In that sense, that's why when I was commenting the presentation, I mentioned the 35W has the most relevant comparable and is what we took in order also for our analysis and for our estimates. That's why I commented that if the I-24 pricing framework and connectivity were applied to NTE 35W, then with the current traffic profile, in that case, the revenue per lane per mile will significantly increase.
We cannot give a further disclosure of how much, but what you can consider is that, of course, we are taking our operational expertise in other managed lanes to compare and with this pricing mechanism connectivity that we have, that in this case, connectivity is 95% compared to the 70s that we have in the 35W. In that case, it is a relevant change. Regarding the percentage of revenues from lights or heavies, we are not disclosing any information. Again, we commented several times that for managed lanes, the 35W is the one that has more heavy vehicles and we are taking a comparable with the 35W. That's why we are considering that this is also a corridor with a lot of heavy vehicles, not only for long distance, but also for activity and logistics centers in the area.
Next set of questions comes from Filipe Leite from CaixaBank. First question, how does the expected equity IRR from the project compare with your recent managed lane wins? What percentage of project value is derived from dynamic pricing above the soft cap?
Now, as committed previously, we have committed several times that it's a double-digit equity IRR that is adjusted to the risk of the projects. In this case, what we see is more risk. It's a larger project. You have more financial risk, you have more construction risk. It's a new state. It's the first P3 in the state, so of course, it's a project with more risk than the others in the past. What the percentage of project value derived from dynamic pricing above the soft cap is something that we are not disclosing. But as commented previously, what we see is that it's much easier than in other managed lanes with the soft cap to reach these numbers. It's all what we can say today, but I think that is a relevant thing to consider.
Okay. Next question comes from Andy Jones from HSBC. How much has delay minutes increased since the 2016 traffic study in slide six?
Yeah. Thank you for the question. Delays have increased from three to eight hours a day in the eastbound direction, and from 4 to 11 hours a day in the westbound direction. The fine has delays over five minutes.
Next question comes from Stanislaw Kołkowski from Lazard. Given the leverage required for financing and construction, by when would you expect the concession to pay its first dividend to the shareholders? Is there any clause that prevents the construction of a free alternative?
Yeah. Hi, Stanislaw. Regarding the capital structure, you will need to bear with us to see the leverage details. It is true that what we are working on is a capital structure, so we could have dividends earlier on, right? We are working on that. Okay. The other question was, if I am correct, if there was any clause that prevented the construction of a free alternative. Here you have to look at the different plans that are in place, how the basically layout is. So it is more physical limitations that would be faced here. So probably doesn't make sense. What TDOT is looking more is through the other managed lanes that is not really an alternative. It is something different.
Sorry, I was muted. Apologies. Next question comes from Kenton Moorhead from DWS. Do the revenue share bands inflate as well, or are they static through concession life?
No, they inflate with the same escalation that we saw before. A rate of 2.5% versus average of state GDP, U.S. CPI, and 3%. So it is moving exactly the same with the soft cap.
Next question comes from Alexis Baila from Davidson Kempner. Why is such a secret the timing of the 2024/ 2025 billing concession payment? Have you seen the share price? Why you cannot clarify this overhang and give investors a bit of relief?
Well, thank you for the question. Yes, of course, if we could, we will be more than happy to share with you that information on the equity and the concession and on debt, but we are under NDA with a confidentiality agreement, and we cannot share that information. The focus for us is how to maximize and create value. I think this is the most important thing. Our view is about the long- term, not about the short- term. Whenever we can disclose, we will do. Of course, we care about the short- term, too, but I think this is important about how we can create value. As soon as we can disclose more information, we will do.
Okay. Next question, and I think it is the last one, is from Hari from Deutsche Bank. Am I understanding it right that the price caps $0.8 per mile and $1.6 per mile are inflated each year by the adjustment factor? What about the $3.20 threshold?
Yes. All rates are multiplied with the indicators that I mentioned before. Yes, it is the case for all of them. I think there are no more questions now, Silvia. I think that with that, I appreciate all of you joining the call and all the questions. Hopefully, this will help a little bit to clarify with the information that we are able to share. As commented previously, financial close, we will share with you more information, and hopefully at that time, all of you share with us that this is a great project that potentially could create a lot of value for Ferrovial. Thank you very much all of you for joining us today. Bye.