The Handbook of Municipal Bonds

CASE STUDY 5

Toronto’s Highway 407

William E. Oliver Senior Vice President Director, Municipal Research AllianceBernstein

 

 

 

Highway 407 in Toronto, Ontario is one of the earliest and most significant infrastructure projects in North America to be developed under a public-private partnership (PPP). The project began as a design build contract in 1993 and ultimately was turned into a long-term concession agreement in 1998 when the province decided to lease the road to a private operator for 99 years. The first bonds were issued in 1999 and helped create an infrastructure sector for the Canadian corporate bond market. All of the bonds have been issued in Canadian dollars and are in strong demand by North American pension funds and insurance companies seeking stable long-term assets with a built in inflation hedge to match their long-term liabilities.

Highway 407 was planned as part of the Greater Toronto Area highway network from the late 1950s to relieve congestion on two of the province’s most congested routes, Highway 401 and the Queen Elizabeth Highway. The province had been improving the highway network in small increments; due to funding constraints, however, it is estimated that the highway would not have been completed for another 15 years without utilization of a PPP. The province chose to build the highway as a barrier-free, all-electronic toll road that would be the first in the world. This innovation was dictated by land constraints, operational difficulties of collecting ...