BWXT Y-12 Alternative Financing Project Development

Cynthia WoodwardBWXT Y-12 Alternate Financing

EFCOG “Partnerships for Success”June 9, 2005

• Unique in NWC– Only source of secondaries, cases, and

other weapons components– Leader in materials science and

precision manufacturing– Main storage for HEU

YGG 04-0540

Y-12’s Role in NWC

YGG 04-0543

Y-12’s Master Plan

Alternative Financing Project is a major component of long-term reduction in site size and operating cost

2005

Planned Modernization Initiatives

HEU Materials Facility Under construction $313

Purification Facility Completed in FY 2004 $50

Beryllium Project Preliminary Design $47

Enriched Uranium Modernization Conceptual Design $600–1,000

QE Relocation Planned $15–25

DU/Binary Consolidation Project Planned $70

Utility Improvement Projects 4 approved projects $100

TOTAL $1195–1605

YGG 04-0545

• DOE/NNSA Funding

• Private Sector Financing– Operating Lease Project

($M)

Alternative Financing Project

• Modernization of Administrative/Technical Facilities

• provide modern, competitive, high-quality space to attract and retain top science and engineering talent

• consolidate technical and support functions for optimal efficiency

• reduce NNSA facility and occupancy costs

Mission Need

• NNSA approved Mission Need based on existing facilities being:– over 50-years old on average– temporary structures on third and fourth

generation of reuse– noncompliant with current building codes– burdened by years of deferred maintenance– increasingly costly to maintain– difficult to maintain because of asbestos,

PCBs, and other environmental issues– failed in basic building systems

Funding for Consolidation

• Government funds limited• Mission-critical facilities take precedence in

prioritization • Timing is critical• Public sector offers opportunities (e.g., use of

operating lease)

YGG 04-0550

• Production Interface Facility– 413,000 ft2 on ~8 acres

• Public Interface Facility– 137,000 ft2 on ~8 acres

YGG 04-0552

Two Sites OF 550,000 ft2

YGG 04-0553

PRODUCTION INTERFACE FACILITY

• 1200 employees– Technical and administrative offices– Light laboratories– Food service– Training and conferencing– Occupational Health

YGG 04-0553

• 300 employees– Visitor Center with exhibit space– Auditorium– Badging office– Human Resources– Procurement– User laboratories

YGG 04-0554

PUBLIC INTERFACE FACILITY

Chronology of NNSA / DOE Review

9/20/2004

9/22/2004 BWXT Y-12 briefs Dr. Beckner10/18/2004 IG Entrance Conference10/20/2004 IG briefing10/21/2004 NA-1 briefed

11/2/2004 Telecon with OECM and their consultant, LMI11/18/2004 Video conference with OECM and LMI11/19/2004 Written response to OECM/LMI11/23/2004 Formal 90-day Notice submitted to Linton Brooks12/23/2004 Meet with IG and comment on draft report

1/1/2005 DOE OGC begins their formal review1/5/2005 IG issues draft report

1/14/2005 YSO/BWXT Y-12 comments discussed with IG1/18/2005 Meet with OECM/LMI2/11/2005 OECM/LMI issue final report2/24/2005 IG Exit Conference2/25/2005 ORO/YSO/BWXT Y-12 meet with DOE OGC

3/3/2005 IG issues revised final report5/6/2005 OGC signs off on project

YSO submits "Analysis of Scenarios to Provide Y-12 National Security complex with New Administrative and Technical Support Facilities"

Environmental

• Environmental Assessment complete • EPA and TDEC have signed Covenant

Deferral Request– Risk Analysis indicates no problems

YGG 04-0561

Quitclaim Deed

• Atomic Energy Act of 1954 allows transfers of excess DOE lands

• Defined parcels quitclaim deeded to Oak Ridge Project

YGG 04-0559

• Quitclaim deed contains some covenants and restrictions—for example: – Government remains responsible for any future

cleanup– Limits use to industrial development– No use of groundwater

Life Cycle Cost Analysis 25 Year Life Cycle Cost

Scenario 1 Scenario 2 Scenario 3Stay in Place Line Item Op Lease

Total Project Cost $887.3M $710.4M $730.0MNPV @ 5.28% $506.5M $450.6M $410.1M

Savings ($96.5) ($40.5M)

Based on:

• Total project cost of about $116 million

• Base rent (no FFE) $18.78/gross square foot

• At 540,000 square feet equals $11.6 million lease payment

(with FF&E, operating and variable pass through expenses)

• NNSA has been told that lease will be paid out of current operating budget

Lease Cost and Projected Savings

Estimated Annual Lease Payments : $11.6M

Estimated Annual Cost Savings:

Utilities -- Gas and Electric $ 4.0M

Routine maintenance 5.0

Offsite leases 2.0

Total Annual Savings $11.0M

OMB A-11

Criteria for operating lease

OMB Criteria BWXT Y-12 Transaction

1. Ownership remains with lessor Limited reversionary provisions

2. No bargain price purchase Repurchase for just compensation

3. Lease term < 75% of economic life 20-year lease 50% of 40-year life

4. Present value < 90% of FMV NPV is 74% of FMV (LI)

5. General purpose asset Typical commercial office space

6. Private sector market Local RE market has comparables

7. Risk of ownership No government guarantees

Lease Terms

– Maximum 20 year lease [5 + 3(5)], with renewal option (5) if mutually agreed

– One year cancellation for convenience

– Lease and M&O contract stipulate lease assigned to successors of Y-12 contract

– NNSA will “approve” lease as required by M&O contract and agree lease payments are allowable cost

– If “default” prior to lease term, ownership of buildings and land stays with developer (with easements for access)

Transaction Structure

BWXT Y-12

M&O Contractor

M&O ContractNNSA

Oak Ridge Project LLC

Owner

Oak Ridge IDB

Issuer

LeaseLoan

Agrmt.

Development Agreement

Lawler-Wood

DeveloperConstruction

Contract

Design-Build Team

Trust Indenture

Trustee / Investors

Quitclaim Deed

Rent

Preconstruction Agreement

Owner / Lessor

• City of Oak Ridge Industrial Development Board has passed resolution to form Oak Ridge Project, LLC, to: – own property– Enter into construction agreement with

developer– Enter into loan agreement with IDB

• Oak Ridge Project, LLC is:– Bankruptcy remote– Single purpose entity

• IDB will issue bonds

Project Organization

M&O

BWXT

Y-12

YSO NNSA DOEDeveloper

Lawler-Wood

Turner Universal

STG

BWSC

Banc of America

Counsel Gentry Tipton

McLemore

Owner’s Counsel

Bass Berry Simms

Bechtel Inter’l

BWX Tech

Issuer City of OR IDB

Owner OR

Project LLC

Engineering

Environmental

Security

IG

CFO

OMB

Finance

Legal

Bond Insurer AMBAC

EPA Reg 4 TDEC

Tetra Tech

Oak Ridge Ops

AL Service Center

OECM

Trustees / Investors

Bond Market

Counsel Patton Boggs

Private Sector Public Sector

Bond Rating

S&P

GC

Project Status

• Design – at 60%+ completion with GMP developed (project

is design-build)• Legal

– Deed and lease agreement drafted and approved by NNSA realty and OGC

• Environmental – Environmental Assessment and Covenant Deferral

Request (CDR) completed– CDR signed by EPA and TN Governor

• Financial – Bond insurance by Ambac – lowers bond rate – S&P ready to issue rating – probably AAA

Project Status

NNSA / DOE Reviews and Approvals

• NNSA has approved Mission Need

• NNSA Realty Specialist reviewed Quitclaim Deed and Lease and concurred

• OECM issued final report supporting project

• IG has issued final report

• OGC has issued approval

Remaining Actions

• OMB review and concurrence • DOE 60-day notice to Congress (which can

be waived)• Execute Quitclaim Deed

Production Support Facility