Deal of the week: Pennsylvania Turnpike

Citigroup and Spain’s Abertis Infraestructuras are co-leading a $12.8 billion bid to privatize the Pennsylvania Turnpike, a toll road that stretches 532 miles from the Ohio state line to the New Jersey state line.

The Pennsylvania state legislature still needs to approve the offer, which will total $14.5 billion once committed working capital is included. That’s about 20% more than the two firms offered in the first round of bidding, and about 5% higher than what runner-up Goldman Sachs offered in the second round.

Approximately 60% of the initial $12.8 billion will be financed with debt.

If approved, this would be the largest toll road privatization in U.S. history. It also represents just the beginning of what should be a massive wave of U.S. infrastructure privatizations. First, there is an incredible amount of capital available from firms looking for infrastructure deals. This includes such new firms as Alinda Capital Partners, existing firms, such as Macquarie, and old firms doing new tricks like Kohlberg Kravis Roberts & Co.

Second, a lot of U.S. infrastructure was built in the 1950s and 1960s, which means that after a half century of use, it’s in need of repair.

State governments aren’t exactly flush with money nowadays, so privatizations make sense.

Moreover, the cash influx can be used to build new roads, bridges and tunnels among other projects. This is something that’s become commonplace in Europe, but hasn’t really caught on in the United States due to our particularly strong municipal finance system.

Now that the system is showing strain, however, PE firms are plenty willing to fill the void. —Dan Primack