P3 for San Francisco bus yard supported by $742M bond sale

The California Municipal Finance Authority plans to issue $742 million in tax-exempt bonds this week to support the San Francisco Municipal Transportation Agency's inaugural public-private partnership.

The financing will fund the construction and furnishing of a state-of-the-art, four-story bus facility and operational hub for SFMTA to replace its 111-year-old service yard, which was described as "functionally obsolete, operating beyond capacity and rated as a seismic hazard" in the preliminary offering documents.

The project represents the first public-private partnership for SFMTA, a multi-modal transportation agency that is an enterprise agency of the City and County of San Francisco.

Lead Manager Wells Fargo Securities and Co-Manager Jefferies plan to price the debt in two tranches: a tax-exempt $492.6 million 2026A series and a tax-exempt $250 million 2026B series characterized as milestone bonds. Orrick, Herrington & Sutcliffe is bond counsel and Sierra Management Group is the financial advisor.

The bonds are set to price on Thursday, but Wells Fargo (WFC) could accelerate the deal into Wednesday depending on market conditions, said Julie Burger, co-head of public finance investment banking at Wells Fargo (WFC).

"The market has been shown to be fairly resilient, notwithstanding recent volatility," Burger said. "We have seen good demand for similar, P3 financings and believe the essential nature of the asset and sound financing and covenant package should be well received by investors."

The fiscal headwinds the San Francisco region's transit providers have faced in recent years isn't expected to affect demand.

"We have seen good demand more broadly in the transportation and transit sectors; and are hopeful for a similar reception on this transaction," Burger said.

Moody's Ratings assigned an initial A2 rating to PRG ? Potrero Properties LLC's senior secured facilities, including the tax-exempt bonds. The rating outlook is stable.

The A2 rating is underpinned by the credit strength of SFMTA, rated Aa3 with a stable outlook by Moody's, as the off-taker and the relatively straightforward nature of the construction project, Moody's analysts said in the report.

"The rating is further supported by pricing and schedule resilience under a fixed-price, date-certain design-build contract with a $612 million lump-sum construction price and a 50-month construction period from financial close to substantial completion," Moody's said.

The project went through a transformation in 2025 with SFMTA facing budget challenges. The agency has said it faces $300 million-plus annual deficits beginning in July 2026, when the state and federal pandemic relief funding runs out.

When Plenary Americas was selected as SFMTA's infrastructure developer partner in 2022, the project was envisioned as a design-build-finance-operate-maintain P3.

In 2025, the project was reimagined, so the transit agency will operate and maintain the project, rather than having Plenary take on those tasks, in part to save money, said Chris Jauregui, senior vice president at Plenary Americas.

The project originally included 500 low-income homes adjacent and on top of the bus structure but was redesigned in 2025 to lower costs. The number of homes was reduced to 100, and they will be built adjacent to the structure, not on top.

"We understand transit budgets are more constrained in 2026 than when we entered into the predevelopment agreement in 2022," Jauregui said.

Plenary had obtained the entitlements and environmental clearances, hired the general contractor and advanced the design over the three-year predevelopment agreement period, Jauregui said. Working closely with SFMTA, he said, Plenary went back to the drawing board and value-engineered the project to make it more cost effective. Plans for the homes on top of the building were scrapped partly because of the additional cost to make the bus facility structure strong enough to withstand building houses on top, plus the need for a basement.

The housing will be financed separately. Though Plenary doesn't have a financial stake in the housing, as project manager it will oversee that part of the project as well.

Demolition for the site won't begin until 2027. The next several months will be spent relocating remaining workers who haven't moved yet, moving PG&E's (PCG) power lines underground and finishing the design on the re-imagined project.

The debt being issued through CMFA will be repaid by PRG-Potrero Properties LLC, which is solely owned by Provident Resources Group, a Georgia-based nonprofit that partners with developers to offer tax exempt debt. All obligations under a project agreement between SFMTA and PRG-Portero Properties will be passed down via a project implementation agreement to the Potrero Neighborhood Collective LLC, owned by Plenary, which are responsible for the development, design, construction and financing of the project.

SFMTA has agreed to make quarterly availability payments to the private partners, according to the online investor presentation. The agency will also make two milestone payments totaling $315 million for design and construction work and two payments totaling $250 million for milestones that are subject to design and construction period deductions for noncompliance events.