Cintra, Macquarie file bankruptcy on Indiana Toll Road. Is Texas next?

[white cloud]

September 23, 2014


Yesterday, the two private, foreign corporations that tookover the Indiana Toll Road in 2006 filed for Chapter 11 bankruptcy. Former Indiana Governor Mitch Daniels sold it to Spanish infrastructure company Cintra and Australia-based Macquarie in a $3.8 billion, 75-year lease that raised eyebrows around the world. Few thought a road could fetch so much money. It set off a chain reaction of state governments clamoring for quick cash to shore-up shrinking highway funding. Indiana used the money to build other highway projects, forcing Indiana Toll Road users to pay for other road expansion they don’t use. The state has long since spent the money in the short-term, but now the tollway is in long-term trouble.

When Cintra and Macquarie acquired the tollway, they immediately doubled the toll rates. The troubled road has failed to attract enough traffic to repay its $5.8 billion in debt still owed on the project. It shouldn’t surprise anyone that the road is in bankruptcy when they’ve doubled the cost to use it. In a true market approach, if not enough customers are buying your product, you lower the price, not increase it. The hedge fund and distressed debt investors that now own about 80% of the debt have agreed to allow Cintra and Macquarie to restructure their debt or dupe another company into buying it.

Former Penn State Professor Ellen Dannin explains how these companies cash-in even when they go bankrupt in Randy Salzman’s article on public private partnerships (or P3s) in Thinking Highways. She documents how these companies never intend to pay back the debt, but simply ‘mine the the code.’ The corporations first create a separate entity, usually with the road’s name in the title like Cintra and Macquarie did here with their Indiana Toll Road Concession Company, in order to protect the parent company from losses.

They structure the deals to be extremely long leases so that they can depreciate the road as an asset on their taxes. They put very little of their own money at risk as the equity (a mere $800 million out of a total $3.8 billion), and allow the private bond investors and/or taxpayers to take on the risk for the vast majority of its debt. The companies get their own equity back with some profit in just a few short years of collecting tolls. This leaves the other investors to the take the actual losses just about when the road is going to go bankrupt, and often when the road is also in need of major maintenance or rehabilitation.

Is the Texas SH 130 next?
The Indiana Toll Road was already in trouble when Cintra’s Texas State Highway 130 opened in 2012. The tollway was a brand new road, as opposed to an existing tollway, and the only stretch of the controversial international trade corridor known as the Trans Texas Corridor TTC-35 to ever be built. It was intended to serve as an alternative to the perpetually congested NAFTA superhighway Interstate 35. But it, too, is not attracting the level of projected traffic to keep it financially solvent.

Moody’s downgraded Cintra’s debt to junk bond status last year. In June, Cintra failed to make its full debt service payment, placing its SH 130 Concession Company in ‘technical default.’ But this time, Cintra and its minority partner San Antonio-based Zachry American Infrastructure used a $430 million federal TIFIA loan as part of the $1.3 billion debt package, which is backed by the U.S. taxpayer. If the traffic fails to show up (only half of the projected traffic has materialized) and the tollway goes belly-up, the taxpayers go down with the ship.

On Cintra’s two other P3s in Texas, the debt-risk picture gets even more bleak for taxpayers. On the Interstate 635 contract in Dallas, the total project cost was $2.6 billion with $2 billion of that price tag coming from the taxpayers. Cintra landed an $850 million TIFIA loan, $615 million in Private Activity Bonds (also a federal program, special tax-exempt bonds just for these toll road deals), and $490 million in gas taxes from Texas taxpayers.

On the project called the North Tarrant Express in Ft. Worth, Cintra snagged 7 different stretches of highway in one bid. They snagged the development rights which gave Cintra the right of first refusal on all of them under two ‘best value’ bidding procurements (see here and here).

Out of a total cost of $3.7 billion for the projects, $2.8 billion came from the taxpayer: $1.2 billion in TIFIA loans, $673 million in PABs, and nearly $1 billion in other unspecified ‘public funds.’ Segment 3B was 100% funded by taxpayers. All told, $1 billion in just gasoline taxes alone went into the I-635 and North Tarrant Express projects, yet Texans will still be charged a hefty toll (up to 95 cents a mile) to use it.

more:
http://www.examiner.com/article/cintra-macquarie-file-bankruptcy-on-indiana-toll-road?CID=examiner_alerts_article

[TexasTowelie]

1. It's a sweetheart deal if you can get it.

Thanks goodness the rest of the trans-Texas corridor deals have flopped. It's another way of cooking the books on the state budget and the state should issue bonds to provide the infrastructure needed rather than use crooked schemes.

[DhhD]

2. Saw a Gregg Abbott Ad today where he says that he is going to bring toll road building to a stop.

Why did he tell the governor and legislature not to start bonding (for our kids to pay back over the next 50 years) in the first place? Not only is he a not trustable liar, he is a stupid not trustable liar, rolling down an overpass. His presentation show an unrealistic and scary scenario, telling everyone that he has not been doing his best for Texans already. Tired and unmotivated people need to move on.