Drop in Traffic Takes Toll on Investors in Private Roads

[brad2971]

From WSJ:

http://online.wsj.com/news/articles/SB10001424052702303482504579177890461812588

We have here another set of financial types who are paying the price for treating age demographics as some sort of redneck psuedo-science.

[Brandon]

PAYWALL! 

[brad2971]

PAYWALL! 

Do what I do: Copy the headline, go to Google, put it in the search. The first article under WSJ.com gives the whole article. I apologize for the inconvenience.

[Brandon]

Actually, it makes a better case for why state-run toll authorities (OTA, OTC, ISTHA, etc) are superior to private-run toll companies.  If the road does not make a profit, the private companies panic as they cannot pay a dividend.  For the state-run toll authorities, it's more of a waiting game as they only need to make back enough to maintain the bonds and pay for maintenance, not profit or dividends.

[cpzilliacus]

Actually, it makes a better case for why state-run toll authorities (OTA, OTC, ISTHA, etc) are superior to private-run toll companies.  If the road does not make a profit, the private companies panic as they cannot pay a dividend.  For the state-run toll authorities, it's more of a waiting game as they only need to make back enough to maintain the bonds and pay for maintenance, not profit or dividends.

Beyond that, state toll road agencies with a diverse collection of revenue-generating assets (or long toll highways), such as those in New York, New Jersey, New Hampshire, Maryland, Illinois and Florida are better, because the revenue streams they collect are relatively diverse, lowering risk to bondholders, and the interest rates that have to be paid on the bonds (I deliberately excluded Pennsylvania from this list because of the Act 44 mandate to divert enormous amounts of money from the Pennsylvania Turnpike Commission to PennDOT for use on projects that have nothing to do with the Turnpike).

[cpzilliacus]

TOLLROADSnews: Wall Street Journal frontpager on private toller problems in US

On the Indiana Toll Road lease we've reported a bad bet on higher interest rates in a swap associated with the financing and an almost impossible refinancing needed in 2015 plus a senior Macquarie officer tasked with trying to negotiate a sharing of writedowns with lenders.

The WSJ report says the Macquarie-Ferrovial group "has hired restructuring advisers and that  the cash crunch is more urgent than we've reported.. The WSJ says they have a large debt payment due in December and that a filing for bankruptcy then "is a possibility."

[ARMOURERERIC]

Would it not be a total riot if Indiana got back the toll toad for nothing and got to keep the cash. 

[Brandon]

Would it not be a total riot if Indiana got back the toll toad for nothing and got to keep the cash. 

Damn, it would make Mitch Daniels look like a freaking genius.  Lease the Toll Road to a sucker for a few years, let the sucker go broke, and get the road back.

[ARMOURERERIC]

Not the same, but in esanse what happened to CA 125 South in San Diego.

[J N Winkler]

Damn, it would make Mitch Daniels look like a freaking genius.  Lease the Toll Road to a sucker for a few years, let the sucker go broke, and get the road back.

It has been obvious from the start that Cintra et al. overpaid for the ITR lease.  No state government has felt comfortable betting on being that lucky again, and I believe that is part of the reason leasing proposals for other public-authority turnpikes, such as the Ohio and Pennsylvania turnpikes, have stalled.  The lease also went through in 2006, before the Great Recession got seriously underway in 2007-08 and crossed the Atlantic in 2009.  These factors will not only have affected the profitability of the Toll Road concession itself but also bedeviled Cintra in its Spanish home market.

[cpzilliacus]

Damn, it would make Mitch Daniels look like a freaking genius.  Lease the Toll Road to a sucker for a few years, let the sucker go broke, and get the road back.

It has been obvious from the start that Cintra et al. overpaid for the ITR lease.  No state government has felt comfortable betting on being that lucky again, and I believe that is part of the reason leasing proposals for other public-authority turnpikes, such as the Ohio and Pennsylvania turnpikes, have stalled.  The lease also went through in 2006, before the Great Recession got seriously underway in 2007-08 and crossed the Atlantic in 2009.  These factors will not only have affected the profitability of the Toll Road concession itself but also bedeviled Cintra in its Spanish home market.

As I understand it, the entities that purchased the ITR concession (a lease for 75 years, I think) assumed that traffic on the road would continue to increase, as it had in most years before the deal was completed. It didn't.

Wasn't there opposition by the unions that represent many (most?) Pennsylvania Turnpike Commission employees and did not want to be working for a (less generous) private-sector owner?

[J N Winkler]

Wasn't there opposition by the unions that represent many (most?) Pennsylvania Turnpike Commission employees and did not want to be working for a (less generous) private-sector owner?

There might have been, and I can see that being one of several factors that gave Governor Rendell (an urban Democrat) pause, but the idea has stayed dead even though the Republicans currently have the governorship and both houses of the legislature.