10/9/2013Credit Rating Firm Catalogs Toll Road Woes
Throughout the world, toll road projects go bankrupt or face increasing risks according to Fitch Ratings.
Fitch Ratings, sees trouble ahead for toll road projects and public private partnerships in general. In a report issued Monday, the credit rating agency outlined the failures of tolling and related projects in the United States and around the world, though the agency remains optimistic on the viability of this road funding mechanism.
"While one can view public private partnerships as a glass half full or as a glass half empty, it is Fitch's view that the former is the better perspective," the analysts explained. "Public private partnerships can provide public value, but need to be carefully crafted to address all stakeholder concerns. When public private partnerships are viewed to have failed, the issue is often inappropriate transaction design and application."
Governments can take blame for bad design in the deals where private companies take control and generate too much profit from a concession. The private entities take the blame when bankruptcy, cost overruns and debt default are the result. For a project to work, both sides need to look out for one another, the analysts argued. Fitch listed a number of failed projects around the world that suffered from overleveraged assets.
"In the US, these include the San Joaquin Hills toll road, SouthBay Expressway, Southern Connector, Santa Rosa Bay Bridge, Dulles Greenway, Indiana toll road and Pocahontas Parkway," the report explained. "In Europe, they include the Madrid Radiales in Spain and toll projects in Portugal. The Tequila Crisis in the mid-1990s caused numerous projects to default on their debt in Mexico. In Australia, the Cross City and Lane Cove tunnel projects were also exposed to this risk."
Fitch claims to have updated its rating criteria with appropriate risk factors after learning from tolling mistakes. The report cited the Chicago Skyway as a deal like the Indiana Toll Road with a risky debt structure built upon accreting swaps that are used to lower early debt service payments. Canada's 407 ETR was faulted for giving the tolling company an unlimited right to raise tolls for 99 years. In Virginia, the Elizabeth River Crossings project is under legal challenge. France, Spain and Portugal report similar difficulties. Massively overstated traffic and revenue forecasts have plagued Colorado's Northwest Parkway, the State Highway 130 toll road in Texas and England's M1 Toll Road.
"Although there have been many issues with public private partnerships, this is not necessarily an indictment on public private partnerships," the report argued.