3/11/2016Texas Toll Road Failure Raises Question Of PPP Viability
The SH130 public private partnership toll road in Texas has filed for Chapter 11 bankruptcy protection.
A toll road in Texas declared bankruptcy last week, raising concern about tolling's long-term viability. The State Highway 130 project was the Lone Star State's first public private partnership tolling deal, which served as a symbol of the Texas Department of Transportation's (TxDOT) overall plan to add toll booths to every freeway. It flopped.
"Traffic on the facility has been lower than expected," the tolling company explained. "As a result the current debt repayment schedule between SH 130 Concession Company and our lenders is unsustainable. SH 130 Concession Co. filed for Chapter 11 protection in order to allow the company to continue discussions with its lenders and implement a financial restructuring of its outstanding debt."
In 2002, TxDOT inked a deal that created the northern section of the road with $900 million in federal loans, $520 million in state funds, and $286 million in local funding. The rest of the cash came from the sale of $1.4 billion in bonds. In 2008, the road was expanded with a 41-mile southern section to be run by Cintra, a Spanish company, and US-based Zachary Construction. Federal taxpayers paid a third of the $1.3 billion construction cost, while Cintra only contributed 15 percent of the total cost by borrowing the rest.
Toll collections were not enough to pay interest on the $686 million in bond debt and the $493 million federal loan. Rather than invest their own money in the future success of the road by paying this interest, Cintra and its partner declared bankruptcy. As with many projects of this type, the forecasts showing Texans' willingness to pay to use a road built with substantial taxpayer subsidies proved overly optimistic. The credit rating agency Moody's warned early on that it considered the project to have "junk" status.
"Even assuming generous annual revenue growth rates, our discounted cash flow analysis indicates the project may be unable to fully support the current debt quantum in the long-term," Moody's analysts wrote in 2013.
The high-profile failure has other states looking more closely at their tolling plans. The North Carolina Department of Transportation (NCDOT) was one of the first to express concern.
"Late today, we were notified of the bankruptcy filing in Texas," NCDOT Secretary Nick Tennyson said in a March 2 statement. "The governor has directed us to immediately review every available option -- both legal and financial -- to reassess the I-77 Mobility Partner's business model and current contract."
Nearly every high-profile tolling project has failed. The Indiana Toll Road went bankrupt in 2014. The 91 freeway high occupancy toll lanes in Orange County, California was one of the first modern toll projects to go wrong, with the county taxpayers in 2003 paying for more than the original cost of construction to buy out the project. San Diego's South Bay Expressway went bankrupt in 2010 and was also bought out by county government. California's Foothill-Eastern Transportation Corridor Agency, which runs the 241, 261 and 133 toll roads in Orange County, has been teetering on the edge of default despite $1.7 billion in subsidies from the taxpayer.
In South Carolina, the Greenville Southern Connector went bankrupt in 2010. Transurban, the Australian company that runs the Pocahontas Parkway in Richmond, Virginia, wrote down the toll road as having a value of $0 in 2012.
In Australia, the operator of the Clem7 toll road went bankrupt in 2013, joining the Airportlink toll road, the Lane Cove Tunnel and the Cross City Tunnel. In Spain, ten toll concessions, including the Madrid-Toledo highway, became insolvent in 2012. The Spanish government provided more than a billion euros in bailout money to the tolling firms Abertis, Acciona, ACS, Bankia, Cintra, OHL and Sacyr Vallehermoso.
Correction: This article has been updated to more accurately reflect that Cintra is responsible for the southern segments of SH130.