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8/23/2016
Texas: Failed Toll Road Divvies Up Ownership
Instead of reverting to the public, bankrupt Texas toll road retains management under new ownership.

SH130 Concession Company
The State Highway 130 toll road project, the first of its kind in the Texas, was a failure. The foreign company that owned and operated the route filed for Chapter 11 in March. Now a federal bankruptcy judge will decide who gets to own this infrastructure asset that Cintra, a Spanish company, built almost entirely with borrowed funds. A hearing on the proposed settlement is scheduled for September 21 in the federal bankruptcy court in Austin.

SH130 had little chance for success. Initial traffic forecasts proved wildly inaccurate, and the road posted operating losses month after month -- it was $258,941 in the red for May. Without a positive income stream, Cintra was unable to cover payments on the $1.6 billion in liabilities that had accumulated.

In addition to the capital required to construct the road, toll roads require a massive amount of overhead to operate, unlike general purpose roads. For SH130, legal fees related to tolling are $3 million annually (bankruptcy-related legal fees are $23 million). The cost for personnel is $2.6 million per year. Consulting fees are $2 million annually. Toll processing fees are $1.7 million. The board of directors consumes $182,000. Expenses for other necessary equipment, banking, and office rent add up to $41 million on an annualized basis. Last month, for example, AlixPartners, a business consulting firm, asked Judge Tony M. Davis to approve $160,172 in expenses for three months of work creating monthly operating reports and cash flow analysis for the toll road

The bankruptcy plan filed earlier this month would create a new holding company granting bondholders ownership of the company while keeping existing management in place. The rules of the new company require a two-thirds vote of shareholders to remove Cintra as the operator of the toll road or to terminate the tolling agreement Cintra made with the Texas Department of Transportation (TxDOT).

"SH 130 Concession Company will continue to operate and maintain the facility under new ownership," the Cintra-owned subsidiary said in a statement. "The facility concession agreement between the concession and TxDOT will remain in place to protect the public interest, and the company will continue to meet all terms of this agreement. There are details that remain to be resolved between the company and its lenders. The court and a majority of the company's creditors must approve a final plan before it can be implemented."

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.



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