Another (Surprising) Toll Road Bankruptcy

It wasn't supposed to go this way. When Indiana leased the state's namesake, but failing, 157-mile toll road for $3.8 billion to an Australian-Spanish consortium in 2006 for 75 years, analysts predicted a handsome return for investors.
September 22, 2014, 9am PDT | Irvin Dawid
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Jon Hilkevitch, transportation reporter and "Getting Around" columnist for the Chicago Tribune, chalks the possible bankruptcy of the Indiana Toll Road up to reduced driving in the United States, a topic much discussed in Planetizen.

(T)ransportation sources said the toll road concessionaire miscalculated regional and national driving trends when it bid the lease contract on the 58-year-old highway.

Vehicle miles traveled in the U.S. hit a peak at 3 trillion miles in 2007, according to the Federal Highway Administration. It then began its largest decline since the 1940s, hastened by the Great Recession of 2008.

There was speculation that ITR Concession Co. LLC, created by a partnership of Spain's Cintra and Australia's Macquarie Group Ltd., would sell its lease to "to get out from under $6 billion in debt," wrote Joseph S. Pete, business reporter for The Times of Northwest Indiana (NWI) on Sept. 15. However, Hilkevitch writes on Sept. 20 that ITR "said over the weekend that its strategy involves either selling its assets or recapitalizing the company by cutting debt, without a sale."

A Sept. 21 AP article indicates that ITR will declare bankruptcy on Monday, Sept. 22 and create a new entity to operate the toll road.

Should ITR sell the lease in the future, "the state will suffer no harm," writes Pete's colleague at NWI, Dan Carden. 

State Sen. Luke Kenley, R-Noblesville, chairman of the Senate Appropriations Committee, said (Sept. 15) the 2006 General Assembly crafted appropriate safeguards, such as the state always maintaining ownership of the road and land, in case something like an operator bankruptcy came along.

Hammond Mayor Thomas McDermott Jr., a vocal critic of the 2006 Toll Road lease, had warned that should the lease be sold, "(a) new operator would have an incentive to improve the Toll Roads' balance sheet, possibly by cutting back on maintenance or repair project," wrote Pete earlier.

It appears that none of the experts thought the 75-year lease and $3.8 billion purchase price would prove a financial hardship for the consortium. To the contrary, it was just the opposite: critics had complained that lease was too long and the price too small, as we noted in 2008

In any case, the Indiana Toll Road was not alone in its financial predicament, notes Pete.

Privately operated toll roads have struggled financially across the country in recent years. Operators of toll roads have missed debt payments, gone bankrupt or been written down as worthless assets in Texas, California, South Carolina and Virginia.

Before the toll road was leased in 2006, "tolls had not changed since 1985," wrote former Indiana Gov. Mitch Daniels in a 2006 New York Times op-ed (posted here). While the lease provided for annual toll increases, "finance professor Jonathan R. Peters at the City University of New York, an expert on toll roads, and other specialists who study toll road deals, cautioned that the lease in Indiana was structured so that tolls would remain relatively stable for the first decade, then could rise quickly for the remainder of the lease," as noted in 2008.

Huffington Post 2009 op-ed, posted here, opined that privatizing public toll roads was not in the public's interest. If the Indiana Toll Road is to be viewed as an example, the real risk lies with the private sector as Indiana appears to have come out $3.6 billion ahead in their lease.

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Published on Saturday, September 20, 2014 in Chicago Tribune
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