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Dwindling traffic led to bankruptcy filing, toll road operator says

September 22, 2014

The operator of the Indiana Toll Road, owned by affiliates of Macquarie Group Ltd. and Ferrovial SA, sought bankruptcy protection Monday as expected after dwindling traffic soured a $3.8 billion bet on a 75-year lease.

The company listed assets and liabilities of more than $1 billion in its pre-approved Chapter 11 filing in Chicago bankruptcy court.

Operating since 1956, the road spans 157 miles across northern Indiana, connecting Chicago to major east-coast traffic arteries. It took more than 6,200 engineers and laborers 786 days to complete the project.

ITR Concession Co. acquired the rights to operate the road in 2006 from the Indiana Finance Authority.

ITR announced last week it was planning the bankruptcy following months of speculation over its financial condition.

The company generated about $195.8 million in toll revenue for the year ended Dec. 31, 2013, according to documents on the website of Macquarie Atlas Roads, one of the owners. The toll road company earned $205.9 million in total revenue resulting in $158.7 million in earnings before interest, taxes, depreciation and amortization last year.

The toll road company isn’t the first to seek creditor protection since the recession. Operators of the South Bay Expressway, a 10-mile toll road near San Diego, and the 16-mile Southern Connector in Greenville County, South Carolina, each filed for bankruptcy in 2010 after experiencing low traffic.

The operator plans to sell operating rights or distribute new stock and debt to first-lien lenders.

The plan was accepted before the Chapter 11 filing by holders of almost all secured debt, including $3.86 billion in syndicated bank debt and $2.15 billion owed on defaulted swap agreements. Both obligations have first liens of equal standing.

The plan calls for the operating rights to be sold, with proceeds distributed. Alternatively, first-lien lenders will receive $2 billion in first-lien debt, a $750 million second-lien obligation, and 95.75 percent of the new stock.

The owners would receive 4.25 percent of the stock, with the right to take $80 million in cash instead. The owners will continue to operate the road for 10 years, either being paid cash fees or receiving 3 percent of the stock.

According to the disclosure statement, the recovery by first-lien lenders ranges from 43.5 percent to full payment.

Unsecured creditors are to be paid in full.

Secured creditors were nearly unanimous in accepting the plan before the filing. They want the bankruptcy judge to hold a hearing on Oct. 9 to approve the plan after first ruling that the disclosure statement adequately explained it.

The plan was in negotiation for two years, according to court filings. There was a payment default on the swap agreement in June.

Traffic volume

ITR Concession has seen traffic volume plunge by about 42 percent on the Indiana highway since taking over operations in 2006, according to data on the Macquarie Atlas website.

First-half revenue increased about 5.2 percent from last year, including a 7.2-percent jump in the quarter ended in June, according to a Macquarie Atlas statement. Traffic gained only a third of 1 percent over last year’s first-half figures, with a 3.2-percent drop in the first quarter due to bad weather.

Toll rates for passenger cars paying cash increased 30 cents, to $10 for a full 157-mile trip on July 1, according to an ITR statement. Rates for a typical semi-trailer truck rose $1, to $39.70.

Travelers using an electronic toll-collection system pay only $4.65 for a full trip, the same rate since 1985. Electronic collection accounts for more than 70 percent of toll receipts, according to the Macquarie Atlas documents.

An Indiana Finance Authority agreement that runs through June 2016 freezes toll rates for electronic users and refunds ITR the difference between the electronic rate and the cash price.

“The IFA has been aware of negotiations between the operator and its lenders, so we anticipated this could be a possibility,” Indiana Gov. Mike Pence said Monday in a written statement. “But Hoosiers can expect business as usual on the Indiana Toll Road.”

IFA Director Kendra York said ITR will continue to manage the toll road throughout the bankruptcy process, per agreement. 

ITR's "prepackaged chapter 11 plan proposes to solicit interest from potential new operators. Any potential change in the toll road’s operation must be pre-approved by the IFA," York said in a written statement. "Also, any new toll-road operator must adhere strictly to the performance standards established in the original agreement that [ITR] entered into in 2006, and cannot “under any circumstance” increase tolls beyond what is set forth in the agreement.

A South Bend Democrat, Rep. David Niezgodski, said Monday that he’s worried that the next toll road operator, in an effort to squeeze out a profit, will perform the bare minimum of maintenance in the service plazas and on the road itself.

“There’s always a minimum and maximum that these things could be maintained,” he said. “This is the whole question that needs to be raised. What is it going to look like in 20 years from now?”

Acquisition debt

The toll road company borrowed more than $3.2 billion to fund the acquisition of the right to operate the highway for 75 years, a $150 million liquidity arrangement to fund early period interest payments and $665 million to fund capital expenditures through June 2015, according to Macquarie Atlas documents.

The liquidity arrangement is fully drawn, and about $454 million of the capital spending fund has been drawn as of December.

The company expects to spend $29.1 million on average each year through 2019, according to Macquarie Atlas documents. Capital spending will increase to an average of $40.4 million a year for the decade starting 2020.

ITR Concession is jointly owned by Ferrovial’s Cintra Concesiones and two affiliates of Sydney-based Macquarie, Australia’s largest investment bank.

Equity deficit

The road company had assets totaling about 2.9 billion euros ($3.8 billion) and debt of about 2.8 billion euros as of the end of last year, according to financial statements on Cintra’s website. Madrid-based Ferrovial said its investment in ITR Concession is underwater, with an equity deficit of more than 265 million euros.

Macquarie decided to divest its toll road assets in 2010, breaking up Macquarie Infrastructure Group into two public companies, according to a statement. Intoll Group was created to hold Australian and Canadian toll roads, leaving Macquarie Atlas with mostly debt-laden investments in the United States, United Kingdom and France.

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