Indiana Toll Road operator set for short bankruptcy

The operator of the Indiana Toll Road, which paid $3.8 billion for a 75-year operating lease, won approval of a schedule paving the way to exit bankruptcy court protection in just more than a month.

U.S. Bankruptcy Judge Pamela S. Hollis in Chicago on Tuesday granted ITR Concession Co.’s request to set an Oct. 28 hearing on its restructuring plan. ITR filed for bankruptcy Sept. 21, saying it had put together a plan that has the support of more than 87 percent of its senior secured debt-holders and unanimous acceptance from its equity owners.

Under the proposal, the company would either be sold through a competitive process or restructured with $2.75 billion in new debt, with almost all the equity going to the secured creditors, according to a court filing.

“The plan has been overwhelmingly accepted,” Marc Kieselstein, a lawyer for the company, said at Tuesday’s hearing. The company doesn’t anticipate any disruption to the road operations or inconvenience to the public, he said.

Open since 1956, the road spans 157 miles cross northern Indiana, connecting Chicago to major East Coast traffic arteries.

ITR Concession, owned by affiliates of Macquarie Group Ltd. and Ferrovial SA, acquired the rights to operate the road in 2006 from the Indiana Finance Authority, according to a company statement.

The owners made the upfront payment of $3.8 billion to the state in 2006 for a 75-year lease of the highway and agreed to spend $4.5 billion on toll-road maintenance and improvements over the life of the lease.

In recent years, traffic has plunged on the road, leading to slower-than-anticipated earnings growth and forcing the company to devote an ever-greater share of operating income to debt service.

The sale process or restructuring could run until next August, after the company exits court protection. ITR Concession’s unsecured creditors, who are owed about $8 million, its only other listed debt, will be paid in full under either scenario.

“We think there will be a robust level of interest” from buyers, Kieselstein told the court. “This is a unique, one-of- a-kind asset in the U.S., if not the world.”

Meanwhile, politicians who have criticized privatizing the toll road say tthey are worried that the operator's bankruptcy will result in less money being spent on the highway.

Democratic state Sen. John Broden of South Bend, who voted against the lease deal in the Legislature, said Monday he doesn't believe assurances that the bankruptcy won't mean any significant changes to the highway's operations.

"If someone buys this, they are going to immediately be confronted with the question of how can we run this thing cheaper?" Broden said. "They are going to look for cost savings, and cost savings are going to come in the form of fewer employees."

ITR now has about 220 full-time and 60 part-time employees for its operations, according to the bankruptcy filing.

Republican Gov. Mike Pence said Monday he expected "business as usual" on the highway despite the bankruptcy filing.

ITR said its financial trouble originated from the 2008 recession leading to a drop in interstate trucking, a major source of revenue for the highway. The company said it collected $196 million in toll revenues last year while making $193 million in debt payments. ITR failed to make a $102 million interest payment that was due in June.

ITR spokeswoman Amber Kettring said any new operator would have to follow the requirements for highway maintenance and operations set out in the 75-year lease and its restrictions on changes to toll rates.

"They are limited to the formula that we have to use," she said. "So we can't just arbitrarily raise rates."

Shaw Friedman, an attorney from LaPorte, said he believed state officials should intervene on behalf of residents in the bankruptcy case.

"The state's interests are certainly not represented by the hedge funds, banks and lienholders," said Friedman, a former general counsel of the state Democratic Party.

John Letherman, president of northern Indiana's Elkhart County Council, said he still believed then-Gov. Mitch Daniels got "a great deal" for the state with the toll road lease and that ITR's bankruptcy won't make much difference to the typical traveler.

Any potential buyer will likely take over the debt from the ITR investors "at a discount," said Letherman, a governor's appointee to the Indiana Toll Road Oversight Board. "Some people win and some people lose in a free economy."

Please enable JavaScript to view this content.

Editor's note: IBJ is now using a new comment system. Your Disqus account will no longer work on the IBJ site. Instead, you can leave a comment on stories by signing in to your IBJ account. If you have not registered, please sign up for a free account now. Past comments are not currently showing up on stories, but they will be added in the coming weeks. Please note our updated comment policy that will govern how comments are moderated.