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Lessons from bankruptcy of South Bay Expressway
By Robert J. Hawkins
10:17 a.m., May 27, 2011
The South Bay Expressway continues to be held up as an object lesson for those thinking of entering into private-public partnerships for highway projects -- make that toll-road projects.
The latest is from Bob Poole, director of transportation policy for the Reason Foundation.
Poole asks the obvious -- and it seems, nearly inevitable -- question: "What happens if the owners of the private toll roads go bankrupt?"
He cites the $2 billion Clem Jones Tunnel project in Brisbane, Australia and the South Bay Expressway in San Diego County.
In both cases the heavy-duty bank investors get priority over all other claimants -- but even they get the short end of their original investment. Some get nothing for their troubles.
In both cases, the highway projects kept running through bankruptcy and reorganization, notes Poole.
Here's how Poole breaks down the local settlement:
"Under the terms of the settlement, owner Macquarie lost all its $150 million equity investment. A group of 10 banks that held $363 million in debt settled for $210 million in new loans (58 percent of the previous amount) and a 68 percent ownership stake. The federal TIFIA (Transportation Infrastructure Finance and Innovation Act) program, suffering its first-ever default, wrote down its $172 million loan to $93 million, while gaining the remaining 32 percent ownership stake."
Poole's conclusion?
Toll projects are risky ventures.
"The best way to deal with that riskiness," he writes, "is to shift it from general taxpayers to sophisticated investors who are prepared to balance the occasional loss in exchange for solid long-term returns in other cases."
You can read Poole's entire essay here.