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Follow TURFMoody's predicts default on Cintra's SH 130 by end of 2014
TX130/5&6 has very little traffic, revenues low, Moody's thinks may default mid-2014
Toll Road News
October 24, 2013
2013-10-22: October 24 last year the Texas State Highway 130 segments 5 and 6 (TX130/5&6) opened for traffic southeast of Austin to I-10 near Seguin. But there's not much celebration on the pike's first birthday. Traffic seems to be under 6,000 vehicles/day, perhaps one-eighth capacity for its expressway standard 2x2 lanes. Moody's Investors Service has just downrated SH 130 Concession Company LLC's senior bank debt of $686m and $493m of US Government TIFIA loans to Caa3, the third lowest in 'junk' status.
An official there told us they don't think the 130 Concession Company will have enough cash left to meet its June 2014 interest payments, and that there is a risk it will go into default then - only 20 months out from its start. And they think there's a real chance TxDOT could exercise its rights under the concession, and terminate it.
They would take over 40 miles of tollroad at a fraction of its cost to the investors (some $1,300m.)
All this might prove alarmist and over-gloomy of course.
A concession company spokesman told us they plan to honor their obligations, but would not discuss it beyond that. She said: "We plan to be here for the long haul. We're running a marathon, not a sprint." She said the low traffic was no mystery. Development had stopped in the corridor served by the fringe-area tollroad for about five years, so there had been none of the expected growth in commuter traffic.
Besides most of the commuters are content to continue using the already established untolled frontage roads since they are free-flowing, although she thinks newcomers to the corridor will be more attracted to the 85mph toll lanes, as opposed to the 65-posted frontage road lanes.
The great bulk of their present traffic, she said, is long-distance cars and trucks wanting to bypass the I-35 through central Austin. TxDOT has helped with a program to subsidize the tolls of heavy trucks for a year (the trucks only pay the car toll and TxDOT pays the concession company the difference.) But of course truck traffic has been flat or lower than pre-2007.
They do get decent surges of car traffic at the beginning of holidays. T&R #s & $s The concession company itself isn't publishing any numbers, and the spokesman referred us to its owners - 65% Cintra/Ferrovial, 35% Zachry. Zachry is privately held and hasn't reported anything.
But Ferrovial SA has numbers for the first six months of their financial year in their six monthly report to shareholders. Traffic, apparently average daily, is put at 5,463 and sales at 6.5 apparently million euros (E) and the Ferrovial share. E6.5m = $8.5m. With Zachry's share that is $13m for the six months or $26m on an annual basis. The six monthly accounts show a small operating surplus - a positive EBITDA of E2.3m ($3m) for Ferrovial's share or $9m/year for the concession company. Moody's says the traffic is less than half that forecast. (We've never seen any forecasts - editor.) And they say the 130/5&6 is not getting the 'ramp up' growth expected either.
The concession company doesn't contest that, although the spokesman says they are seeing some increases.
Moody's "Outlook Negative"
Moody's report on its downrating calls the pike's outlook "Negative" explaining: "The negative outlook reflects Moody's view that traffic and revenue will continue to grow at a slow to moderate, yet inadequate pace in order to meet the current debt service profile. The outlook also reflects the uncertainty regarding additional sponsor support and the ultimate lender recovery rate in a post payment default environment." In April Moody's downrated the 130's debt to B1, and they say this second downrating is due to the slow pace of growth in traffic and revenue since then.
The privately held pike has fallen further behind projections as a result:
"(T)he additional 6 months of traffic and revenue show monthly growth, but not at rates necessary to generate sufficient revenue to meet operating and debt obligations through the June 30, 2014 debt service payment."
Their analysis continues: "The Project was structured from the beginning to use reserves during the ramp up phase, but these are expected to be depleted by June 2014. The Project has fully drawn its $35 million liquidity facility and will use the majority of the $30 million of available sponsor contingent equity to fund the December 2013 debt service payment, comprised of senior lien interest and swap payments only as the subordinate TIFIA loan's interest payments begin in 2017.
"Even under optimistic scenarios, Moody's forecasts a shortfall in available funds to pay the June 30, 2014 debt service payments. All available liquidity facilities, contingent equity, and excess revenues on hand will be fully utilized when the June 30, 2014 payment is due. Thus, absent a sponsor injection of equity, a debt restructuring, or some other method of generating significantly more revenues, there is a high likelihood of a payment default in June 2014." New T&R study due 2014-02
The concession company has a new traffic and revenue study in process and due out February 2014 under the terms of the US Government's TIFIA loan.
From 2017 TIFIA debt service obligation of $78m a year kicks in! Unlike the Illinois DOT's Illiana Expressway project south of the Chicago area the TX130/5&6 is well connected to heavy trucking routes (I-35 and I-10), and Moody's agrees its "favorable location" and its potential is there to provide congestion relief to the heavily trafficked I-35 through the Austin area. But there are only weak signs of that occurring to date, despite TxDOT's help with the truck toll subsidies.
The 2017 kick-in of the TIFIA repayment obligation looms over the project medium term, says the Moody's analysis: "(T)he rate of traffic and revenue growth is not enough to meet the debt obligations that continue to grow when TIFIA interest payments begin in 2017. As a result, a debt restructuring of some kind or sponsor equity support are the only feasible options, besides allowing a payment default to occur."
They say the losses could be "low to moderate" given what they call the 20 year tail for cash flow after the long-term debt is paid down.
The concession's value is in that post debt tail! But they say their discounted cash flow analysis suggests the current 130/5&6 debt cannot be supported even longterm.
Next spring with the T&R forecast in hand and the next big debt service due in June will be a time for hard decisions.
BY CONTRAST: TxDOT's 51 miles of the 130 segments 1 through 4 (red in the map) are doing reasonably well. The are more intra-urban in nature and provide a fast north-south route along the developed edge of the Austin metro area and are less reliant on longer distance travel than 5&6.
ADDITION: SH130 Concession Company issued this statement about the Moody's report:
"The SH 130 Concession Company is aware of the Moody's report published on October 15. Moody's assesses the company in accordance with the requirements of our financing. We are meeting our contractual obligations to operate and maintain a world-class highway.
"A yearlong initiative by the Texas Department of Transportation to significantly subsidize truck tolls on the entire length of SH 130 is having a positive impact on traffic and revenue for the Concession Company, and additional long-distance signage is increasing awareness of the road.
"We remain confident that the recently-opened SH 130 Segments 5 and 6 will benefit our investors and the people of Texas."
see http://mysh130.com
TOLLROADSnews 2013-10-22