Texas Highway's Developers Struggle to Pay Bank Loans

The road with the highest speed limit in the nation — state Highway 130 in Texas — may be making headlines again, this time for its developer going broke, possibly, at some taxpayer expense.

Even with its much-publicized 85 mph speed limit, the toll road is not attracting sufficient traffic for its private developers to pay their bank loans, according to a June 18 report from Moody’s Investors Service.

The road runs 40 miles south from Austin, through an unpopulated area to Sequin, located east of San Antonio and more than 150 miles from Laredo, where I-35 crosses into Mexico.

“At this time, SH 130 has depleted all but $3.3 million of available liquidity reserves and will not have sufficient funds on hand to fully pay the senior loan interest and related swap payments due on June 30,” Moody’s said.

The Federal Highway Administration confirmed that the SH 130 Concession — which also has a $430 million loan from the federal government — notified the agency of its financial problems.

“We’re aware of those issues and we’re working with the project sponsor and others, including the state [Department of Transportation], to figure out what the next steps are,” said FHWA spokesman Doug Hecox. “No decisions have been made, but this is not a surprise and, obviously, we’re going to take whatever measures we can to protect the taxpayers’ interest.” He said that the first payment on the federal loan is not due until June 2017.

TxDOT declined to comment, but under its agreement with the SH 130 investment consortium, the state owns the road and could operate it, if default occurs.

The consortium declined to confirm Moody’s report that it’s trying to restructure its bank loans.

Consortium spokeswoman Megan Compton said Moody’s “routinely assesses” the SH 130 Concession Company as part of its financing requirements and that the recent report was part of that routine.

The toll road, opened in October 2012, was supposed to relieve congestion on Interstate 35, the main route to the U.S.-Mexico border.

The project, however, generated skepticism from truckers and transportation experts concerned about the speed limit, and assumptions underlying the public-private partnership between Texas and the developers.

The developers’ traffic projections were unfounded, said John Esparza, president of the Texas Trucking Association.

“You know 85 miles an hour is not for trucks, so it’s not like the trucking industry is in line on the ramps trying to get on that road,” he said.

The consortium is owned by Cintra Tx 56 and Zachry Toll Road 56. Cintra Concesiones de Infraestructuras de Transporte, the international infrastructure development company, is also part of the consortium in the public-private partnership that runs Indiana’s leased toll road.

That consortium, which includes Macquarie Atlas Roads and Macquarie Infrastructure Partners, is also struggling to reap a profit.

Traffic “has not performed to the level of our expectations — no surprise, given the economic conditions from when the transaction was completed in 2006 to today,” Karl Kuchel, chief operating officer of Macquarie Infrastructure Partners, told a House panel June 16.

For financially strapped states, P3s — in which private investors put up front money — are like the lure of legalized gambling, which has not produced the anticipated revenue, either, said Phineas Baxandall, senior analyst and program director for tax and budget policy at U.S. PIRG, the Public Interest Research Group.

“The political incentives are for a governor to do a quick highway deal, get a photo op at the ribbon-cutting and let those who follow them pick up the pieces,” Baxandall said.

“The length of these deals is so out of whack with the political longevity of the people who make the deals,” he said.

The Indiana P3 is for 75 years, the Texas one for 50.

Market forces may be working against P3s as a way to build highways, said Baxandall and others.

They cite the much higher capital costs, such as interest rates, for P3s and data that show Americans are driving less each year, which depresses toll revenues.

Joshua Schank, president of the Eno Center for Transportation, a think tank that has done an extensive P3 study, said private investors thought high traffic volume was a sure bet, so they took all the risk.

“The question is, will this discourage P3s? No,” Schank said of the Texas and Indiana deals, “But will it discourage taking risk on toll revenues? Yes.”

He said there are other P3 models, such as one for a Colorado transit project where citizens taxed themselves to pay the private developers.

Robert Poole, transportation and P3 expert at the Reason Foundation, a libertarian think tank, said losses in Texas and Indiana have been taken to heart by investors.

“Everybody’s more sophisticated now and knows a lot more,” he said.