CHICAGO - The bankruptcy of the private operator of the Indiana Toll Road is not expected to affect the triple-A rated state's credit, Moody's Investors Service said Friday.
In fact, the timing of the 2006 privatization was "fortuitous" for Indiana, said Moody's, coming as it did before the 2008 recession.
The state leased the road for 75 years in 2006 for an upfront payment of $3.8 billion, marking the largest privatization of a public asset to date. It used the proceeds to finance a 10-year transportation construction plan.
"The timing of the transaction was beneficial to the state because it allowed it to invest in its own infrastructure, while it also shifted the risk of declining demand to the private sector," Moody's said in a brief report released Friday. "This shift fortuitously occurred just before national demand declined due to the recession, higher gas prices and a nationwide decline in miles driven per driver."
Indiana Toll Road Concession Company LLC filed for bankruptcy on Sept. 21. The company, a subsidiary of Macquaire Infrastructure Partners, Macquaire Atlas Roads and Cintra, has already won support from a majority of its creditors for its pre-packaged bankruptcy plan. The firm is either going to sell the 75-year lease or restructure its debt under the plan.
While Moody's calls the bankruptcy "credit neutral" for Indiana, it does highlight the risks for private operators in public-private partnerships tied to traffic and revenue projections.
"The revenue performance risk is fully transferred to the private investors in a demand-risk P3 toll road, such as the Indiana toll road," analysts said. "The bankruptcy highlights the risk to private concessionaires in demand-risk public-private partnerships that traffic volumes and revenues do not perform as forecast."
Part of the problem for ITR was the interest-rate swaps used to hedge its variable-rate debt, according to Moody's. The swaps became a $2.15 billion liability for the firm once the economy shrank and interest rates fell. It was difficult for ITR to refinance the debt during the recession.
Any new operator will be required to stick to the terms outlined in the original 2007 lease, including toll rate caps.
Indiana's more recent P3s no longer have the private operators taking on the toll revenue risk, Moody's said. The Interstate 69 project has no tolls. And while the high-profile East End Crossing P3, part of the Ohio River Bridges project, does have tolls, it's the state, not the investors, that is "exposed to revenue risk should collected toll revenues be less than the forecast annual availability payments," Moody's said.
