DALLAS -- The financial plight of the State Highway 130 project outside Austin, Texas, demonstrates the risks of forecasting traffic on toll roads in undeveloped areas, according to a report from Fitch Ratings.
"The problems around the SH130 forecast are particularly stark as Texas has grown faster than almost any other area in the US in recent years," Fitch managing director Thomas McCormick wrote in the report, released Tuesday.
The State Highway 130 Concession Co., a partnership of Spanish toll-road developer Cintra and San Antonio-based Zachry Construction, recently renegotiated terms of its loans from European banks to avoid a legal default.
Projections for other toll roads that Fitch considers risky include Dulles Greenway in suburban Washington, D.C., South Bay Expressway in Southern California, the Southern Connector in South Carolina, Santa Rosa Bay Bridge in the Florida Panhandle, and Pocahontas Parkway in Virginia.
"Forecasts for projects that depend on residential and commercial developments, truck traffic and diversion from competing roads should be heavily discounted," McCormick wrote. "We believe traffic patterns on existing roadways have a stronger basis for predicting future flows."
Despite the renegotiated SH130 agreement, Moody's Investors Service said it considered the debt to be in technical default.
"Moody's view is that the failure to meet the full payment that was originally scheduled for June 30th, 2014 constitutes a 'default' under Moody's definition," analysts John Medina and Chee Mee wrote in their July 8 report.
While most of the $1.35 billion for the private SH 130 project was put up by European banks, the financing includes a $438 million federal Transportation Infrastructure Finance and Innovation Act (TIFIA) loan.
To qualify for the federal loan, the borrowers needed an investment-grade rating from at least one of the ratings agencies. In 2008, Moody's rated the concession company's senior-lien debt Baa3 while assigning a junk-bond rating of Ba1 to the subordinate debt. The senior bank debt has a final maturity of 2038 and the TIFIA subordinate debt matures in 2047.
In April 2013, Moody's downgraded the $686 million senior-lien debt to B1 and the subordinate-lien to B1, maintaining a negative outlook. Analysts said traffic and revenues were running about half of the projected rate.
In October 2013, Moody's dropped the senior-lien rating to Caa3 from B1, warning that the toll road was headed for default.
While the SH 130 Concession Co. has withheld an actuarial study of toll revenues and prospects for future debt service, a study from December, 2012 by the Texas A&M Transportation Institute pointed to trouble ahead.
The study, created for the Texas Department of Transportation, found that the basic premise of the tollway - that truckers hauling cargo along the so-called NAFTA Corridor would pay for an alternative route around Austin -- was flawed. The study found that truckers lacked sufficient incentive to bypass the heavily travelled Interstate 35 that bisects Austin. The 90-mile-long SH 130 originates near San Antonio and bends eastward around Austin, ultimately reconnecting to Interstate 35 north of the city.
Trucks are unable to take advantage of SH130's vaunted 85 mph speed limit because their speeds are generally limited to 62 to 64 mph for maximum fuel efficiency, the A&M report noted.
"Driving faster than these speeds is more costly, so higher speed limits provide practically no benefit to truckers," the report noted. "Due to insurance requirements and safety concerns, some companies do not allow drivers to operate their trucks above these speeds."
Bypassing Austin on SH 130 makes for a longer drive, costing truckers not only more fuel but the tolls they could avoid by staying on I-35.
Toll rates for trucks are typically three to six times higher than a passenger car, the study noted. What would be a $9 total toll to travel the road in a passenger car can cost a truck driver as much as $54 to travel the same road.
"For independent truck drivers, tolls are an out-of-pocket expense that cannot be passed on to their customers," the study said. "The financial burden of tolls for this segment of the trucking industry prevents them from choosing toll roads."
In December 2011 and January 2012, SH 130 experimented by charging trucks the same toll as passenger vehicles. To keep pace with revenue scenarios, the truck traffic would have needed to triple, according to researchers. Instead, it increased only 40%, they found.
For drivers of passenger vehicles, tollways also bring resistance, the study found.
"Some drivers fundamentally do not drive on toll roads unless the toll road is the only route option," researchers said. "Converting these non-users to toll road users will not be an easy task."
Moreover, Americans are driving less. According to the University of Michigan
Transportation Institute study, the average US driver traveled 9% fewer miles in 2011 than in 2006.
"Factors that contributed to that decline include telecommuting and the migration of people towards living in cities," McCormick wrote.
