Default Ahead for Texas Toll Road, Moody's Says

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DALLAS - The concession company that operates a portion of Texas' State Highway 130 toll road is negotiating with lenders as it faces default on its June 30 payments, according to Moody's Investors Service.

The SH 130 Concession Company, which operates the 41-mile southern portion of State Highway 130 owes more than $1 billion and lacks the funding to pay off an upcoming debt payment due on June 30, according to Moody's.

The company 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," Moody's noted.

"We understand that the sponsors are currently working with their lenders on a debt restructuring plan, but the plan will not be completed until this fall, at the earliest," analyst John Medina wrote.

"In the interim, the sponsors are finalizing an agreement with senior lenders to waive a portion of the June 2014 payment to allow the payment to be missed without triggering an event of default under the financing documents."

"We remain committed to our long-term investment in SH 130 and are confident that this first-class roadway will play an increasingly important role in relieving congestion along the gridlocked I-35 corridor as Central Texas continues to grow," the SH 130 Concession Co. said in a prepared statement.

The Transportation Infrastructure Finance and Innovation Act's subordinate interest payments are capitalized through 2017, so a payment waiver to the federal government is not needed, according to Moody's.

"A final short-term solution has not been reached to date, but is expected before the payment is due," Medina said. "If an agreement is not reached and absent any remediation support on the part of the sponsors, a payment default under the financing agreement will occur."

The senior lenders consist of 10 banks, according to Moody's. Five of the banks hold the majority of the debt and are also the swap counterparties. The banks are Banco Santander, Caixabank, Bankia, Banco Espirito Santo and BNP Paribas.

The southern portion of SH 130 between Austin and Seguin opened in October 2012 with an 85 mph speed limit designed to attract truckers seeking to bypass the often-congested Interstate 35 that passes through the heart of Austin.

The company, led by toll-road operator Cintra, agreed to build and operate the toll road for 50 years in exchange for a portion of the toll revenue.

Moody's downgraded $1.1 billion of debt tied to the project by five notches, from B1 to Caa3.

"Fiscal 2013 revenue performance was about 60% below original forecast and fiscal 2014 is likely to be 70% below the original forecast," the updated Moody's report says.

Company officials have predicted that future development in small towns along the toll road's route east of Austin would boost traffic over the life of its 50-year contract.

For most of 2013, the Texas Department of Transportation offered subsidies to trucks to use the road at a discounted rate. Commercial traffic levels have not dropped since the discount ceased, according to Moody's.

Cintra holds a 65% stake in the SH 130 Concession Company, with the San Antonio-based construction firm of Zachry holding 35%. The partners signed a concession agreement with TxDOT on March 22, 2007 to build and operate the southern-most tolled segments 5 and 6 of SH 130. That 41-mile segment joins the remainder of the 90-mile bypass that is operated by TxDOT.

A new traffic and revenue study has been conducted, but the results have not been shared with Moody's, analysts said.

"We understand that this new T&R study is being used as the basis for the debt restructuring currently under negotiation," Medina wrote. "The debt could be extended to match the longer life of the concession, which is also in line with the useful life of the asset. However, given significant underperformance to the original forecast, the road's future performance will likely heavily rely on toll rate increases, coupled with economic expansion and increased congestion on IH 35, to drive revenue growth."

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