LOS ANGELES — Though the San Diego Association of Governments has encountered a few wrinkles during due diligence, the agency is on track in its proposed $345 million purchase of a bankrupt toll road from a private operator.

"So far, staff found no reason not to recommend the purchase," said Marney Cox, SANDAG's chief economist. "But it will be up to elected officials to decide; and they have to feel they are not putting the agency or its programs at risk and that it will perform as studies have shown."

SANDAG is the San Diego region's planning, transportation, and research agency.

The association's board approved the findings in the due diligence report and funding for the staff to continue negotiations at its Nov. 18 meeting. If the rest of the contract negotiations with the toll road's current owner continue to proceed smoothly, Cox said he expected to recommend approval at the board's Dec. 16 meeting. If the board votes in favor of the sale, it would close on Dec. 21.

The tollway was built by a private company that went bankrupt a little more than two years after it opened in November 2007. The 10-mile road stretches from State Route 905 near the Otay Mesa Port of Entry at the Mexican border north through eastern Chula Vista.

In April, the association approached Southbay Expressway LLC — which emerged from bankruptcy proceedings as owner of the lease to the toll road — about purchasing the road, Cox said.

After opening for business in late 2007, the toll road operator was unable to ride out the economic downturn, and the tollway filed for Chapter 11 bankruptcy in March 2010.

Among its creditors was the federal Transportation Infrastructure Finance and Innovation Act program, which took a haircut on its TIFIA loan and accepted equity in the restructured tollway.

SANDAG announced in early August that it had accepted the sale proposal, pending due diligence.

The due diligence report describes millions of dollars in repairs needed to the road, but Cox said that the agency's consultant deemed the damage normal wear and tear.

SANDAG plans to set aside $1 million in an 18-month escrow account for repairs, Cox said.

The only real surprise during the diligence process is that Southbay fired the third-party company hired to create the toll collection software, he said.

"They got into a contract tiff and ended the contract," Cox said. "They hired software engineers to run the code and make improvements. It's a little bit risky on our part to take over a software routine that is dependent on individuals, rather than a company, to keep it up. It works fine, but it is not integrated or automated."

The board also approved Cox's recommendation at its Nov. 18 meeting to shift money from a parallel road project and obtain a loan, rather than issue new bonds to pay for the purchase.

If bonds were issued, the agency would not be able to reduce tolls, a goal behind the purchase.

The agency hopes that lowering tolls will increase traffic on the road and divert it off Interstate 805, so the latter will not need improvements.

The money from a one-half-cent sales tax originally planned for improvements to Interstate 805 will help pay for the toll road purchase.

Overall, the purchase will be funded through $212 million from the fund shift, a $55 million loan, and the outstanding $92 million TIFIA loan that will stay with the project.

Though the agency does not plan to issue bonds for the project, it will use the remainder of its Build America Bonds sold in October 2010 to fund the purchase.

It will return to the bond market in May or June to replenish the funds, Cox said.

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