DALLAS – With traffic running at about half the projected levels on the newly opened segment of the State Highway 130 toll road in Central Texas, Moody’s Investors Service is considering a downgrade on $1.1 billion of turnpike debt to non-investment grade.
The SH130 Concession Company LLC built and operates newly-opened southern half of the 89-mile tollway under a 50-year agreement with the Texas Transportation Commission. The concession company is a partnership of Spanish toll road developer Cintra and San Antonio-based Zachary Construction Corp.
The more established northern half of the SH 130 tollway is managed by the Texas Department of Transportation through the Central Texas Turnpike System.
Debt used to finance the southern tollway carries Moody’s ratings of Baa3 under a senior secured bank credit facility and a non-investment grade Ba1 on subordinate debt provided under the federal Transportation Infrastructure Finance and Innovation Act. Moody’s placed the ratings on review for possible downgrade on March 21.
SH 130, designed as an 85 mph bypass of congested Interstate 35, opened to traffic in October and began charging tolls in November. Since then, traffic is about half that projected under the base case developed when the toll road was first rated in 2008, analysts said.
“While operating history is very limited, the magnitude of the shortfall from original projections warrants a review of the rating category,” wrote Moody’s lead analyst Laura Barrientos. “The project may not be able to produce key credit metrics in the critical initial years of operation that are consistent with the current investment grade rating category.”
Developers had planned to use a liquidity facility to shore up debt service payments over the first two years of operations. However, the shortfall in traffic led to greater use of the facility than anticipated to make the December 2012 debt service payment.
“If the current traffic trends hold, and absent any additional support from the project sponsors, the liquidity facility could be used up by the next payment period in June,” Barrientos noted.
The 89-mile bypass connects Interstate 35 at the northern end with Interstate 10 near Seguin at the southern end. The last 40 miles at the southern end opened last year.
The Texas Department of Transportation is providing a year-long discount rate for trucks using SH 130 to ease pressure on Interstate 35. The SH 130 tollway was designed specifically for truck traffic on the so-called “NAFTA (North American Free Trade Agreement) corridor” between Mexico and Canada.
Despite the incentives, “the project faces significant hurdles in reaching traffic and revenue levels that make the toll road self-sufficient particularly in light of overall macroeconomic conditions, which though strong, will not provide the types of traffic growth originally projected,” Barrientos wrote.
The senior debt interest rate is fixed through swap agreements with five banks: Banco Santander, Caixabank, Bankia, Banco Espirito Santo and BNP Paribas.
The financing documents do not have a rating requirement for the swap counterparties. The concessionaire has since 2008 not relied on the swap counterparty for making interest payments given the differential in the fixed and floating rate, according to Moody’s.
A spokesman for the concession company said he was confident that the tollway would achieve the expected revenues and traffic.
First-tier bonds for the separate northern half of the SH 130 tollway, issued by the Central Texas Turnpike System, carry ratings of Baa1 from Moody’s, A-minus from Standard & Poor’s, and BBB-plus from Fitch Ratings.