WASHINGTON D.C. (Standard & Poor’s) Sept. 23, 2014–The bankruptcy filing of
the Indiana Toll Road on Sept. 22, 2014, may be the result of an
overaggressive capital structure that shifted too much risk to private
investors, according to analysts from Standard & Poor’s Ratings Services. The
Indiana Toll Road, which Standard & Poor’ did not rate, was an early-stage
public private partnership (P3) transaction in the U.S. We do not believe this
bankruptcy will slow the growth of current-generation transportation P3
projects, which have different risk characteristics.
The Indiana Toll Road is one of several “brownfield,” or existing, road
transactions that relied on overly optimistic traffic volume projections to
support an aggressive capital structure. A consortium of investors bought the
right to operate the road in 2006, while the Indiana Finance Authority
retained physical ownership. Similar projects were more common before the
economic downturn and some analogous projects have had difficulty achieving
their projected traffic forecasts in recent years.
“These types of deals, which feature an accreting debt structure, are not seen
in the marketplace today, but were commonplace in the first generation of
these toll-risk projects–what you might call ‘Version 1.0’ of public-private
partnerships,” said Steve Dreyer, managing director of the U.S. Utilities &
Infrastructure Ratings practice at Standard & Poor’s. “Investors and project
sponsors have addressed risks differently in more recent transactions, which
itself was a driving force behind our newly updated project finance rating
methodology. This evolution is both expected and natural, and in our view will
ultimately help bridge the substantial financing gap between government
resources and public infrastructure needs.”
Standard & Poor’s will host a discussion on the risks associated with
financing public-private roadways like the Indiana Toll Road at its 55 Water
Street offices on Thursday, Sept. 25. The discussion, entitled “Traffic and
Revenue Forecasting: Is This Risk Too Much For The Private Sector To Bear,” is
held in conjunction with the International Project Finance Association.
Members of the media are invited to attend by registering through the
association’s website.
Analysts from the Utilities & Infrastructure practice will be available to
discuss the sector with reporters in attendance.
Forecasting traffic demand remains the key risk for P3 toll road and managed
lane projects. Standard & Poor’s newly released project finance criteria focus in detail on these major risks for volume-exposed P3s. Projects with well-established demand, few competing routes, and reasonable toll rates supporting sustainable traffic and revenue growth have been able to achieve investment-grade ratings.
Standard & Poor’s publicly rates eight P3 road transportation projects in the
U.S., of which half (Elizabeth River Crossings Opco LLC, 95 Express Lanes LLC,
and NTE Mobility Partners Segments 3 LLC, and Autopistas Metropolitanas de
Puerto Rico LLC) rely on toll revenues. The rest are availability projects
where the project is not exposed to volume risk. Under an availability P3, the
project does not take volume risk. Instead, a typically high-rated state
agency awards the right to a project to build and operate the road and the
project receives regular government payments if it meets key performance
targets. Recent examples of rated availability transactions include I-4
Mobility Partners Opco LLC, and I-69 Development Partners LLC. For volume and
availability transport P3s, the U.S. lags other regions around the globe,
where we have assigned about 45 ratings to privately owned transportation
projects.
The number of U.S. P3 projects has been growing in recent years. Notably,
Virginia, Texas, Florida, Indiana, and Colorado are deploying P3 projects,
including investor-owned toll roads, and 33 states and Puerto Rico have
enabled P3 legislation.
Under Standard & Poor’s policies, only a Rating Committee can determine a
Credit Rating Action (including a Credit Rating change, affirmation or
withdrawal, Rating Outlook change, or CreditWatch action). This commentary and
its subject matter have not been the subject of Rating Committee action and
should not be interpreted as a change to, or affirmation of, a Credit Rating
or Rating Outlook.
Standard & Poor’s Ratings Services, part of McGraw Hill Financial (NYSE:
MHFI), is the world’s leading provider of independent credit risk research and
benchmarks. We publish more than a million credit ratings on debt issued by
sovereign, municipal, corporate and financial sector entities. With over 1,400
credit analysts in 23 countries, and more than 150 years’ experience of
assessing credit risk, we offer a unique combination of global coverage and
local insight. Our research and opinions about relative credit risk provide
market participants with information and independent benchmarks that help to
support the growth of transparent, liquid debt markets worldwide.
Primary Credit Analysts:
Steven J Dreyer, Washington D.C. (1) 202-383-2487;
[email protected]
Anne C Selting, San Francisco (1) 415-371-5009;
[email protected]
Jodi E Hecht, New York (1) 212-438-2019;
[email protected]
Media Contact:
Olayinka Fadahunsi, New York (1) 212-438-5095;
[email protected]