ITR Concession Company LLC (ITRCC), the private operator of the Indiana Toll Road (ITR), is expected to file for bankruptcy protection after it reached an agreement with its lenders and equity sponsors for a debt restructuring plan.
The announcement serves as a fresh warning to the private sector that declining traffic in the US may threaten their investments in public-private partnerships (P3s) as the world’s largest economy tries to upgrade its crumbling transportation infrastructure.
Institutional investors have invested heavily into the US on expectations that infrastructure development will help generate the long-term steady stream of returns they desperately need to diversify their portfolios.
Transportation-related P3 investment was largely based on assumptions that more and more US drivers will hit the road as traffic volumes grow along with the country’s economy for years to come.
But the US has seen waning driving activity since the financial crisis as the younger generation opts to drive less in cities.
Against such a backdrop, the ITRCC has struggled to pay off its debt – a total of $6.04 billion, as sustained declines in vehicle miles traveled (VMT) since 2008 have placed stress on its capital structure, from which the ITR has not been able to recover.
The Indiana toll road operator is backed by Macquarie Atlas Roads, Macquarie Infrastructure Partners and Spain’s Concesiones de Infraestructuras de Transporte (Cintra), which is now part of Ferrovial.
In 2006, a consortium of the Macquarie funds and Cintra paid $3.8 billion to the state of Indiana when the ITR was leased to them for a 75-year term.
Based on the toll road concession agreement, 80 percent of the revenue for ITRCC would come from the ticket system, which means that traffic activity crossing northern Indiana would play a crucial role in terms of generating returns. The Indiana toll road runs for 156.28 miles east-west across northern Indiana from the Illinois state line to the Ohio state line.
In a pre-packaged deal with creditors, the ITRCC will either sell its assets or “recapitalise” itself by reducing its debt in the absence of a sale. ITRCC’s lenders support the pre-packaged deal – of the 92 votes cast, 91 votes were in favour.
ITRCC will continue to manage the toll road throughout the bankruptcy process, and its chief executive officer Fernando Redondo has assured “business as usual” for customers, employees and vendors.
A new operator must be pre-approved by the Indiana Finance Authority and will have to adhere to the performance standards established in the original agreement in 2006.