Macquarie-backed toll road files for bankruptcy

The South Bay Expressway was 50% owned by Macquarie Infrastructure Partners and 50% owned by Macquarie Atlas Roads, which took over the stake formerly held by Macquarie Infrastructure Group. In 2003, MIG predicted it would earn a 15% to 20% IRR on its investment in the project.

The South Bay Expressway, a toll road in south California owned by Macquarie-managed infrastructure funds, has filed for bankruptcy  protection.

The bankrupcty filing, made in the United States Bankruptcy Court for the Sourthern District of California, marks the second bankrupcty petition by a Macquarie-backed company in the US in the past six months. In late October 2009, Express Energy Services, an oilfield servicer based in Texas, also sought bakruptcy protection, from which it emerged 9 weeks later.

The bankruptcy process for the South Bay Expressway could potentially be messier, as the company is marred in ongoing litigation with its contractors. The litigation cost it $40 million over the last three and a half years and was a contributing factor to the bankruptcy filing, according to court documents.

But the 9-mile, four-lane toll road, historic for securing the first-ever loan from the Department of Transportation to a privately-backed toll road, also suffered declining traffic levels in the aftermath of the sub-prime mortgage meltdown and the financial crisis. Both intensified shortly after it opened for traffic in November 2007.

South Bay Expressway: on
its way to bankruptcy court

Lawyers for South Bay’s management company said in court documents that the crisis hit the region surrounding the expressway particularly hard and led to a significant rise in unemployment, prompting fewer commuters to use the toll road.

Macquarie’s former toll road investment company, the Macquarie Infrastructure Group (MIG), originally owned a 100 percent equity stake in the company developing the expressway. When the financing for the $658 million project closed in May 2003, MIG said it would put in up to $180 million of equity and earn an internal rate of return between 15 percent and 20 percent, according to a press release. The term of the concession for the road was 35 years from the date of its opening, according to the release.

The remaining financing came in the form of $321 million of senior debt and a $154 million loan from the US Department of Transportation’s Transportation Infrastructure Finance and Innovation Act lending programme. At the time, it was the first loan of its kind to be made to a privately-backed toll road.

MIG eventually sold down a part of its holding in the project to Macquarie Infrastructure Partners, Macquarie’s unlisted infrastructure fund manager based in New York. At the time of the bankruptcy filing, Macquarie Infrastructure Partners owned 50 percent of the project. The remaining 50 percent was owned by Macquarie Atlas Roads, one of two companies to emerge from MIG when it split its asset portfolio earlier this year.

Macquarie Atlas Roads said in a statement that it had expected the bankruptcy filing for some time and had valued the Expressway at zero since 30 June 2009.

California Transportation Ventures, the expressway’s management company, owned less than 1 percent of the equity.

Since its opening in November 2007, the expressway had carried over 21 million vehicle trips, according to the bankruptcy filing. For its fiscal year ending 30 June 2009, the business had total revenues of approximately $21 million and earnings before interest, tax, depreciation and amortisation of approximately $3 million.

The book value of its assets was $640 million and the book value of liabilities was $570 million, according to the bankruptcy filing.