P3 structure not at fault in Indiana road bankruptcy

Timing and implementation were the key culprits leading to the Indiana Toll Road’s demise, not its P3 structure, a Fitch report finds.

The bankruptcy of the Indiana Toll Road (ITR) can be attributed to the timing and implementation of the project rather than the use of a public-private partnership (PPP; P3) model for its delivery, according to a recent report by Fitch Ratings.

As a result, the ratings agency does not expect the value or the role P3s play as a financing method for infrastructure projects in the US to be diminished.

Instead, Fitch reiterated that when PPPs are structured well they can effectively balance the responsibilities and risk among all parties while maximising public benefit.

“Fitch believes the factors that led to Indiana Toll Road’s bankruptcy should not colour the prospects for PPPs,” the agency said.

Optimistic traffic forecasts, aggressive refinancing and the consequences stemming from the Global Financial Crisis which led to ITR’s traffic volume falling to approximately half the originally projected level were the main reasons the highway’s private operator, ITR Concession Company (ITRCC), was forced to file for bankruptcy protection on September 22.

On October 28, the US Bankruptcy Court in Chicago approved ITRCC’s bankruptcy exit plan allowing the concessionaire to sell the asset that would in turn enable it to pay off $6.04 billion in debt.

According to Fitch, the 156 mile-long ITR, which runs east-west across northern Indiana from the Illinois state line to the Ohio state line, is a “strong asset.”

“It provides a major, high-speed interstate connection for automobiles and trucks with limited other options for many trips, which provides inherent economic and financial strength over the long haul,” Fitch stated. “The concession agreement ensures proper asset preservation and distances the state of Indiana from toll increases.”

However, the agency warned against toll increases above inflation, which have been granted contractually to ITRCC, noting that aggressive toll hikes could divert traffic to the state-run network.

In 2006, ITRCC – comprising Macquarie Atlas Roads, Macquarie Infrastructure Partners and Spain’s Concesiones de Infraestructuras de Transporte (Cintra) – paid $3.8 billion to lease the highway for a 75-year term.

According to the approved bankruptcy exit plan, ITRCC has until August 2015 to find a buyer for the toll road. Failing that, the concessionaire will have to recapitalise itself and reduce its debt.