The implications of Indiana


The fall-out from the Indiana Toll Road (ITR) has sparked a debate on the viability of transportation public-private partnerships (PPP; P3) and how far such a model can go in the US at a time of declining traffic.

However, some industry participants say the ITR could just be an outlier and that the P3 model still has huge potential, not just for the country’s crumbling transportation infrastructure but social infrastructure such as water and waste management as well.

ITR Concession Company LLC (ITRCC), the private operator of the ITR, filed for bankruptcy protection on September 22, after reaching an agreement with its lenders and equity sponsors for a debt restructuring plan.


The bankruptcy filing may have been the result of an overly-aggressive capital structure that shifted too much risk to private investors, analysts at Standard & Poor’s Ratings Services said in a recent note.

The ITR is one of several “brownfield” or existing road transactions that relied on overly optimistic traffic volume projections to support an aggressive capital structure, they said in the note.

In 2006, a consortium paid $3.8 billion to the state of Indiana when the ITR was leased to them for a 75-year term, while the Indiana Finance Authority retained physical ownership.

The consortium comprised Macquarie Atlas Roads, Macquarie Infrastructure Partners and Spain’s Concesiones de Infraestructuras de Transporte (Cintra), which is now part of Spanish developer Ferrovial.

The deal allowed a short-term benefit to the public sector given the high upfront payment by the private sector for the P3 concession, but also increased the cost of the P3 overall – costs that must ultimately be paid back by the public sector, according to Roderick Devlin, Of Counsel at law firm Squire Patton Boggs.

Similar projects were common before the economic downturn and ITR is not the only one to have had difficulty achieving projected traffic forecasts in recent years.

Based on the toll road concession, 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.

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 placed stress on the capital structure, from which the ITR has not been able to recover.

In a pre-packaged deal with creditors, the ITRCC will either sell its assets or “recapitalise” itself and reduce its debt. ITRCC’s lenders support the pre-packaged deal – of the 92 votes cast, 91 votes were in favour.

Lawyers and analysts say they will keenly await the resolution of this troubled project – the identity of any bidders and the eventual price they pay for the ITR will help industry participants gauge new demand and appetite for such P3 projects going forward.

Indeed, ITRCC’s bankruptcy is unlikely to slow the growth of current-generation transportation P3 projects, where investors and project sponsors have addressed risks differently compared with first-generation toll-risk projects, says Steve Dreyer, managing director of the US utilities & infrastructure ratings practice at Standard & Poor’s.

Current-generation projects have seen less monetisation, or lower upfront payments to the public sector for the concessions, according to Devlin, who advised Georgia Department of Transportation in connection with its groundbreaking $833.7 million Northwest Corridor P3 project in Atlanta, Georgia, among others.

The move towards availability payment structures has also helped P3s take off in the US.
Under an availability P3, the project does not take volume risk. Instead, a typically highly-rated state agency awards the right to a project company to build and operate the road and the project company receives regular government payments if it meets key performance targets.

Recent examples of rated availability transactions include I-4 Mobility Partners Opco, and I-69 Development Partners.

The availability payment structure also helps open up the P3 market to non-revenue generating assets, such as social infrastructure, Devlin says.

As for the ITR, customers, employees and vendors can be assured of “business as usual”, as promised by ITRCC’s chief executive, as the operator continues to manage the toll road throughout the bankruptcy process