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Credit Rating For Texas' First Public-Private Partnership Toll Road Project In Trouble

by: Tom Reaves Capp

Tue Nov 12, 2013 at 01:00 PM CST

When segments five and six of SH 130 opened in October 2012, Rick Perry called it special, and touted the significant achievement of the project as the first public-private partnership in the state.

One year later, the credit rating for the project is at junk status.

Let's go back a few years to March 2007 when TxDOT signed an agreement with SH 130 Concession Company, LLC to design, build, finance, operate and manage segments five and six of SH 130, a state toll road. The cost to build it was roughly $1.3 billion, and the contract to operate and manage SH 130 is for 50 years.

Read more below the jump:

In April 2013, Moody's -- a credit ratings industry -- downgraded the credit rating of the highway due to the lack of traffic and revenue. The creditor said the rating was downgraded in part because the traffic count on the highway was only meeting half of its projections. It was downgraded from Baa3 to B1 - a four step downgrade.

During that time, it took an opinion from theTexas Attorney General's office to release the statistics of the toll road. In its first months of existence, the road had as low as 353,700 vehicles in one month and never surpassed the half million mark - as of August 2013.

Revenue has also been an issue. In November 2012, the revenue was well short of $1 million, and the most revenue earned in one month is $1.53 million in March 2013.

In mid-October 2013, Moody's downgraded the credit rating, again. The rating was downgraded from B1 to Caa3. It took only one year for the credit rating of the debt to junk status rating. In their report, Moody's said the outlook for the debt is negative.

From their report:

"The downgrade to Caa3 from B1 reflects the increased prospects for a payment default owing to rapid deterioration in the Project's liquidity in 2013 due to substantially weaker than forecasted traffic and revenue performance since the April 2013 downgrade to B1... Since then, the additional 6 months of traffic and revenue show monthly growth, but not at rates necessary to generate sufficient revenue to meet operating and debt obligations."

The LLC is owned by Cintra-Zachry, the same companies that had an agreement to operate and manage projects for the failed Trans-Texas Corridor, which would have essentially turned freeways into toll roads. The agreement to build segments five and six of SH 130 happened before the Trans-Texas Corridor was canceled.

As the first PPP in the state, it doesn't bode well that it is already in danger of defaulting on its debt. It will be interesting to see how traffic and revenue will go from here, and hopefully the public won't need to fight so hard to access the records.  

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