(Matt Dellinger – Transportation Nation) For the last month, while national news coverage has focused on the federal debt ceiling and the threat of a historic default, transportation watchers have been nervously contemplating the possible failure of the largest toll road privatization from the last decade.

Indiana Toll Road Concession Company, a 50/50 consortium made up of the Spanish operator Cintra and the Australian bank Macquarie, paid $3.8 billion dollars in 2006 for a 75-year lease of the Indiana Toll Road. The bid, made at the height of the economy and in the first blush of real PPP highway investment in America, exceeded that of the nearest competitor by a billion dollars. In what seemed like significant serendipity, the money changed hands on the 50th anniversary of the signing of the Federal-Aid Highway Act of 1956, which initiated construction of the Interstate highway system. The sum was so large that it had to be sent in several wire transfers.

At the time, critics of the plan complained that the lease of a public asset for profit amounted to a corporate giveaway. But proponents lectured that the road would never be worth that amount in public hands, and pointed out that any potential for gain came along with some significant risks.

The 2008 banking crisis and resulting recession have proven them right. A month ago, on the five-year anniversary of the lease, Debtwire, a subscription-only wire service operated by London Financial Times, estimated that the Indiana Toll Road Concession Company was in danger of defaulting on its debt as soon as early next year. With the economy in a slump, traffic and revenues were well below the company’s projections.

Mitch Daniels, the Governor of Indiana, who spent significant political capital to ink the deal, gloated to the Associated Press. “They overpaid,” he said. “That’s why you hold an auction. Sometimes you hit the jackpot.”

Michael Lindenberger, the transportation reporter for the Dallas Morning News, immediately picked up on the report and Bloomberg Businessweek soon followed. For some, the mere specter of default was cause enough for worry. National and state leaders from across the political spectrum have  championed public-private partnerships as a way to help us “do more with less.” A major default could make such deals seem riskier, and might mitigate the excitement among banks to invest.

Aware of these reports, Cintra US put out a press release earlier this week, in which Patrick Rhode, vice president of corporate affairs, insisted that the concessionaire was on solid financial footing. “The Indiana Toll Road project is fulfilling all of its financial obligations and payments, and will continue to do so,” he said. “In public private partnerships, the underlying financial condition of the investor is key, and in our case extremely robust, with net cash position at our parent company level [Ferrovial] and available capacity to invest of over $1.5 billion.”

Cintra’s business, it should be noted, is built on patient investment: The lease term is more than double that of a thirty-year mortgage, and allows for many economic ups and downs. But is turbulence for Cintra enough to limit the investment appetite of other banks?  We’ll be watching this story, and will have more thoughts shortly on what default would look like — and what it might mean.

 

Matt Dellinger is the author of the book Interstate 69: The Unfinished History of the Last Great American Highway. You can follow him on Twitter.