Could private roads really work?
Yesterday’s discussion of pot-holes and private roadways came amidst news of a big toll-road bankruptcy. The operator of the Indiana Toll Road filed to restructure its $6 billion in debt.
In 2005 the State of Indiana sold the operating rights to its Toll Road for $3.8 billion—twice as much as analysts expected. But the company that won the deal had overly optimistic assumptions. They still made $460 million in capital improvements, adding lanes and installing EZ-Pass stations. But they couldn’t cover the debt-service.
Drivers and taxpayers won’t be affected: there will be no bailout, and tolls won’t rise. Instead, debtholders will take a haircut, equity investors will be wiped out, and there will likely be a new operator. Toll roads can be risky investments: in recent years there have been restructurings in Alabama, California, Colorado, Michigan, and South Carolina toll-ways.
But that doesn’t mean the State needs to run them. The State may own the land, but it’s a business to operate the lease. And if that means less traffic and fewer potholes, it’s a good thing.
Douglas R. Tengdin, CFA
Chief Investment Officer
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