Indiana Toll Road tolls will go up July 1

Motorists drive under i-Zoom signs near the Indiana Toll Road Portage exit. Toll Road operator ITR Concession Co. could be in danger of defaulting on its huge debt by early next year, according to a report. Also, tolls are scheduled for another increase Friday.

The private operator of the Indiana Toll Road could be in danger of defaulting on its huge debt by early next year, according to a report on the news wire service Debtwire.

The May report in Debtwire, a Financial Times Group publication, stated Toll Road operator ITR Concession Co. is rapidly burning through an interest reserve account, which must be maintained to keep $4.1 billion in loans in good standing.

Indiana Finance Authority Chairman Christopher Ruhl, in an email to The Times, stated that even in case of default and foreclosure, no taxpayer money is at stake, as the state has received the full $3.8 billion lease payment in June 2006.

He noted the lender would need the state's approval to transfer control of the Toll Road to any new private consortium or operator that may step in.

"We've known since 2006 that the $3.8 billion lease payment was financed primarily through debt, that the debt came due in 2015 and that the amount of debt could place a significant burden on the capital structure of the concessionaire," Ruhl wrote.

The apparent financial difficulties have come about despite dramatic hikes in tolls since the 157-mile road was leased to a private consortium backed by Spain-based conglomerate Cintra and Australia-based Macquarie in June 2006.

Tolls for cars driving the length of the road are now $8.80 as compared to $4.65 when the lease was signed. Tolls for large semitrailer trucks are now $35.20, as compared to $18 when the lease was signed. Tolls are scheduled for another increase July 1.

According to the Debtwire article, the lending group for the Toll Road privatization is led by Royal Bank of Scotland, which has now assigned the troubled investment to its workout group to see if a financing solution can be found.

An interest reserve account of $150 million was established at the time the Toll Road lease deal was financed, but that has now dwindled to between $40 million and $50 million and could be depleted by year end, sources told Debtwire.

Royal Bank of Scotland did not respond to a Times' request for comment.

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Cintra responded directly to questions on the status of the interest reserve account with an e-mailed statement that read in part: "The reserve account was initially created exactly for the intended financial gaps that occur over long time periods of operations. That is expected during economic cycles. Naturally it's going to be accessed and utilized on occasion, which is a continued sign of fulfilling its intended use."

A Macquarie representative said there has been no default on ITR Concession's debt, and no default is expected.

Ruhl stated the Indiana Finance Authority has been aware that interest expense has exceeded gross Toll Road revenue for years. He said that was "not a surprise" given the amount the private consortium borrowed to pay for the lease.

The lease agreement provides that the road returns to state control if any successive owner does not adhere to its operating standards. That owner could be a bank, hedge fund or consortium much like the current one.

As early as December 2009, ITR Concession Co. CEO Fernando Redondo told The Times traffic revenue for the Toll Road were not what the company had hoped it would be. He attributed the shortfall to lower than expected traffic levels during the recession and he expressed confidence revenue would recover.

Cintra parent company Ferrovial's annual report for 2010 shows traffic on the Toll Road in Northwest Indiana, its most heavily traveled section, was down 6.5 percent for the year. On the rest of the Toll Road traffic was up 2.7 percent.

However, a 10 percent toll boost in June 2010 helped pump up Toll Road revenues, with earnings before interest, taxes, depreciation and amortization (EBITA) increasing to $155.9 million, a 15.9 percent increase as compared to the year before.

The Indiana Toll Road Oversight Committee is aware of the possible financial difficulties at ITR Concession, said former Indiana Toll Road Executive Director Leigh Morris, who is now vice chairman of the oversight committee.

Morris said the lease between the Indiana Finance Authority and ITR Concession signed in 2006 contains more than adequate safeguards.

"It ensures continuity of the operation of the Toll Road and for the protection of the asset," Morris said.