End of the road for ITR

November 2014 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

ITR Concession Company LLC, the operator of the Indiana Toll Road, filed for bankruptcy protection in September. According to the firm’s bankruptcy documentation, ITR intends to restructure its $6bn worth of debt by either divesting a number of assets or wholly reorganising its business.

ITR, which is owned by affiliates of Australian investment bank Macquarie Group Ltd and Spanish infrastructure firm Ferrovial SA, was forced into bankruptcy by a combination of lower than expected road traffic and a significant debt pile. In the eight years since ITR took over the operations of the toll road, traffic volume on the route has fallen by approximately 42 percent. “The global economic recession stifled interstate commerce, which depressed the interstate trucking activity that accounts for a significant part of the toll road’s revenues,” said Fernando Redondo, the company’s chief executive, in a court filing.

The firm filed for Chapter 11 protection at the US bankruptcy court in Chicago, listing assets and liabilities of more than $1bn. ITR opted for a pre-packaged bankruptcy scheme which was backed by the majority of its creditors. Despite ITR’s bankruptcy filing, the road will continue to operate as normal for the foreseeable future. “Hoosiers can expect business as usual on the Indiana Toll Road,” said Indiana governor Mike Pence in a statement.

According to ITR, in a declaration filed with the bankruptcy court, the company will pursue a two-track restructuring process. Mr Redondo noted in the court documentation that the company intends to pursue a sale of the toll road’s assets at a bankruptcy auction, with the proceeds earmarked for creditors. The sale process has a deadline of 1 August 2015. Alternatively, the firm’s senior creditors will swap their stakes in the firm for a 95.75 percent stake in a reorganised ITR Concession Company Holdings LLC. Under that plan, existing lenders have agreed to lend $2.75bn to the new company to aid the reorganisation.

Chicago based ITR took control of the 157 mile road from the Indiana Finance Authority in 2006 when the state agreed to lease the road to the firm for 75 years in a $3.6bn deal. In order to finance the lease, ITR borrowed more than $3.2bn, established a $150m liquidity facility to fund early period interest payments, and took a further $665m loan to fund capital expenditures through June 2015, according to documentation from Macquarie.

The 58-year-old road, which runs across Indiana between the Ohio border and the Chicago Skyway, has seen considerable investment from ITR over the years. The firm has invested $458m into road improvements throughout its management. However the global economic downturn of the last five years had a significant impact on the profitability of the route. According to court documentation, in 2013 ITR generated around $195.8m in toll revenue and $205.9m in total revenue. Accordingly, ITR recorded around $158m in earnings before interest, tax, depreciation and amortisation. However the company was required to pay approximately $193m to service its debt. The firm’s struggles have continued throughout 2014. In June the company missed a $102m interest payment, which brought about the company’s restructuring talks with the hedge funds that bought the road’s bank debt.

The ITR filing is the latest in a series of bankruptcies from toll road concessions. In 2010, another of Macquarie’s companies – the South Bay Expressway project, a toll road near San Diego – filed for bankruptcy protection citing poor traffic figures. The South Bay road is now controlled by its creditors. Furthermore, in 2013 ratings agency Moody’s downgraded the debt of the operators of Texas State Highway 130 because of the risk the company would default on its debt in the future.

A number of other toll roads backed by private financing have also endured a difficult couple of years. American Roads LLC, which operates toll roads in Alabama and Michigan, opted to restructure its debt through Chapter 11 last year.

Richard Summerfield