The South Bay Expressway filed for Chapter 11 Bankruptcy (reorganization) last week after falling traffic forced its hand to manage its debt more effectively. The SBE is one of two roads allowed to be built in California during its brief early experiment with public private partnerships, and is currently managed by a private company. The other project is the highly successful 91 Express Lanes in Orange County.
In the South Bay Expressway’s case, the contract for the expressway was awarded in 1991, but environmental permits weren’t approved until 2003. The expressway opened in November 2007, just in time for gas prices to peak at historic levels and the financial crisis to trigger the Great Recession. It shouldn’t be much surprise that projects like the SBE might need to restructure their operations in light of falling vehicle traffic and lower household incomes.
Fortunately, the private market privates a mechanism for resolving many of these issues: Chapter 11 bankruptcy. The SBE isn’t going away. Chapter 11 simply allows it to restructure debt and operations to ensure the SBE continues as a viable enterprise. (Of course, even if the private company went out of business, the state government would still have the benefit if a new road it could manage and fund through toll revenue, just like the 91 Express Lanes in nearby Orange County.)
Fortunately, the hiccup of the SBE bankruptcy shouldn’t stop other projects in the pipeline. As the Bond Buyer (March 30, 2010) explains:
South Bay Expressway’s bankruptcy filing comes as other greenfield P3 toll roads get underway around the country.
Last week, Florida announced plans to start the process of awarding a concession for a 46.5-mile toll road in St. Johns and Duval counties, and earlier this month Indiana lawmakers approved bills allowing that state’s governor to negotiate with private firms interested in a proposed toll road and a pair of Ohio River bridges.
The South Bay Expressway, according to a declaration filed with the bankruptcy court by chief financial officer Anthony Evans, owes $340 million on its senior loan, arranged by Spanish bank Banco Bilbao Vizcaya Argenteria SA, and owes $170 million to the federal government on a loan issued under the Transportation Infrastructure Finance and Innovation Act.
“The South Bay Expressway project is the first bankruptcy in the history of the 12-year TIFIA program,” Federal Highway Administration spokeswoman Cathy St. Denis said in a statement. “While we will carefully review and learn from this particular case, we remain confident that TIFIA will continue to serve an important role in advancing critical infrastructure projects.”