Toll road looks for debt help

Northwest Parkway seeks partner from private sector

David Milstead And April M. Washington, Rocky Mountain News

Published August 30, 2006 at midnight

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The Northwest Parkway Public Highway Authority, operator of the 11-mile toll road between Broomfield and E-470, is looking for a private-sector partner to help the authority get out from under nearly $470 million in debt it's struggling to pay.

The authority said it received an unsolicited proposal two months ago from an investor interested in buying the debt and taking over the money-losing toll road. That has prompted the authority board to hire a financial adviser and begin exploring options.

"This is not a sale," Aurora City Councilman Steve Hogan, the authority's executive director, told legislators Tuesday. "Similar agreements around the world and elsewhere in the U.S. have shown that experienced private operators can effectively operate and maintain the road at the highest level."

Any private-sector partner would likely pay enough to retire the authority's debt and lease the road for 50 years - a longer time frame than the authority's current 30- to 40-year bonds.

While traffic on the road is rising - toll revenues were up 34 percent in 2005 - the fallout from Sept. 11 and the tech crash in the Broomfield area has made traffic fall far short of initial estimates made in June 2001.

Authority officials say the group can continue to meet its debt-service payments and still expects to satisfy all its bond covenants when new ones begin in 2007. Still, the authority posted a net loss of $40.5 million on $4.2 million in revenue in 2004 and $41.2 million on $5.6 million in revenue in 2005.

Operating cash flow of $589,811 was completely inadequate to cover $12.9 million in interest payments and another $8.3 million in capital expenditures. The authority will dip into $79.6 million of reserves to pay $35.8 million in debt service due in 2006 through 2008.

All three major bond-ratings agencies - Standard & Poor's, Moody's and Fitch - downgraded the toll road's debt in 2005.

"It's a matter of addressing our debt structure," Hogan told legislators. "We want to try to stick to the lease-equity idea rather than restructure our debt. If a successful bidder is not found, than we'll go back and look at ways to restructure the debt."

Hogan did not identify the initial potential investor or another five parties who subsequently expressed interest in the parkway's debt. He said the authority's board hoped to identify any successful private-sector partner by year's end.

A private investor would manage and control the toll road for a minimum of 40 years. After that time, control would return to the cities and counties that control the public highway authority.

As a part of the agreement, Broomfield, the city of Lafayette and Weld County, which the road runs through, could receive a share of the proceeds if the bids come in higher than what's needed to settle the toll authority's debt.

Broomfield Mayor Karen Stuart called the plan to pay off the toll authority's debt innovative and one that could fund other transportation projects on the drawing board that the state cannot afford. The state faces a $40 billion shortfall in transportation funding over the next 30 years.

"It may get us out of long-term debt," she said. "It will allow for money we would have had to wait for years down the road to build more roads to serve our community."

Rep. Gwyn Green, D-Golden, questioned the plan to seek a private investor to operate the toll road and demanded assurances that no overseas company will be selected to operate and manage the toll road.

"I have some real concerns about foreign business coming in here and taking over American businesses and property," she said.

Green, a longtime critic, said later in an interview, "I warned Mr. Hogan from the beginning that this parkway wasn't fiscally sound. Once again, I restate that the toll roads are not a good investment for the state."

The Northwest Parkway would be the fifth public toll road to enter into such an agreement, following in the footsteps of toll roads in Virginia, Alabama, Illinois and Indiana.

Peter Samuel, the editor of Web site www.tollroadsnews.com, said the Northwest Parkway's experience is similar to that of the Pocahontas Parkway in Virginia, which had disappointing numbers before going private in a $611 million deal in June.

"The traffic looks pretty light and rather disappointing, at least three-four-five-six years at least," he said. "It's more of an expression of faith in 10-12-15 years."

Private investors typically increase tolls to improve their returns on the project, something that may be easier on roads with a high proportion of out-of-state cars - in other words, nonvoters.

But Samuel believes "market forces will put a limit on the toll they can charge" and political brush fires can erupt even when a government tries to privatize a road used by outsiders.

David Milstead is finance editor of the Rocky Mountain News. He can be reached at milstead@RockyMountainNews.com or 303-954-2648. washingtonam@RockyMountain News.com or 303-954-5086

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