Thursday, February 10, 2011

Selling the Ohio Turnpike

Here is some background information for you to ponder:

According to Ohio.com,  Gov. Kasich predicts that Ohio could make $2.5 billion, if he  sells/leases the Ohio Turnpike.  Wikipedia notes that the Ohio Turnpike is 241.26 miles.

Indiana, sold off their 157 miles of Toll Road and got $3.8 billion in 2006 (see Barron's).


Do you know what happened in Indiana after their toll road was sold off? The tolls increased.  And one more thing-----

Barron's:

....the Indiana Toll Road is deeply in the red. Revenue of $155 million in 2008 was dwarfed by interest expense of $244 million. The highway looks hopelessly overleveraged amid disappointing growth in revenue and declines in traffic, prompted in part by the toll increases and the economy. The Indiana Toll Road is burning through an interest reserve and has a huge derivative liability of $1.9 billion for an interest-rate swap entered into in conjunction with the original debt financing to convert floating-rate debt to a fixed-rate obligation. 

Amazingly, the lending agreement permits Macquarie and Cintra to take $28 million in annual dividends despite the road's heavy losses....

Then Barron's notes this-----

...We estimate the Indiana Toll Road might be worth $1.5 billion at most, or a generous 10 times annual revenue. That suggests that the banks may take a sizable hit when their loan matures in 2015, and that the buyers could lose their equity investments....


Do the losses suffered by the investors in the Indiana Toll Road influence potential investors for Ohio's roads?