NTTA threatens higher tolls on DNT & PGB to borrow for SH121 - analyst

NTTA's pledge of system revenues for SH121 opens Dallas North and PGB commuters to higher toll rates, financial analysts point out. They say that the crucial distinction between the NTTA bid and Cintra/JPMorgan is that Cintra/JPM will put no lien on the existing tollroads in north Dallas. NTTA's proposal is for a system financing, they say.

It would pledge the revenues of all its tollroads and bridges against borrowing on SH121. If the SH121 business plan was not realized, either through higher costs or lower revenues than expected then NTTA bondholders would be entitled to toll increases on all NTTA facilities.

Said one analyst in an email:

"In a publicly-financed deal, the bondholders will likely be entitled to require the NTTA to increase toll rates on both SH 121 and throughout the rest of the NTTA system if the Minimum Debt Service Coverage Ratio is exceeded. Effectively, that means there is no cap on toll rate increases.

"By contrast, in a privately-financed deal as proposed by Cintra/JP Morgan, the P3 agreement would set a cap on toll rate increases. If the private sector partner is overly aggressive with its financing structure, it is not entitled to increase toll rates."

This the analyst says does not mean the Cintra/JPM bid is better than the NTTA, but he says NTTA has acted deceptively in not pointing this out.

"This is apples and oranges. The fact that one seems to provide more cash isn't the end of the story. You have two quite different packages being sold to the people of north Dallas. It's not surprising they have different $-signs."

Cintra is likely to point out when they get to spruiking their proposal that it includes a legally enforceable cap on toll rate increases on SH121 and no lien against other toll facilities in the region, and so no impact on toll rates on the DNT, PGB and the bridges and tunnel. By contrast NTTA can only make promises, they will point out.

NTTA could insulate motorists on existing facilities with a project financing rather than a system financing. That way they would only pledge the revenues of SH121 to bond buyers. But that isn't their current proposal according to the NTTA presentation. The detailed NTTA proposal is not yet complete, or public.

Project financing is more difficult and expensive than a system financing, so insulating users of the existing toll facilities would make the money tougher for NTTA to raise. NTTA has the disadvantage as compared to Cintra/JPM that as a public authority they cannot issue stock (IPO) or range as freely over international financial markets for capital.

They also have all their eggs in one basket (the economy of north Dallas) whereas corporate toll concessionaires with tollroads in many states and countries and can hedge a downturn in one region against a likely boom in another.

TOLLLROADSnews 2007-05-14