Dulles G

G’way travails and 91-Lanes

Michael Crane the chief executive and principal shareholder in the Dulles Greenway told us in an interview that he is moderately hopeful of renegotiating the toll road’s debt. He said he has been in discussions with the principal creditors over the past couple of weeks over the G’way partnership’s default on debt payments.

The WASHINGTON POST (8/4) reported that the G’way missed a $7m payment due July 1 to lenders and is also in default on a $3.6m payment due the state of Virginia May 31.

The G’way chief warned the lenders early this year that the toll road partnership would not be able to fulfil its debt obligations mid-year because traffic volume was dramatically lower than traffic projections, and he has kept in close touch with lenders ever since. One G’way staffer told us in the spring that the lenders effectively had veto power over management decisions.

Crane told us he would very much like a formal rescheduling of debt and that lenders he has spoken with “sound positive” but he does not expect to be able to resolve the matter for a while. August, he noted, is vacation month in the area and some of the important people have not been around for discussions. By mid-September, Crane said, he hopes to have talked to everyone and to have a better idea of whether a consensus can be developed over the future of the business.

“It would certainly lift a lot of the uncertainty if we could (reschedule debt),” said Crane. The toll road CEO told us he hears talk of how the state will take over the toll road, and that they might even close it down. He does not believe that. He has been in touch with state officials who would like the Greenway to work its way through its current trouble. A greater concern to Crane must be that the biggest lenders — Prudential Insurance, Cigna and John Hancock Mutual — will step in and force a reorganization. The Crane family could lose all the $40m it has put into the partnership and $80m in letters of credit. The other equity partners the Italian toll company Autostrade and the Houston-based construction company Brown & Root would lose lesser amounts.

The lenders must be doing their sums and working out what they could sell the business for, and whether they stand to lose least by working with Crane and his partners, or by going for the assets. None will comment beyond saying they are having talks.

The Virginia Department of Transportation is not helping the Greenway’s prospects by pushing ahead with widening of the most competitive untolled road, Route 7, 5km north on average and converging at the Lessburg end. As a 4-lane divided arterial Route 7 used to be the only connection between the Washington Beltway and Leesburg and was horribly congested. VDoT has been slowly widening R-7 from 4 to 6-lanes the past three years, the work moving westerly. With the opening of the G’way the R-7 congestion is gone and it is arguable that traffic conditions no longer warrant further work on R-7. But it continues, including expensive widening of bridges over the area’s major waterway Goose Creek, and according to VDoT will be complete to the Leesburg bypass, near the end of the G’way by the summer of 1997. At the eastern end the roadways diverge and R-7 has about 10 signalized intersections so it is unclear how directly competitive it is. Helping the G’way will be another VDoT project — the widening of theVDoT Dulles Toll Road, its main connection at its easterly end. Maybe the two projects will have offsetting effects on the G’way?

Crane gave us some new recent traffic numbers. Weekdays the G’way was up to 25,000 vehicles/day in July for an average daily traffic over the whole week of about 23,500. August is down slightly but a decline is expected because of area vacations. Overall traffic is up about 15% since the spring. Traffic volumes at a toll of $1.75 had only reached 11 to 12,000 in the winter. The drop to a $1.00 toll in the spring quickly got the traffic numbers to around 20,000. All this had revenues staying well below the G’way’s business plan which projected about 34,000 veh/day at a $2.00 toll. Since then revenues have grown slightly and the financial situation looks less hopeless than at the beginning of the year.

Crane told us other progress includes electronic tolling which has allowed increased throughput without the cost of extra staff. 29% of G’way transactions are now e-toll, he said. Not only does the electronic tolling make for happy customers but for much lower operating costs. The CEO says he may try and build electronic tolling further by offering a discount compared to payment via credit card or via an attendant. This is most likely to come via a rise in the credit/manual toll rate with the e-toll staying at $1.00, he said.

The G’way chief said he has some ideas for extra marketing to help gain new customers and is hopeful the county will market opportunities along the G’way corridor more vigorously. A couple of developers are working on plans that could involve them financing additional interchanges on the G’way but nothing is firm, or imminent. Another For the moment the debt default is the great dark cloud over his operation.

91-Lanes

California Private Transportation Company (CPTC) isn’t saying much about its SR-91 Express Lanes operations except that they are doing OK and their number of transponder accounts — needed to use this all-electronic toll facility — continues to grow. The latest count mid-August was 56,000. A state official told us mid-August that the 91-Lanes are running about 115,000 vehicles per week of which a quarter are non-paying HOVs. That 115,000 he said translates into around 20,000/weekday. Ominous? If correct it is because it suggests no growth on the spring, but we are not sure how good the numbers are. CPTC itself isn’t talking.

A company official is quoted as saying that e-tag numbers and vehicle numbers on the 91-Lanes are slightly better than the CPTC planned on and that toll revenues are slighly lower than they projected in their business plan. The difference lies in the unexpectedly high level of free HOV vehicles travelling the Lanes.

A good portion of the 91-Lanes payers are rush-hour travellers paying $2.50 each, so 91-Lanes and Dulles G’way revenue streams are probably not that dissimilar. CPTC however built its facility for $126m compared to over $300m for the G’way, so its debt service is a fraction of the G’way’s. At the same time making a whole business out of congestion relief, while a splendid entrepreneurial exercise and a fascinating and important policy experiment looks to us a dicey and difficult commercial venture.

Background: The SR-91 Express Lanes are a 10ml (16km) long 4-lane facility built by a partnership of Keewit and Greiner construction companies and Cofiroute, the French tollster in the median of an 8-lane freeway through the Santa Ana mountains 40km southwest of downtown Los Angeles. SR-91 connects Orange County (pop. 2.7m) and Riverside Co (pop. ). Before the construction of the Express Lanes the freeway was heavily congested many hours each day with waits of up to 40 minutes at some entry ramps and average speeds of less than 20mph (32km/hr). The Express Lanes provide free rides to vehicles with 3 or more passengers under the HOV program but make their money out of tolls for single and two-occupant vehicles wanting to fly by the stop&go traffic in the ‘free’ lanes. Tolls vary between $2.50 and 25c depending on the time of day and are levied solely by means of electronic transponder. State officials say that in terms of traffic flows the project is a huge success. Congestion has been greatly reduced on the freeway and average speeds increased, and a balance established between the express lanes and free lanes. That the project is popular with users and non-users alike. The political success of SR-91EL has probably been a factor in Riverside Co officials deciding to look at building their SR-71 as a toll road (See “SR-71 Corona toll road?” page XXXX)