DULLES G

DULLES G’WAY UPDATE

CEO: “I’m cheap labor”

Michael Crane, chief executive and principal shareholder at the Dulles Greenway jokes of the project’s lenders: “They’ve figured out I’m pretty cheap labor right now.” The lenders, insurance companies the largest of which is Prudential, won’t talk about their intentions toward this troubled pike project in northern Virginia but according to Crane they are close to agreement on a formal rescheduling of the $250m debt and have decided against a move on Crane and his family’s equity by way of foreclosure and selloff of the assets. Also standing to lose equity in any foreclosure would be the Italian Autostrade co and Brown & Root, the Houston TX construction company which also built the road. Its paper equity is more or less matched by $5m plus interest it was awarded by an arbitrator over a dispute with the Gway over change orders. The insurance companies recently offered some of their Gway debt to the markets at 50c in the $ but got no takers.

The Greenway, a 4-lane divided toll road takes off from the VDoT Dulles Airport toll road near the entrance to Washington-Dulles Airport and winds 22.5km north-westward through the developing fringe of the greater Washington DC area in Loudoun County, Virginia. It was the first investor-built toll road to open in the US in the automobile era in Aug 95. It has now defaulted on four quarterly $7m debt service payments. CEO Crane told us revenues are just sufficient to pay operating expenses, so there are no immediate prospects for any debt service. Traffic has continued to build moderately in recent months and is now running at weekday average of 27,300 at the $1 toll, up 5.5% from the rate of 6 months ago and 65% above the year-ago numbers. But this 27k v/d is being tolled at half the $2.00 rate assumed in the business plan and compares with traffic projected to be in the range 30 to 40k v/d.

Rush-hour toll hike: The Gway is planning to shortly increase the toll rate in rush hours by 15c for drivers just using the toll road and a quarter for those drivers connecting with the VDoT toll road. (The Gway collects a 25c toll on behalf of VDoT from drivers using both toll roads.) Crane is confident this rate hike will increase revenue, though by how much he is unsure: “We hope people are now reasonably set in their travel patterns and appreciate the Greenway and that we will have a quite high retention rate, though you always lose some of your customers.”

Crane’s priority is to raise money to pay county real estate taxes ($1m/yr) and money owed the state of Virginia under legislation that established the franchise. He says the state has billed him $2.8m plus $1.2m interest for services that turned out to be of almost no value at all — an environmental review that was of such poor quality it had to be completely redone, right-of-way documentation and surveys that went through expensive properties of reluctant sellers that assumed eminent domain powers that bore no relation to the final route, and charges for VDoT officials to attend some 50 meetings connected with the project.

State screws Gway every way: Meanwhile the state is pushing ahead with widening of the competitive untolled VA-7 from 4 to 6 lanes — contrary to oral assurances made by VDoT during the financing of the project. Crane thinks the state road widening will hurt short-term, by speeding traffic along the competitive route, but that it will help attract more businesses to the county and eventually more traffic for him. Crane says there is no doubt the traffic on the Gway is sensitive to congestion levels on the alternative VA-7/VA-28 routes: “We notice surges in our traffic whenever they have lane closings (on the state roads) because of construction work.”

A positive for the Gway was local approval for a new commercial shopping mall on the VA-7/US-15 bypass around Leesburg just near the end of the Gway and continued good sales of houses in the Broadlands development that relies heavily on the Gway for connections both directions. The county has 50,000 new housing permits approved in the G’way’s traffic catchment area but a negative for the Gway is political pressure to reduce the rate of new housing construction because of overcrowding of schools and other public facilities. Crane also sees potential for attracting some more shorthop traffic if he can adapt the e-toll system to give a discount to travellers going just a couple of interchanges beyond his mainline toll barrier on the eastern end of the road. (Contact M. Crane 540 687 8884)