REFINANCING:Dulles Greenway to Restructure with Bond Offering

The Dulles Greenway (Gway) plans to offer insured taxable bonds within a matter of weeks in a restructuring that its management hopes will put it on a sound financial footing. Traffic on the Gway which opened Aug 95 has grown strongly in the last year (from 29k to 37k weekdays) with the booming economy of Loudoun Co VA. Rick Froehlich the financial officer there says it has been making a profit on operations all this year.

The Gway however has never been able to make payments on debt which is held by major insurance companies. A standstill agreement was negotiated to avert bankruptcy and allow the restructuring. Froehlich says new traffic and revenue studies have been done and that MBIA will insure bonds for a public offering which is to occur as soon as the rating agencies have issued their ratings.

Equity in the 23km toll road that extends west from the Dulles Airport area to Leesburg VA will be largely wiped out in the restructuring. Principal loser is the Bryant-Crane family. Maggie Bryant, a businesswoman who lives locally and is said to have a net worth of around $400m put up around $80m for the road in cash and guarantees through the family company Shenandoah Greenway Corp. Her son Michael Crane has been CEO of the partnership that runs it, which also includes the Italian Autostrade and Houston-based Brown & Root, which built the road for around $160m - though there was litigation over the amount.

Michael Crane the CEO told us that Shenandoah will remain the general partner and he hopes to continue managing the operation, though he laughs and say his family equity “isn’t worth much at all now.” He thinks the road “will eventually be successful” and characterizes recent traffic growth as “quite good.”

There has been talk of Louis Berger and another company being in discussion to either buy the project or buy into the partnership, but we couldn’t get anything hard on that. Froehlich said it was “news to me” and Crane said he wouldn’t comment.

A cloud on the horizon of the Gway is anti-growth sentiment among politicians in Loudoun county. When the Gway was launched local plans provided for the whole corridor for miles on either side of the Gway to be intensively developed - in part to relieve development pressures on the areas west of Leesburg where the Gway terminates. But in the last year antidevelopment sentiment has grown furiously with officials proclaiming new development doesn’t pay for the services it requires (Why don’t they raise the impact fees?) Recently the council announced restrictions on housing permits in the Gway corridor (see WASH POST below).

Crane told us the Gway should not be affected in the short term but he calls the move “short-sighted.” He says the refinancing does not assume full development of the area, but he thinks that makes sense and was part of agreed county plans for many years. Crane’s mother Maggie Bryant is an active practical environmentalist who backed the Dulles Gway in part because it was seen as a way to concentrate development on the Washington DC eastern side of the county minimizing impact on the ‘fox country’ estates to the west. Mrs Bryant operates a couple of large wildlife preserves on a multiple use basis, allowing controlled hunting, lumber cutting and other utilization. She is an environmentalist who puts her money where her mouth is - unusual!

FORECASTS: the Dulles Gway has become a sorry showcase of a project in trouble because of a shoddy traffic and revenue study. The “Financial Model for the Final Financing” filed with the state by the Gway projected annual toll revenues in its first year of operation as $22m - about 39k vehicles per weekday average. On the major press bus tour prior to the opening, Charles Williams, the TRIP representative said: “We expect 40,000 vehicles per day.” That number was based on conservative figuring, he said, referring to the traffic and revenue forecasts. The official spokesman for the Gway, Suzanne Conrad, told me before the opening in a vetted quote for a FORBES mag piece that they were expecting 24k to start with. At other times 34k by the end of the first year was quoted. So somewhere in the range 20k to 40k was expected at a basic toll $1.75, to go to $2.00.

In the first six months of operation weekday average weekday traffic was in the range 10k to 12k , so first year revenue was headed in early 1996 for something like $8m compared to the business plan’s $22m, and the project was immediately unable to meet debt service commitments. A near-halving of the basic toll ($1.75 to $1.00) slightly more than doubled traffic to the low to mid-20ks but the project has been unable to service most of its debt in its current financial configuration. The basic toll has since been increased to $1.25 but revenue remains about half projected levels. The original forecasting failure remains controversial. (See TRnl#32 Oct 98 p1)