RESTRUCTURING:Dulles Greenway Finances Righted

“We’re on very solid financial ground now,” the Gway’s financial officer Rick Froehlich told us after the deal. “We have had a positive cash flow for some time, and with the closing we now have a debt structure which matches our revenue stream. We’re in good shape now.”

The Gway’s equity is held by Toll Road Investors Partnership II LP (TRIP II) a private partnership of a prominent local northern VA family (led by businesswoman Maggie Bryant and her son Michael Crane who is CEO) with Autostrade of Italy and Brown and Root, the Houston TX based builder. It doesn’t have to publish any accounts so all information about it is what it chooses to release. The group however has a record of candor about its situation.

After six years of struggles buying and begging right of way, gaining permits, making compromises with local environmentalists and raising capital the road opened Sept 29 1995, the first investor-owned turnpike in the US since the internal combustion engine was invented. Within months it was telling its lenders that it was going to default on debt payments, traffic was falling so far short of projections at a basic $2.00 toll. The business plan provided for c 30k veh/day but they got little over 10k. By halving the toll they soon increased traffic to the mid20ks/day. Average tolls are now $1.25 and traffic grows steadily.

Average weekday traffic is now 41k, up almost 25% over the spring of last year when it was 33k. With costs largely fixed the incremental traffic is almost entirely cash flow. (We don’t dare use the p-word, Rick Froehlich bawls us out so badly.)

The Gway has been spending a little money on advertising that plays on the “17 red lights” on alternate arterials VA-7 and VA-28 compared to “flying down the Greenway at sixty-five.” The ads say: “You’ll save enough time to do the things you can only dream about while sitting at red lights. Or sleep later. Or arriving home earlier. It’s like getting a little piece of your life back.”

A new marketing manager at the Gway, Mark Manlove, says he thinks peak hour time saving is 10 to 15mins from Ashburn estate, the major housing development to the Dulles Toll Road, but that isn’t based on any real survey. He’s talking to a local college about having its students do a systematic survey of patron habits and time-savings. He is also approaching local businesses to do joint promotional deals in which the Gway enrols the customer in its Frequent Rider Program. A large Mobil station offers 5gals of gas and a week of free rides on the Gway for people signing up for an electronic transponder (‘Smart Tag’) and the Gway’s “VIP Miles” or “Frequent Rider program” - see the cash back schedule.

Gway officials say this has helped them boost electronic tag transactions to 57% of total tolls taken, which helps contain their labor costs and is popular with patrons.

Froehlich says that the Apr 29 closing saw all outstanding claims against the Gway (including claims by the state of VA for expenses) paid off in full, while providing a mix of deferred payment debt and current debt at an average interest rate of about 7%. The bonds were insured AAA by MBIA of Armonk NY. MBIA wouldn’t give details saying the placement was private.

Other sources told us that the MBIA insurance fee was about 60 basis points (0.6%) and that the insurance raised the project rating from BBB to AAA. This in turn allowed a placement of the debt at an average interest rate of 7% compared to 9% without insurance. They said that the placement consisted of two tranches, the longest 36 years with interest payments capitalized for 5 yrs providing nearly $300m, the remainder being debt of over 10 years on which interest is due now quarterly. These sources said that the original creditors, a bunch of large insurance companies were fully paid off to the tune of 80% of their money including accrued unpaid interest and accepted 20% as subordinate debt.

BACKGROUND: The Dulles Gway is about as pure a private investor built toll road as exists in the US, perhaps in the world. It got title to its right of way by negotiations with over 100 landowners ranging from donations from developers keen for the road to proceed through purchases from others at quite high prices. The alignment of the road was redone a couple of times to wind around hold-outs. The Gway pays several million in property taxes to the county on its land. One quarter of its length including its mainline toll plaza is just within the northern boundaries of Dulles airport, leased longterm. The state of Virginia provided no money for the road, and indeed Gway officials have said in the past that the VA DOT exacerbated their early losses by accelerating work on widening the alternate VA-7 arterial, though VA officials counter that they never misrepesented their plans.

The Gway is 2x2-lanes with minimal shoulder but expensive longspan bridging and interchanges, and a wide median for widening inward to a possible 10-lanes. At its easterly Washington DC end it splits from the approach roads to the Dulles airport parking lots and terminals at an interchange with VA-28. It is an extension of the VDOT Dulles Toll Road. It extends 23km (14mi) to US-15 where it is a close-in bypass around the city of Leesburg. It has 5 intermediate interchanges, with provision for two more. It is located in an area of planned development in Loudoun county on the prosperous western fringe of the Washington DC metro area. The area on either side of the road was zoned to attract a mix of housing and business and to spare the area west of Leesburg from development pressures.

The road is operated by a local sub of Autostrade International managing maintenance and operations including manual toll collection, while electronic tolling and the associated customer service is done by Castle Rock jointly for the Gway and the abutting VDOT Dulles Toll Road. (Contact Gway 703 707 8870 www.dullesgreenway.com)