Texas Toll Road Rating Cut by Moody’s Due to Default Risk

Moody’s Investors Service downgraded about $1.1 billion of debt for the operator of State Highway 130, a toll road near Austin, Texas, saying “the project will have insufficient cash to meet its debt service payments due in June.”

The rating for SH 130 Concession Co. was cut five levels, from B1 to Caa3, its third-lowest junk grade level, Moody’s said in a news release today. The majority owner of the toll road is a unit of Ferrovial SA, based in Madrid.

Moody’s expects traffic and revenue to grow at an inadequate pace to meet debt payments, analyst John Medina said in an interview. Revenue from the road has missed initial forecasts by 55 percent since its opening in October 2012.

Texas, the second-most populous U.S. state, has increasingly relied on tolls to speed road construction. Organizers expected the 41-mile road between Austin and San Antonio would relieve traffic on Interstate 35.

“It remains uncertain if the sponsors will provide additional equity support for the project,” according to the Moody’s release. “A debt restructuring or some kind or sponsor equity support are the only feasible options, besides allowing a payment default to occur.”

Chris Lippincott, spokesman for SH 130 Concession Co., declined to discuss financing options, including whether Ferrovial or partner Zachry American Infrastructure would invest more money in the project. The company is trying to boost traffic through rate cuts for truckers and adding 400 highway signs alerting travelers to the road, Lippincott said.

Toll Rates

In April, following a previous Moody’s downgrade, toll rates for truckers were reduced to the same levels as passenger cars and light vehicles, or $6.50. The Texas Department of Transportation is making up the loss in revenue with subsidies to the toll-road company, Medina said.

The default “would have uncertain near-term ramifications” because of outstanding swap agreements, Moody’s said. The borrower could face payments of about $107 million if swap counterparties exercised their option to end the agreements and demand termination payments. Moody’s said the project couldn’t afford those payments.

A separate, 49-mile stretch of State Highway 130 north of Austin is not owned by the Ferrovial partnership.

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