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Rancho Ortega Blog discusses matters of public interest in South Orange County, including the communities of San Juan Capistrano, Ladera Ranch and Rancho Mission Viejo.

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Are the Toll Roads Headed for Bankruptcy?

Are the Toll Roads headed for bankruptcy?  A Bloomberg article, citing a California Treasury commission report, warns that the Transportation Corridor Agency may “eventually” become unable to meet its debt service if it is unable to refinance.

The Foothill-Eastern Transportation Corridor Agency, which operates 39 miles (63 kilometers) of toll highways in Orange County, risks default on $2.4 billion in debt, a consultant to California Treasurer Bill Lockyer’s Debt and Investment Advisory Commission said in July. The county itself filed for protection in 1994, the biggest U.S. municipal bankruptcy at the time, after losing about $1.7 billion on derivatives.

If true, TCA would be the largest municipal default since the Detroit bankruptcy.  TCA has been working with Caltrans to extend the maturity of its issued debt to lower its payments, but with rising interest rates and the declining credit-profile, there are fears that TCA will be unable to restructure its debt.

The Transportation Corridor Agency disputes the Commission’s warning:

Lisa Telles, a Transportation Corridor Agencies spokeswoman, dismissed the possibility of a default, noting that Foothill-Eastern has reserves to cover expenses and that the economic picture is brightening.

According to the article, the Agency’s financial results are mixed.  On the one hand, toll increases have helped the toll roads achieve record revenue for its 2012-2013 fiscal year (which ended on June 30) at $111 Million.  On the other hand, the number of vehicles using the toll roads is at a twelve year low and revenues have been roughly 75% of annual forecasts for the last three years.  Wall Street doesn’t seem to like the toll roads’ business model, as its bonds trade at a steep discount to municipal debt benchmarks.

Bonds for three highways linking inland suburbs to coastal business parks are rated one step above junk and traded last month at their lowest price this year.  … Tax-exempt Foothill-Eastern bonds maturing in January 2040 traded at an average of 95.03 cents on the dollar Aug. 22, the lowest this year, data compiled by Bloomberg show. The bonds traded yesterday at an average of 97.45 cents, to yield 5.94 percent, or about 1.34 percentage points above benchmark debt.

A tax exempt yield of nearly 6%?  Hmm.

There is much more.  Read the whole article at Bloomberg.  This is perhaps the grimmest picture yet of the toll roads’ financial condition, but consider that the Tesoro Extension of the 241 is a highly contentious issue, and it would not surprise us at all if this finding was, at least in part, politically motivated.

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