Incoming Ohio Gov Kasich says looking at privatization of Turnpike - worth $2.5b?

December 4, 2010
By Peter Samuel

His staff are looking at privatization of the Ohio Turnpike, says incoming state governor John Kasich. But capital markets at this time may not support a good deal for the state, he's saying in answer to reporters' questions. "Everything is on the table," he said this week.

"Even if we wanted to do that you have to check the capital markets to find out what are you going to get for it.  But we'll look at everything. Everything is being examined, but it's not actually a good time, from what I can tell...

"But this whole turnpike is an operation that clearly needs to be given a very hard look. I've had people buzzing around me about this... It's just one of a series of things we're looking at."

Kasich would need legislative support for any privatization.


EBIDTA

Toll revenues of the Ohio Turnpike Commission in 2009 were $190m, concessions $14m, both about level with 2008, despite a traffic decline of 3%.  Operating revenue was $206m.

Against this operating costs (without depreciation) were $114m for EBIDTA of $92m, again about the same as 2008.

At a ratio of x25 that would put the value of a longterm concession at $2.3b as compared to numbers like $5b bruited around several years ago when multiples of 40 to 45 were being paid for tollroads and profitability was higher.

The simple table we've compiled nearby uses the OTC's annual report numbers to calculate private sector style EBIDTA (Earnings Before Interest, Depreciation, Taxes and Amortization.)

This shows remarkable consistency over the last ten years to 2007 with EBIDTA around $100m. At a ratio of x25 EBIDTA, a concessionaire would pay around $2.5b based on our back of the envelop calculation.

Of course optimism about the ability to enhance EBIDTA by growing revenue and/or cutting costs would lead to higher bids.

End-2009 OTC assets are stated in the official annual report as $1,407m versus debt of $685m for net assets of $722m. But those are historic figures that private sector analysts pay little attention to.

BACKGROUND: The Ohio Turnpike is 241 miles, 388km long and 3+3 lanes and as I-80 and I-90 (for its western 2/3rds) is the major east-west highway across the north of the state linking the northern Ohio metro areas of Cleveland and Toledo while carrying large volumes of out-of-state traffic between Illinois and Indiana to its west and Pennsylvania and New York state to its east.

In its eastern third looking eastward it loses I-90 which heads as a freeway up to the New York border and becomes the New York State Thruway, hives off (see endnote) I-80 and becomes at its far eastern end I-76 which runs into the Pennsylvania Turnpike. North-south trending I-75, I-71 and I-77 cross it.  

Revenues are about 55% from trucks, 45% from cars.  Cars made 39m trips in 2008 an average of 107k/day, while trucks made 11m trips, an average of 30k/day.

The Turnpike has a modern toll system - introduced Oct 1, 2009 - handling E-ZPass transponders and credit cards, bills and coins at automatic toll payment machines and staffed toll booths. It tolls based on trip length in which entry point is written to the transponder memory or an entry ticket issued and payment is calculated on exit which is at side toll plazas except close to the ends at the Indiana and Pennsylvania borders.

Vehicle classification is by axle count and height.

It has 30 interchanges.

It has seven service plazas most 30 to 40 miles apart, where motorists can feed, refuel, and refresh.

Built between 1949 and 1955 as a 2+2 lane highway, it has since been widened for most of its length to 3+3 lanes and most bridges and pavement rebuilt.

Toll rates are modest: 4.3c/mile for a car with an E-ZPass transponder and 6.2c/mile for cash.

Tractor trailers with 5 axles pay 13.3c/mile with E-ZPass and 16.6c cash or creditcard.

The highway pavement of asphalt on top of a concrete foundation, and its bridges, are in generally good condition.

annual financial report:

http://www.ohioturnpike.org/media/pdf/CAFR2009webfinal_.pdf

ENDNOTE: our use of the term "hive off" has been queried.

see http://www.merriam-webster.com/dictionary/hive%20off

- to "become separate" which roads do regularly.

Apparently it's a term that comes from the habits of bees - hives of bees split up, a processs described as 'hiving off.'

Alternates suggested: branch out, split up, fork, diverge, spin off.

TOLLROADSnews 2010-12-03


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