South Bay Expressway reorganized out of bankruptcy
By Peter Samuel
The South Bay Expressway is set to come out of Chapter 11 bankruptcy after a settlement with creditors. CEO Greg Hulsizer says the tollroad concessionaire on the eastern side of San Diego is now on a sustainable financial footing. Under the terms of the settlement the pike's debt has been reduced from around $530m to $288m and outstanding claims by builders have been resolved.
The old holding company California Transportation Ventures (CTV) will cease to exist and a company New SBX Equity formed with stock issued to the creditors as agreed in the settlement approved by the bankruptcy judge this week.
Australian tollroad investors Macquarie, majority holders of CTV stock wrote off their interest in the tollroad which is now owned by the banks that were primary lenders. South Bay Expressway filed for bankruptcy March 22 2010 after it became clear traffic and revenue would not support the debt incurred in building the 9 mile, 15km expressway which is the southern part of SR125.
The pike opened November 19 2007 just as the economy was collapsing from the housing bubble and financial crisis. Unemployment in the area went from 5% to 14%, housing construction almost completely stopped and Mexican border traffic dropped 30%. Foreclosures and vacant homes are rife in the corridor.
"It was the perfect storm," Hulsizer says.
In addition the contractor, Otay River Constructors (ORC), took a year longer than their contractual delivery date to design and build the project. They filed claims that SBX disputed, despite having a fixed fee, design-build contract and having missed a fixed delivery date.
They wanted more than the contract price, and SBX said "No", Hulsizer says.
Arbitration, then litigation ensued.
"It was ultimately the expense of defending against ORC claims and the economic downturn that pushed us to the decision to file (for Chapter 11)."
The claims resolution process was stayed by the Chapter 11 filing and ultimately a settlement among all parties was reached as part of the bankruptcy process.
Traffic is currently about 26k veh/day and toll revenues about $24m/year, both less than half forecast when the road's construction was launched, but up slightly on the low point.
The road which was investor financed under a 35 year toll concession is actually owned by the state of California and tolls are collected by South Bay Expressway LP under a 'lease' that is part of the concession agreement with the state.
SANDAG might buy
The San Diego Association of Governments SANDAG, the metro area transport planning organization has formally notified the concessionaire that it is interested in buying the South Bay Expressway concession and taking over the tollroad.
Hulsizer says there are other possible buyers, but the company is under no pressure to sell, now that it is financially stable. Throughout bankruptcy it maintained a positive cash flow to pay for operations and a staff of about 50.
Mid-February there were small changes in toll rates - an increase in the central segment and decreases in cash and 18-wheeler truck tolls in an effort to boost revenues. Hulsizer says the installation of credit card readers - similar to those used on gasoline pumps - has been well received by motorists.
TOLLROADSnews 2011-04-15 CHANGES ON LITIGATION 2011-04-16 20:10