Shaw Friedman: What if I told you Hoosiers knifed on new toll road lease?
Thursday, March 19, 2015 10:56 AM
LaPORTE - ESPN has a great series titled “30-for-30,” where the promo spots feature a narrator asking, “What if I told you?...”
Well, what if I told you that a state agency, charged with protecting the interests of Hoosiers, actually endorsed the bid of an offshore equity fund to buy the Indiana Toll Road lease rights? And without doing its job to fully check on the financials of the bid or trying to leverage the best deal for Indiana?
And what if I told you that same state agency, the Indiana Finance Authority (IFA), supported the offshore bid over a homegrown, viable Hoosier bid? You wouldn’t believe it, would you?
How’d we get here? Well, when IFA took a pass at exercising its rights to reversion of the road (when the road fell into bankruptcy last fall), LaPorte and Lake counties put together a bid for the lease rights that would have meant hundreds of millions invested in Northwest Indiana, profits from the road over the coming decades. A world-class team was assembled to aid the County Consortium in its bid, including financial advisors from investment banking firm Piper Jaffray. Bank of America/Merrill Lynch was signed as lead underwriter to sell over $5 billion in non-recourse municipal toll road revenue bonds if the counties’ bid was successful. The world’s second largest infrastructure management firm, Globalvia, was enlisted as our operator to clean up and modernize the toll road.
We sought legal opinions from four different law firms, from Indiana to New York City, on the legal justification that would allow establishment of a regional, non-profit entity (the Northern Indiana Toll Road Authority or NITRA) that would have issued the bonds (at no risk to either county or their taxpayers) to acquire the lease rights. NITRA would plow back a guaranteed $5 million annually to each county in “founders’ payments” and then award a split of “excess revenues” after debt service to each county, as well as cities and towns in each county and to qualified nonprofits. Because of the lower cost of capital involved in issuing municipal debt (vs. private bank financing available to our competitors) the counties knew we would have a very competitive bid.
While we were taken seriously by the Creditors’ Committee and UBS (the bank administering the sale) and our bid moved from an original field of eight to the final four, it was heartbreaking to encounter vigorous opposition from our own state government. IFA, which apparently had no qualms about seeing toll road profits shipped to an offshore tax haven, strenuously challenged our plan to distribute profits to counties along the toll road!
Mind you, LaPorte and Lake counties have suffered under some of the highest unemployment, poverty levels and infant mortality rates in the state and have some of the worst, decaying infrastructure. Yet when county officials looked to state leaders the last 10 years for assistance, they have been told repeatedly, despite the state’s $2 billion surplus, “Sorry, you’re on your own, there’s no money, fix it yourself.”
Well, that’s exactly what county commissions and county councils in both counties did. They authorized a bid that was ultimately opposed by the state. To add insult to injury, IFA gave its endorsement to the winning Australian bid without asking anything in return. IFM, the deep pocket equity fund, knew its bid was contingent on state approval. The Aussies need not have worried as our state agency rubber-stamped their bid within hours of the announcement. No questions asked. No additional guarantees sought. Why not seek immediate replacement of the dilapidated rest plazas, full upgrades to bridges like the toll road to I-94 bridge in Lake Station or even cash grants to the toll road counties just like the consortium proposed? Nothing. Nada.
How about detailed side-by-side comparisons of proposed operators? Nope. What about checking out whether the Australian bid was even realistic, since it topped the second-place bid (our county consortium bid) by half a billion dollars? Nah.
It’s not been a week and the Australian Financial Review is now reporting experts say the IFM bid of $5.725 billion is “nuts” and should set off “warning bells” about its “uncanny parallels” to the last Australian bid in 2006 that went bankrupt. The price offered was 32 times EBITDA, well above multiples being paid for similar infrastructure assets.
IFA, the same agency which sanctioned the toll road bid from Macquarie/Cintra in 2006, and which declined reversion rights of this valuable, revenue-generating asset last fall, is the same unpatriotic agency that just stuck a knife in the backs of all Hoosiers when they supported profits going offshore rather than being reinvested in Northwest Indiana.
Isn’t it time the governor and legislators reform this incompetent and misdirected agency?
Shaw Friedman is former legal counsel for the Indiana Democratic Party and a longtime HPI columnist.