February 9, 2009 / 9:31 PM / 11 years ago

Outlook for U.S. public-private partnerships dims

(This story is part of a Reuters series on infrastructure)

By Joan Gralla

NEW YORK, Feb 9 (Reuters) - The outlook for U.S. road and airport privatizations has dimmed as developers can no longer get the bank loans they need to pay states and cities huge upfront sums in return for multiyear leases, a Standard & Poor’s Ratings analyst said on Monday.

But states may have another option, at least for some projects — the new infrastructure aid Congress is expected to include in its $800-billion-plus economic stimulus plan.

“Why turn something over to a long-term concession which in the future would not be a recipient of federal aid?” asked Kurt Forsgren, a Boston-based S&P analyst.

Some of the new federal dollars likely will be funneled through states and planning groups, said Forsgren. Turnpikes, which can raise money for improvements by increasing tolls or selling bonds, are unlikely to get the new aid, he said.

The shrinking appetite for public-private partnerships can be seen in the decline in responses some states are getting when they put out preliminary bids for projects, called requests for proposals, Forsgren said.

That’s a shift from what until last year was a surge in the demand for U.S. privatizations among overseas developers, including Spain’s Abertis ABE.MC and Cintra CCIT.MC and Australia’s Macquarie Infrastructure Group MIG.AX.

U.S. investment banks, eager for stable sources of funds, also raised hundreds of millions of dollars to invest in roads, bridges and airports.

Several blockbuster deals have been signed in the Midwest, including Chicago, as well as in Florida and Virginia.

But momentum has stalled in other states, including Texas, New Jersey, and Pennsylvania, due to concerns that developers were enriching themselves at the expense of taxpayers.

U.S. states will still have at least one compelling reason to turn to private developers, even with the new federal aid.

“I think the question is that the needs far outpace their resources,” Forsgren said.

Another obstacle could crimp public-private partnerships, at least for roads and airports: the U.S. recession has led consumers to cut back on car and plane trips, as they did during last year’s fuel price spike.

That makes partnerships less attractive to developers who lease roads, airports, and bridges around the world.

A case in point is a Virginia toll road owned by Australia’s Macquarie Infrastructure Group, according to Moody’s Investors Service, which on Monday cut the traffic-hungry highway’s outlook to negative.

After rising more than 6 percent from 2002 to 2005, traffic on the artery to Dulles Airport has fallen 3.7 percent for the past three years and could fall 7 percent this year, Moody’s said in a statement.

Though the developer has permission to keep hiking tolls through 2020, Moody’s said this strategy might have negative results. Tolls are expected to rise an average of 22 percent this year but revenues may climb just 13 percent as fewer drivers use the road. In contrast, a 29 percent average increase in tolls in 2006 boosted revenues by 22 percent, Moody’s said.

Early bond redemptions have already been delayed, which means it will cost much more for the road’s owner to repay debt in the future, Moody’s explained.

Default is a risk, though the insurer, MBIA (MBI.N), cannot “accelerate” the debt until 2036.

“Failure to be current on early redemptions for four consecutive years triggers an insurance event of default, but this carries no consequences until 2036,” Moody’s said.

(For more on infrastructure, please visit www.reuters.com/news/global coverage/infrastructure)

Reporting by Joan Gralla; Editing by Kenneth Barry

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