Infrastructure investors line up for Indiana toll road

October 15
3:28 AM 2014

Some of the world's largest pension funds and infrastructure investors are forming consortia to bid for the operator of an Indiana toll road that filed for bankruptcy last month, according to people familiar with the matter.

The interest in the asset shows that infrastructure investors have not been fazed by the failure of one of the largest privatizations of U.S. infrastructure, even though any deal is expected to come at a significant discount to its original value.

Canada Pension Plan Investment Board (CPPIB) has teamed up with Ferrovial SA's toll road operator Cintra and Canadian investment manager Brookfield Asset Management (BAMa.TO) to make an offer, the people said this week.

Australia's Hastings Funds Management has partnered with the California Public Employees' Retirement System (Calpers) and Italian toll road operator Autostrade Meridionali SpA (AUMI.MI), the people said.

Spanish infrastructure operator Abertis Infraestructuras SA (ABE.MC) has teamed up with Borealis, which is the infrastructure investment arm of the Ontario Municipal Employees Retirement System, the people said. Australian infrastructure fund manager IFM Investors is also leading its own consortium, the people added.

The composition and number of the consortia could still change, the people said. AlbertaInvestment Management Corporation (AIMCo) and Abu Dhabi Investment Authority (ADIA) have considered joining the race but have yet to make a decision, some of the people said.

ITR Concession Co LLC, the operator of the toll road that is owned by affiliates of Australia's Macquarie Group Ltd (MQG.AX) and Ferrovial, has proposed selling itself to the highest bidder in its Chapter 11 bankruptcy to raise money to pay down $6 billion in debt. Alternatively, the company could pursue a debt restructuring.

An auction for ITR is expected to kick off later this month, the people said. A deal will likely value it at between $4 billion and $5 billion, though infrastructure investors may find it difficult to reconcile their target of around 10 percent returns with the creditors' price expectations, some of the sources said.

The sources asked not to be identified because the discussions are confidential. Ferrovial, Macquarie, Brookfield, Hastings, CalPERS, IFM and AIMco declined to comment, while ITR, Autostrade, Abertis, Borealis and ADIA did not respond to requests for comment.

Indiana agreed in 2006 to lease the highway, billed as the Main Street of the Midwest, for 75 years in return for $3.8 billion. It stretches 157 miles (253 km) across the northernmost part of Indiana from Ohio to Illinois, linking Chicago with the largest cities on the eastern seaboard.

While former Indiana Governor Mitch Daniels described it as the deal of a lifetime, opponents fought the agreement all the way to the state's Supreme Court, arguing the state was surrendering an important revenue stream.

The deal prompted other states to consider similar lease arrangements.

However, almost as soon as the deal closed, the United States slid into a deep recession and has been slow to recover from a financial crisis in 2008. Traffic volume on the toll road in 2013 was 10.7 percent below the 2007 level, according to documents filed with the U.S. Bankruptcy Court in Chicago.

Similar privatization deals have also been struggling, including toll roads in California and Texas.

ITR Concession has filed what is known as a prepackaged bankruptcy, which has already been approved by the majority of creditors. Later this month, it will seek approval of its plan from the U.S. Bankruptcy Court in Chicago. If approved, the plan will be binding on creditors who did not vote in favor.

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