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Sandag Pursues Purchase of Beleaguered Toll Road

The South Bay Expressway, San Diego’s only toll road, may not be in high demand by motorists, but San Diego Association of Governments, the regional transportation planning agency, wants to buy it.

Earlier this month, the agency whose members are the county of San Diego and its 18 cities, directed staff to contact the road’s operators to let them know it was interested in buying it.

Chula Vista Mayor Cheryl Cox said the toll road is a vital conduit of traffic through the city’s southeastern corridor, and something that should be owned by the public.

But ownership of the road by the public agency may not result in the removal of tolls, now running at $3.80 for a one-way ride. The road, an extension of state Route 125, covers nine miles from state Route 54 in Spring Valley to Otay Mesa near the U.S.-Mexico border.

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“If the road is publicly owned, it will need to be paid for through the continued collection of tolls,” Cox said shortly after the private entity that controls the road emerged from Chapter 11 bankruptcy protection.

The toll road that opened for business in 2007 ran into trouble right out of the gate when the expected traffic never showed up.

‘Perfect Storm’ for Bankruptcy

Greg Hulsizer, chief executive of South Bay Expressway, said the three main reasons behind the company going bankrupt was an inability to make its debt payments; litigation from contractors that cost about $40 million to defend; and terrible timing for opening.

“We opened just when the recession was getting a grip on this area … and unemployment rose to about 14 percent,” he said. “It was the perfect storm.”

In March 2010, the South Bay Expressway LP, the entity that controlled the 35-year leasehold to operate the toll road from the state, filed for bankruptcy protection.

As of April 14, the South Bay Expressway toll road is now in the hands of a consortium of 11 European banks and the federal Department of Transportation. The lenders are the secured creditors that had their debt on the project reduced from about $535 million to $288 million.

Led by Spain’s Banco Bilbao Vizcaya Argentaria SA, the banks advanced funding for the toll project to Macquarie Group Ltd., based in Sydney, Australia, and one of the world’s largest investment banks. As a result of the corporate restructuring, Macquarie’s investment was wiped out, and the equity in the project, now at $21 million, was transferred to the banks and the Federal Highway Administration.

Macquarie, a major investor in global privately held infrastructure projects, wrote off its investment in the toll road in 2009.

The FHA’s loan of $140 million to the private enterprise grew to $170 million at the time of the bankruptcy due to accrued interest. Today its stake in the restructured South Bay Expressway is about $7 million.

Open to Sales Negotiations

Hulsizer said the new owners of the entity controlling the toll road have not made any decisions about the future sale, but would be interested in hearing from Sandag, or anyone who has an interest in buying the leasehold.

The South County Economic Development Council, a regional economic advocacy group, told Sandag it supports investigating the purchase of the toll road but wants the planning agency to consider several issues before moving ahead. Among the questions the South County EDC wants Sandag to consider are weighing the benefits of a public purchase versus letting another private entity buy the road; where the funding for the purchase will come from; and if the purchase is completed, how it will affect planned improvements to other South Bay road projects such as those planned for Interstate 805.

All the financial changes surrounding the ownership and control of the toll road won’t affect the customers in any way, says Hulsizer.

“Our customers will see no difference,” he said. “The (bankruptcy) court has been good to us.”

He said the project was able to make some improvements since it filed for bankruptcy protection, including reducing some of the tolls for trucks, and installing new credit card machines for customers.

Throughout the legal process, the toll road has been operating on a break-even basis, and in the past year, traffic has even picked up a bit. It’s now carrying about 26,000 cars on an average weekday, up by 1,000 over the prior year, he said.

Sandag officials including Cox want to expand that number and relieve some of the heavy traffic off Interstate 805, and have taken the first steps to make that a reality.

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