On the subject of the Second Generation Toll Roads
On 16 May 2012 the first toll road was declared in bankruptcy proceedings (AP-41). 19 months later, the last one (M-12, to the Airport). 9 assets in total, owned by 8 concessionaires, with diverse shareholders and different contractual and financial conditions. Since then, the evolution of the judicial proceedings of these assets – in substance, their legal situation – may well be qualified as chaotic.
Different types of measures, coming from various sources, have been proposed and discussed: numerous approaches trying to solve the issue of the bankrupt toll roads. Recently, the Government has made known the umpteenth plan: to tender those toll roads anew, in one or two blocks, once they revert to the State.
A double objective.
Regardless of what turns out to be the correct political or economical solution, the way out of the current situation must achieve a double objective.
On the one hand, to propose a solution which is as final as possible, and which does not generate additional uncertainties or problems. Lessons learned must be applied, avoiding past mistakes: the importance of paying attention to realistic viability analysis for the projects, which are essential to guaranteeing sustainability, profitability and efficiency; and reviewing planning criterion (realistic, with long term perspectives).
On the other hand, at this point in time it is of the utmost importance that legal certainty is guaranteed: a legal and stable framework that gains investors’ trust in the solvency and future of the system and attracts the best offers for long term investments. And which enables new investors to participate in these projects (new financing methods; significant stakes and even control stakes by institutional funds, pensions funds, …).
The current investment context has changed and will never be the same as before. In the previous scenario, large participants focused their investments in short term profits obtained from the construction of the assets. Everything else was secondary. That approach originated great mistakes: unjustifiable extra costs; lack of realistic viability analysis and traffic estimates; neglect for the real cost of expropriations; …
Bankruptcy proceedings and the imminent termination of concessional contracts have led to SEITTSA being in charge of the assets during the time up until the next phase; and new bidders have come into play (construction companies, operation companies, funds, …), who are already preparing for the future tender that the Government is announcing. All of them need legal certainty.
As a result of transactions made on financial debt, distress funds have appeared on scene. With their presence, game rules change: new profitability thresholds and time horizons for investments, which substantially differ from those of traditional creditors. Their presence has constrained a negotiated solution, and will continue to do so, making reaching an agreement difficult. The main reason is that the actual extent of guarantees with regard to transferred debt is unclear: we do not fully know the amount of the Administrations’ economic responsibility (RPA, for its acronym in Spanish), nor if the pledges are valid, nor – lastly – if certain guarantees issued by shareholders of the concessionaires are still valid or have otherwise expired or been terminated.
Implementing a solution
The current situation is more favourable to find a solution as compared to the previous five-year period. Among other positive aspects, the political-economical context, with public deficit levels and objectives allowing public administrations some wiggle room, and traffic levels improving. However, these should not serve as an excuse to accept excessively optimistic forecasts nor to tender projects regardless of reality.
While we wait to see how they actually implement a solution to the situation of the Second Generation toll roads, experience has shown that – as in most cases – where toll roads are concerned, reality prevails over estimates and forecasts.
There are still a number of outstanding aspects that directly impact how the final solution is implemented (termination of liquidation phase in the bankruptcy proceedings, early termination of the concession contracts, approval of State budget, …). And there are also various open issues that impact the success and viability of the ensuing project (regulation for new players, review of project planning and forecasting process, …).
Possibly, the first aggrieved will be the estimated deadline for project execution.