Texas agency outbids Cintra for toll road concession

May 7, 2007

By Joan Gralla

NEW YORK, May 7 (Reuters) - A North Texas authority on Monday offered to pay the state $3.3 billion to overhaul and operate a busy Dallas-Fort Worth highway, $500 million more than Spanish toll road firm Cintra has offered.

But credit analysts, construction firms and banks say rising objections from Texas voters and lawmakers to Republican Gov. Rick Perry's $50 billion road and rail privatization program might signal the tide is turning against such deals in the United States.

Cintra in February was preliminarily approved for the governor's latest road project, modernizing State Highway 121. Though the deal still must clear environmental and other regulatory hurdles, legislators asked the North Texas Authority what it might pay for the project.

The authority on Monday said it has offered to pay $2.5 billion up front and $833 million in annual lease payments.

The authority said its banking partners had agreed to finance the upfront payment, adding its toll revenue estimates show it could return $1.3 billion to the road system, which would help pay for other needed improvements.

Moody's Investors Service on Monday affirmed the authority's "A1" or "upper medium" credit rating, but added: "We believe that the magnitude of the borrowing (the authority) is considering would significantly alter the authority's debt profile and would likely result in a downgrade."

The authority said its proposal "will ensure significant economic benefit to the North Texas region, greatly exceeding that of the private sector proposal," the local authority said in a statement, referring to Cintra's proposal. Asked which bid the Texas governor favored, spokeswoman Krista Moody said the local authorities would pick a winner. "I think it's an exceptional example of allowing competition in the marketplace," she added.

That gives the Regional Transportation Council, whose board is dominated by local elected officials, an important voice. But the state transportation department would still have to approve the final deal, Moody noted.

Texas's Republican-led legislature recently enacted a two-year moratorium on new deals because it fears the governor's pacts have been too generous for banks and construction firms.

The governor has yet to decide whether he will veto the moratorium bill, which could put the brakes the biggest U.S. privatization plan, or another such measure the legislature is now considering, the spokeswoman added.

Perry has received the first bill and now has 10 days to make up his mind, she said.

The legislature's session ends on May 28, and local newspapers, including the Dallas Morning News, said the legislators need his decision by about May 16 if they are to override any veto.

The State Highway 121 project is particularly desirable to developers such as Cintra, part of Ferrovial because it serves a fast-growing area.

The suburbs that lie just north of Dallas-Forth Worth are expanding faster than the rest of the region, the local authority said. For example, Collin County is expected to add 514,000 new residents from 2005 to 2030, it added.