In every horror movie, a required cliché places the victim of doom and dismemberment in front of a choice. No, don’t go in the basement. No, don’t hitchhike with the ax murderer in the Pontiac.
If you’re a corporate lawyer, don’t visit Jurassic Park. The T. rex always eats you.
The victim always chooses poorly; otherwise there wouldn’t be a movie.
That does not diminish your instinct to issue unhearable warnings to the screen.
The chance that no one listens also does not dissuade you from shouting at government officials in Lake and LaPorte counties.
Do not borrow $4 billion to take the white elephant Indiana Toll Road off the hands of international investors and operate the 157-mile road the state of Indiana still owns.
If the two counties actually do possess the creditworthiness to borrow billions, is the Toll Road what anyone would want to rent for 67 years? Yep, say the involved public officials who insist the auction is too good to pass up. They might even get a sweet deal because it’s an auction.
All that is required is entering a seven-figure deal with the bankruptcy court to bail out an international money operator whose dealings have been called “like wrestling in the dark with a ghost.” What possibly could go wrong?
The theory of re-leasing the Toll Road using cheap bonds with loose collateral rules reflects a similar financial theory in operation when Gov. Mitch Daniels skunked the Spanish-Australian consortium Cintra-Macquarie in 2006.
The Aussies paid Indiana $3.85 billion to run the highway for 75 years and keep the tolls. The deal cost twice the road’s appraised value.
Indiana felt very smart. The cash has all been spent on 10 years worth of Indiana road construction.
Credit was cheap. Investors were hot to spend. Projections reeked of easy profit for everyone. That was the unified narrative.
Now Lake County and LaPorte County are edging up to the same lease, using the same sorts of grotesquely overstated traffic and toll projections that Aussie bankroller Macquarie paraded for the gullible. This theoretically is a “free” $5 million annually for local taxpayers.
But “free” is an ephemeral concept. County politicians may not know that Macquarie was playing an entirely different game with different rules in 2006.
Macquarie’s Toll Road deal did not even need to be financially justifiable in the customary sense.
Some ABCs first. Macquarie is essentially a bank that lures investors. It makes money off managing the deals, less what the deals buy. It builds a complex string of overlapping subsidiaries and charges investors in these subsidiaries a management fee for each deal. It’s like a stock broker who gets paid each time you buy one share of stock.
Macquarie spinoff subsidiary ITR Concession Co. now manages the Toll Road and has gone bankrupt because it failed to make a $100 million monthly interest payment last summer. ITR is not Macquarie. It’s a corporate stepchild.
If this sounds familiar, it is.
In fact, monetary analysts suggest that Macquarie operates very much like collapsed energy giant Enron. Churning business is the underlying business. The effect is similar to Ponzi schemes where the last investor is left holding an empty sack.
International financial writers know Macquarie well. Said the Sydney Morning Herald’s Alan Kohler in 2004: “The Macquarie model is justly famous around the world. It is quite possibly the most efficient method of legally relieving investors of their money ever conceived.”
In this universe, Macquarie does not worry that all its properties make money. Macquarie cares much more about multiplying deals, 84 percent of which involve its own entities. Shareholders eat the bookkeeping cost. How much? Millions. It’s “free” profit.
But the basis for the local Toll Road fever is that profit. That lovely odor of easy money.
In 2013, the ITRCC took $196 million in tolls and owed $193 million in debt service, leaving barely $3 million to cover salaries for 250 employees, maintenance, upgrades and other expenses.
Ah, yes, that pesky loan payment.
No matter how forgiving the rates are for borrowing billions of dollars, the bankers always demand the money be repaid with interest. That’s why they give it to you. The counties wish to buy that 60-year liability.
Slick international operators could not turn a profit on the Toll Road. But they didn’t need that profit. The Toll Road merely was bait.
There always would be dupes with money to invest.
David.Rutter@live.com
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