The South Bay Expressway (SBX) is a 12.5-mile, tolled extension of SR-125 in San Diego County, CA, running from SR-54 southward to Otay Mesa, just north of the Mexican border. The SBX project connects the only commercial port of entry in the San Diego area to the regional freeway network, completing the region’s third north-south freeway corridor.
The southern 9.3-mile section of the SBX was originally developed under a long term public-private partnership (P3) concession by a private consortium, California Transportation Ventures (CTV), opening in 2007. The final 3.2-mile link to the existing freeway network at the northern end of the project (known as the “Gap and Connector”) was publicly funded and built in conjunction with the construction of the privately developed toll road. In 2011, the San Diego Association of Governments (SANDAG) purchased the SBX following its restructuring in bankruptcy, and the full facility is now under public control.
In 1989, the California legislature enacted AB 680, which authorized the California Department of Transportation (Caltrans) to enter into agreements with private entities for the construction of up to four toll projects around the state that would supplement existing state-owned transportation facilities. The legislation authorized Caltrans to lease those facilities to the private entities for up to 35 years, and allowed private concessionaires to identify specific projects where a private facility would perform favorably.
In response to a solicitation from Caltrans, CTV (then an equal partnership among Parsons Brinckerhoff, Inc., Transroute International S.A., Fluor Daniel Corporation, and Prudential Bache Capital) proposed to develop the long-planned extension of SR-125 South as a toll facility. In January 1991, Caltrans and CTV signed a franchise agreement for the project, which allowed CTV to finance and construct the roadway, transferring title to Caltrans upon completion and leasing back the operational rights for a 35-year concession period. Toll rates would be set by the concessionaire, subject to a cap on its rate of return. The agreement also prohibited Caltrans from building any competing roads that could divert traffic away from the SBX.
Under the franchise agreement, CTV was to develop and submit final environmental documentation for the project by December 1997. After delays due to legal challenges, shifting responsibilities, and other factors, the project finally gained environmental approval in mid-2000. In 2003, CTV awarded a design-build contract for the project and shortly thereafter was acquired by Macquarie Infrastructure Partners, which established SBX LP as the new concession company implementing the project.
Following financial close on the project (including one of the early loans issued through the TIFIA program), construction began in May 2003 and was completed in November 2007, roughly one year behind the original schedule. Tolling began two months later following delays in activating the tolling system for the facility. Despite subsequent financial distress and reorganizations, the road has operated continuously and remained open to traffic since that time.
Project Financing and Delivery
The total cost of the privately-developed toll road portion of the SBX was $658 million. The concessionaire’s financing for the project included $340 million in senior bank debt; a $140 million subordinated TIFIA loan; and $130 million in private equity. The bank debt was provided by a syndicate of 10 banks, and carried a term of 18 years. The project also received $48 million worth of donated right-of-way from four real estate developers in the corridor. Scheduled payments on the TIFIA loan were to begin in 2010, with final maturity in 2040. The TIFIA and bank loans were backed by toll revenues generated on the facility. Funding for the $138 million Gap and Connector project at the northern end of the SBX was provided from a dedicated regional sales tax for transportation administered by SANDAG.
In March 2010, SBX LP filed for bankruptcy. While the primary cause of the bankruptcy filing was ongoing litigation related to claims by the contractor that built the SBX project, toll revenue collections on the SBX had also fallen well short of the original projections. SBX LP’s reorganization plan, which was confirmed by the bankruptcy court in April 2011, settled the litigation with the contractor and established a new concession company (SBX LLC) under the ownership of TIFIA and project’s commercial lenders, who would share future toll revenues.
Under the reorganization plan, TIFIA issued a new $93 million loan and received a $6 million equity stake in the new company; the remaining $73 million balance on the original loan was unsecured. However, due to higher interest rates and the credit attributes of the new loan, TIFIA was positioned to ultimately realize 100 percent of the original loan balance.
Soon after the reorganization, SANDAG expressed its interest in purchasing the SBX from the new owners. Under the terms of the $344.5 million sale, which closed in December 2011, TIFIA issued a new loan under the same terms as in the reorganization plan and received a cash distribution of $15.4 million. SANDAG also paid off SBX’s commercial creditors, whose loans had been restructured in the bankruptcy reorganization, using its regional sales tax funds.
Soon after completing the sale of the SBX, SANDAG lowered toll rates on the facility to attract more local and through traffic and relieve congestion on I-805, a parallel route. Control of the SBX is scheduled to revert to Caltrans in 2042 under the terms of the original franchise agreement.