Credit rating for Highway 407 owner's Texas project downgraded – for the second time in one year

American P3 highway troubles may cost Texans plenty.

Ottawa (21 Nov. 2013) - The credit rating for a toll freeway in Texas owned by Ontario's Highway 407 owner Cintra Infraestructuras S.A. has been downgraded to the point where it is considered a very high credit risk.

Another public-private partnership (P3) project, with Canadian ties, in trouble

Cintra Infraestructuras S.A. is the largest single owner of the existing privatized Highway 407. It also owns 50 per cent of the P3 for the eastern extension of Highway 407 – along with SNC-Lavalin (which is facing corruption charges relating to a Montreal P3).

In April 2013, Moody's downgraded the credit rating for a Texas Highway P3 owned by Cintra by four levels. Then on October 15, Moody's downgrade the projects credit rating by five levels, from B1 to Caa3. According to Moody's, “the Project will have insufficient cash to meet its debt service payments due in June 2014.”

Texas residents likely to be on the hook

P3 supporters justify the higher cost of P3 projects by claiming that the savings from transferring risk to the private sector make up for paying more to borrow money and administer the project. If that's true, the owners of the project would cover the cost of any losses. But no one would bet on that.

Moody's stated that “significant remediation support from the sponsors” (the Texas Department of Transportation) would prevent default. That would leave Texas residents paying for risks that the private sector is supposed to be covering. With Cintra owning Highway 407 as well, Ontario residents should be looking carefully at what happens.

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