The highly leveraged Australian toll road giant Macquarie Group continues to struggle as the global economy remains soft. On Wednesday, the firm’s toll road subsidiary, Macquarie Infrastructure Group (MIG), lashed out at Indiana state House Speaker Pat Bauer (D-South Bend) for suggesting that the company has been “performing poorly internationally” and that the Indiana Toll Road might be sold off to another company as a result. MIG blasted Bauer in an unusual statement to Australian investors. “In line with previous disclosures, MIG’s sound financial position is well documented,” the company’s press release stated. “Of note, MIG currently has approximately A$900 million of cash on its balance sheet and no corporate level debt.”
Bauer’s statement followed the release of figures that showed the number of transactions on the Indiana Toll Road decreased 9.5 percent in Fiscal Year 2009 compared to the previous year while total traffic dropped 6.4 percent. Unless it sells its ownership interest in the road, Macquarie will collect tolls until the year 2081.
The situation is the same in other parts of the country where Macquarie runs the roads. Traffic dropped 5.1 percent on the Dulles Greenway in Virginia where Macquarie’s ownership lasts until the year 2056. Traffic dropped only 1.9 percent on the Skyway in Chicago, Illinois where Macquarie will collect tolls until the year 2104
Fewer people driving on the tolls roads, however, does not mean any loss in revenue. To the contrary, thanks to toll hikes, Macquarie’s US toll roads saw profit grow between 2.9 and 11.6 percent. This is so because the states that signed deals with the Australian company ensured that no matter how bad the economic conditions might be, Macquarie would enjoy an increase in the amount of tolls greater than the rate of inflation. In Chicago, for example, the toll will eventually rise to $21 to take a one-way trip that lasts less than eight miles.
Instead, it is Macquarie’s complex and highly leveraged debt structure that has raised questions about long-term viability. In May 2007, New York hedge fund manager Jim Chanos was the first major analyst to suggest Macquarie’s financial structure was unsound — while the firm was at its peak. Chanos is most famous for being among the first to warn of Enron’s fall. Now Chanos’ predictions are coming true as MIG wrote down its asset value by 28 percent, from $7.1 billion to $5.1 billion. This comes on top of the 25 percent write down last year leaving MIG worth A$3.5 billion less than it was worth in June 2008.
“The anticipated portfolio valuation has been primarily affected by lower forecast traffic volumes, changes to asset discount rates, and the impact of movements in foreign exchange rates,” MIG said in a June 30, 2009 release. “However a continuation of higher assumed financing costs, and changes to interest rates and inflation rates across the portfolio have also contributed to this reduction.”
Because of the downturn, a number of Macquarie’s top executives also saw their salaries slashed. Executive Director N.W. Moore’s $14.8 million compensation was reduced to just $1.7 million. A.J. Downe had an $12 million salary cut to $4 million. G.C. Ward, N.R. Minogue and P.J. Maher saw their $3.3 million salaries plunge to $1.8, $1.5 and $1.3 million respectively.
The latter three also rely on derivatives in their own personal financial portfolio. They used the bank to loan themselves between $4.3 and $5.5 million for “zero cost collars,” a complex transaction designed to ride out a down market while avoiding the payment of taxes from selling stocks. Non-executive Director D.S. Clark loaned himself $37 million.
The infrastructure division will report its annual profit on August 20.
Of course Pat Bauer is one of the great economic minds of our time – I am sure Milton Friedman is quaking in his boots at one of Pat’s utterances. Pat is a platinum card member of the tax and spend club. Pat was dragged kicking and screaming into a balanced budget by Governor Mitch Daniels just recently. What a terrible fate.
As the article points out, Macquarie doesn’t control the amount of traffic on the toll road – other economic factors have more to do with the level of traffic. If Macquarie went “poof” the Indiana toll road would still be there and another operator would be found. The state of Indiana already has their payday from Macquarie with projects underway or money in the bank.
“In Chicago, for example, the toll will eventually rise to $21 to take a one-way trip that lasts less than eight miles.”
And I thought the Highway 407 consortium in Toronto were bandits – yikes! The same trip on the 407 would cost about $2.50.
Private toll roads are a giant leap backwards. Not everything is done best by for profit companies. Health insurance is another example where the shift from non-profit co-ops to for-profit mega companies has been a step backwards.
How much money does the Fed and State get when you combine ALL of the so called “road taxes”??
Please explain WHY, when the taxpayers have paid 20 times more in taxes than the new road costs, they THEN have to pay for the privilege of driving on that new road…
And even better, WHY are they paying it to a FOREIGN company??
A couple of years ago, I sat in traffic on the I-90 Indiana Toll Road for two hours while emergency extracted an unfortunate woman from her Cavalier, which had crossed the unprotected median and collided head-on with a tractor-trailer. (I read later that the woman was killed instantly; no surprise by the looks of her car that was towed away.)
That road is sub-standard by any measure, especially for the amount of traffic that a main east-west corridor is required to carry, and I don’t think that privatizing it has done much to change that.
I live in Indiana. Pat Bauer fought the private operation of the road from the beginning. Of course, while his party ran the state for 16 years, the toll road under state operation was actually losing money.
Mr. Bauer (speaker of the Indiana House of Representatives) sometimes speaks a bit intemperately, shall we say. It should come as no surprise that traffic is down, particularly since the industry that builds 70% of the country’s RVs is a heavy user of the toll road, and this industry has been virtually shut down for the last year or 3. I do not see where that is Macquarie’s fault. If the state were still running it, the road would be bleeding red ink but Speaker Bauer would be really quiet.
Would it still be in the red if the state hiked the toll?
The real problem is that they are monopolies in the true sense of the word.
The thing know as a Private/Public Partnership is even worse than solely public ownership as all it does is offer the same old shit for a higher price.
You can’t open up something in competition without the holder running to the state to strangle off your project in red tape.
Disclosure:I own macquarie shares, and yes I am ahead on them.
Yes you are right, allowing toll road monopolies is stupid, hopefully some politicians will get their arses handed to them for taking such a short sighted view of their responsibilities. There goes a flying pig. You the tax payer need to get used to paying for the infrastructure you want via taxes if you want to get rid of these stupidities.
Otherwise you will continue to fund my lifestyle. Thanks for that.
And even better, WHY are they paying it to a FOREIGN company??
Because the US money changers were too busy finding ways to speculate on questionable Weapons Of Financial Destruction when other companies/nations were investing in “real” products/business.
I don’t like the Macquarie Group, I don’t like public-private partnerships, and I don’t really care for the Indiana Toll Road either.
I like TTAC and ‘The Newspaper’ for telling me about them, though.