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New Road's Tolls Not Up to Speed

Transportation: But 51% shortfall from San Joaquin Hills projections is no threat to bondholders, investment report says.


A 51% revenue shortfall from projections for the San Joaquin Hills toll road can be blamed on faulty projections made in 1992 when $1.2 billion worth of municipal bonds were sold to pay for the project, Transportation Corridor Agencies officials said Wednesday.

The shortfall, however, is not likely to affect the agency's ability to pay off bondholders and will probably disappear within a year, said Paul Glaab, an agency spokesman. His opinion was shared by some security analysts.

"There were a number of assumptions made that, basically, changed in the following years," Glaab said.

The agency spokesman pointed toward the prolonged recession in Southern California that has kept people off the toll road.

A March report on the shortfall by J.P. Morgan Securities Inc., a New York investment company, pointed to confusing road signs, the addition of carpool lanes on the nearby Santa Ana Freeway and a longer-than-expected period for drivers to become familiar with the new road.

"While we believe that San Joaquin has been among the most widely marketed roads in history," the report said, "such marketing does not reach all potential users."

The projections said an average of 94,500 drivers would pay 25 cents to $2 per trip to use the toll road each day by April of this year. Instead, Glaab said, only about 48,250 a day use it.

The J.P. Morgan report, which was written for investors, concluded that the shortfall was probably temporary and not likely to affect the agency's payment of its debt. And while recognizing it might lower the TCA's credit rating, the report said, "we doubt the rating will be reduced below investment grade."


Bob Muller, managing director of J.P. Morgan and author of the report, said he based his conclusions on the fact that the road's early shortfall is not unlike those experienced by other new toll roads shortly after opening.

"There's nothing unusual here," said Muller, citing a survey he did last year showing that new toll roads routinely run 40% below projections during the first few months. That statistic was not known when the TCA made its projections.

Other reasons for optimism regarding the toll road's future, he said, are that Southern California's economy has begun to turn around and that the resulting growth in Orange County is likely to jam up the widened Santa Ana Freeway.

"As the competing roads clog up," Muller said, "people will have nowhere else to go, so the toll road will really begin to gain ground."

At least one other security analyst is more cautious.

"I am fairly certain that these bonds will be fine, and there won't be any problems," said Charles Rother, president of American Strategic Capital, an investment management business in Los Alamitos. "But it's a time for them to be concerned and take action. If they don't show a significant improvement in the next 12 months, it certainly will end up affecting their bond ratings."

Glaab says he expects the road, where use has been increasing by 2% to 3% per week, to be performing up to projections by then, well before the March 1999 date when the TCA must begin making interest payments on its debt. In the meantime, he said, the agency intends to pursue an aggressive marketing campaign.

"We will continue to enjoy a strong commitment to the corridor," he predicted. "If all of a sudden you set projections aside, this road is performing very well."

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