Orange County turnpike officials on Thursday approved a $1.16-billion package of payments and loans to bail out the San Joaquin Hills tollway.
The rescue plan by the Transportation Corridor Agencies replaces a failed attempt in 2004 to merge the operations of the Foothill-Eastern and San Joaquin Hills toll roads and refinance them with a $4-billion bond issue.
"This is not a full solution," said Laguna Woods Councilman Bert Hack, who chairs the San Joaquin Hills board of directors. "But it allows us time to reach the next critical steps of fixing the San Joaquin Hills and improving the county's overall transportation system."
The San Joaquin Hills, which runs 16 miles from Newport Beach to Laguna Niguel, has been plagued by lower-than-expected traffic and revenue since it opened in 1996.
Under the agreement, the Foothill-Eastern toll road will give the San Joaquin Hills $120 million and low-interest loans of up to $1.04 billion, using surplus toll revenue -- if it's available. The surpluses have been about 3% to 5% a year.
In exchange, the San Joaquin Hills board agreed not to sue to halt plans by the Foothill-Eastern to build the Foothill South, the final link in the county's toll road network. That highway would extend 16 miles from Rancho Santa Margarita to Interstate 5 near San Clemente.
Armed with traffic studies, San Joaquin board members have said the Foothill South will draw motorists away from its highway, reducing their toll revenue by $320 million. The $120-million payment is compensation for the expected loss.
Without a bailout, tollway officials say, the San Joaquin Hills would be in technical default on $1.9 billion in bonds as early as July and unable to give investors their promised return by 2012. Technical default occurs when a borrower violates an agreement with bondholders to make $1.30 in revenue for $1 in expenses.
TCA officials fear that a default might trigger a takeover of the highway by bondholders, who could raise tolls more than planned to help recover their investment.
Financial analysts also say a default could make it difficult to sell almost $900 million in bonds to build the Foothill South. That highway, which could go through San Onofre State Beach Park, faces substantial opposition from environmentalists.
"A lot of good work has gone into this," said Yorba Linda Councilman Ken Ryan, chair of the Foothill-Eastern board. "It creates a win-win situation. We can move forward with Foothill South, and it will help the San Joaquin Hills meet its agreement with bondholders."
The San Joaquin Hills board voted unanimously for the rescue plan; the Foothill-Eastern board passed it 13 to 2.
Some board members said they supported the plan but reluctantly, because of its complexity and their uncertainty over whether there would be enough surplus revenue to make it work.
Also, the Sierra Club and a coalition of environmental groups opposing the Foothill South proposal have asserted that the rescue package violates state law because revenue from one tollway cannot be used for a second one.
"What we are moving forward with is overwhelmingly complicated and fraught with potential hazards," Irvine Councilman Larry Agran said.
Peter Herzog, a Lake Forest councilman and Foothill Eastern board member, said he feared the bailout package would hurt the ability to finance the Foothill South.
TCA officials say that up to $245 million in non-investment-grade junk bonds will be necessary to build the highway. Two brokerages already have contacted the TCA, saying the plan would cool their interest in Foothill South bonds.
Herzog said that other solutions, including offers from private financial institutions to bail out the San Joaquin Hills, have not been given adequate consideration by the TCA.
"I'm not thrilled with the agreement, but I am put in a position where I have no choice," Herzog said. "I really only have one option: whether or not to abandon an effort that has taken four years."
Under the agreement, a committee of TCA board members will be created to consider other ideas that might help the San Joaquin Hills and reduce Foothill Eastern's financial obligation.
Still on the table is an offer from the National Infrastructure Capital Group based in Los Angeles to provide $400 million in low-interest loans to keep the San Joaquin Hills out of default.
Lodwrick Cook, the investment firm's chief executive, said the loan required a slight increase in tolls but would fill the highway's reserve fund, provide money for improvements and help pay off some bonds.