DALLAS -- While the Texas Bond Review Board is ambivalent over a debt restructuring plan to bail out the Houston Ship Channel Bridge, officials say the alternative of using other state funds to avert a default is not legally possible.
Privately frustrated over a two-month delay in a decision, the officials at the Texas Turnpike Authority worry that the board's lack of consensus could jeopardize a proposed $210 million refunding to avert a default on the project's junior debt in 1996.
Some review board members say that, rather than a refunding, they want to consider a cash loan to subsidize bond payments between 1996 and 2002, when revenues are expected to fall an estimated $30 million short of debt service needs.
"I'm reluctant to pile all this debt on a project for what is at worst a $30 million problem," said board Chairman Paul Williams, executive assistant to Gov. Ann Richards. "I'm not satisfied that this is the transaction we should do, but i'm only one vote."
He is not alone. Texas Treasurer Kay Bailey Hutchison this week said she believes there must be a better way to avoid a default, but she is reluctant to loan state moneys.
"If the idea were to use general fund moneys, I would definitely oppose that," she said.
Advisers to the turnpike authority, which would issue the new debt, say the state can only loan highway funds for new turnpike projects. All other possible subsidies, including a general fund allocation, are prohibited by the Texas Constitution, they say.
"I don't believe there is any mechanism for the state to loan the money from any source," said Bob Peterson, senior vice president at First Southwest Co. in Dallas, the authority's financial adviser and spokesman. "It just can't be done."
Voters last year approved a constitutional amendment that will allow the Texas Department of Transportation to loan money for new turnpike projects, but that change is too narrow to benefit the bridge.
"This was the first place we looked when the new amendment passed," said Rick Porter, partner at McCall, Parkhurst & Horton in Dallas, the authority's bond counsel.
Texas lawmakers next year could be asked to amend the constitution again so a loan would be possible. Any amendment would then have to be approved by a majority of voters in a statewide election.
Observers say voters might reject the idea of using state funds to bail out a project that is supposed to be self-supporting.
"The turnpike's goal in life is to build roads that users pay for," said Mr. Peterson. "Why should the state [use cash] when you can do it our way? The question is, where would it come from?"
Mr. Williams agrees, but says the Houston Ship Channel Bridge may be the exception.
"Obviously you don't want to do something like this except in an extraordinary situation," he said yesterday. "This bridge and this situation are viewed as an anomaly in Texas."
Instead of a debt restructuring, he proposes that Texas lawmakers next spring be asked to allocate a lump sum that could be escrowed and loaned to the authority to offset any debt service shortfalls that come about. He estimated that $20 million invested next year could be loaned to cover the projected $30 million shortage.
Mr. Williams said the moneys would be repaid with interest. Once the debt is retired, state law requires that bond-financed toll projects be turned over to the state.
The bridge, which was opened in 1982, underwent one rescue seven years ago when sluggish traffic forced the turnpike authority to sell high-coupon junior lien debt to meet revenue shortfalls.
But two years ago, the authority announced that its series 1985 junior bonds would default in 1996 when zero coupon bonds converted to interest-paying obligations with a 12.625% coupon. That change will cause debt service needs to rise to $21 million a year from $9 million.
To avert a default, the authority would have Paine Webber Inc. and Lehman Brothers Inc. sell $90 million of low-grade senior bonds and $120 million in unrated junior debt. The proceeds would be used to retired $88.5 million in series 1978 senior debt on Jan. 1, 1993, and to establish an escrow for the junior bonds through their redemption on July 1, 2002.
For now, winning bond review board approval for the proposed refunding is the authority's top priority. The agency has not yet decided whether to seek a vote at the June 18 meeting, but officials remain convinced the debt restructuring is the best alternative.
