Donaldson, Lufkin & Jenrette Securities Corp. has offered to buy the Massachusetts Turnpike Authority for as much as $1 billion, state officials said last week.
If completed the deal would be the first in which a private company purchased an existing public toll road in the United States, industry experts said.
Officials from Donaldson Lufkin would not comment on their bid for the authority's assets, which include 135 miles of highway from Stockbridge to Boston, 24 intercharges and two tunnels in the metropolitan Boston area.
James Aloisi, general counsel for the turnpike authority, dismissed the offer from Donaldson Lufkin as too low.
"They proposed $500 million to $1 billion, which on its face is absurdly low and -- frankly -- would be a total rip-off for the Commonwealth of Massachusetts," Mr. Aloisi said.
He also said the transaction would pose insolube problems. "The [authority's enabling] statute would have to be repealed, our bonds would have to be defeased, but it's a lot mroe complex than that," he said. The turnpike authority has roughly $200 million in debt outstanding, and is considered by credit rating agencies to be one of the better managed turnpike authorities in the nation. Moody's Investors Service rates the turnpike authority's revenue bonds Al, and Standard & Poor's Corp. rates them A-plus.
According to Mr. Aloisi, the privatization of the turnpike authority could derail the state's primary highway project, which involves building a third harbor tunnel and an underground highway in the heart of downtown Boston.
"The project is connected in a very intimate way to the turnpike and the tunnel system, and there are lots of questions about the legality and the propriety of a private company owning a portion of the system that's being improved upon through the tunnel/artery project," he said. As a result of privatizing the turnpike authority's assets, the state could lose essential federal funding for the $5 billion project.
Nevertheless, scrutiny of the authority's practices combined with Gov. William F. Weld's emphasis on cutting costs by selling state assets and services, has left the state seriously considering three or more proposals to buy the turnpike authority.
In an Oct. 28 letter from a Donaldson Lufkin merchant banking official to Gov. Weld's chief of staff, the firm said it was "interested in investigating the possible acquisition of the Massachsetts Turnpike and the Callahan [and] Sumner Tunnels ... from the Massachusetts Turnpike Authority.
David L. Jaffe, a senior vice president in the firm's merchant banking operation, wrote that a "normal due diligence investigation" of the turnpike transaction would require no more than eight weeks.
At that point, Donaldson Lufkin could make a more precise offer for the turnpike's assets and obligations. The firm said its preliminary bid range of $500 million to $1 billion was based on the turnpike authority's financial statements for 1990.
Donaldson Lufkin did not reveal any third party interested in the turnpike, and officials at the firm would not comment Friday on news of the bid, which was first published in Boston newspapers.
The America Trucking Associations has also expressed interest in purchasing the roadway. Thomas J. Donohue, president of the trucking associations, said the consortium would issue corporate debt to acquire the system. He did not disclose a possible offering price.
The Weld administration is seriously considering the proposals from Donaldson Lufkin and the trucking group, according to administration spokesman Dominic Slowey.
"These were unsolicited offers which we are looking at seriously," Mr. Slowey said. He added that earlier, another firm offered $1.3 billion for the turnpike, but that the offer did not receive publicity. He would not identify the firm.
For the authority sale to take place, the governor would probably have to introduce legislation authorizing the sale of public assets and the dismantling of the authority.
The state has commissioned a report by Goldman, Sachs & Co. on what to do with the turnpike authority and its assets. A major question, Mr. Slowey said, is whether privatization of the turnpike authority should apply to its assets or just its management.
The administration's scrutiny of the turnpike authority crested in early August, as skepticism about bond-issuing authorities combined with the state's need for cash.
Last week, the Massachusetts inspector general published a report whose title sums up the popular doubts about the independent bond-issuers: "The Massachusetts Turnpike Authority: Self-Preservation at the Expense of Taxpayer Interests."
Robert A. Cerasoli, the state inspector general, said in a letter accompanying his report that the turnpike authority made "an apparent attempt to subvert its original mandate and extend itself indefinitely through the mechanism of massive indebtedness."
It was a reference to the authority's decision to issue $47 million worth of revenue bonds last year for repairs on the Sumner and Callahan tunnels that were, by some accounts, necessary only to prolong the life of the authority, whose initial legislation called for its eventual disbanding.
