AUSTIN, Tex. - The group developing a massive high-speed rail project in Texas is headed for default of its franchise Dec. 31 after a campaign to raise $170 million in financing failed.
"We are not asking for an extension of our financing deadline. We have exhausted the financial resources we have available to us," Texas TGV Corp. chairman Glenn Biggs told the Texas High-Speed Rail Authority on Friday.
Biggs' statement signaled the end of a long effort by a French-American consortium to build a $6.8 billion super-fast train that would whiz between major Texas cities. The group was granted the franchise by the state in 1991.
The statement also could signal the end of high-speed rail in Texas for the next few years if other groups do not try to revive the project, envisioned as a way of bringing the state's transportation system into the 21st century. No other potential franchisees appeared to be waiting in the wings.
Speaking before hundreds of people who packed the Austin meeting, Biggs said, "The financial requirements of this project are so great that we have reached the point where our partners cannot reasonably continue funding the effort at this level as it is currently mandated without more significant public-sector support."
In recent weeks Texas TGV scrambled to meet a Dec. 31 deadline to come up with financing for the project and received verbal commitments from investors wining to purchase $200 million of Euro-notes, Biggs said. The effort was being coordinated by investment banking firms of SG Warburg in London and Dillon Read & Co. in New York City.
Under the plan, the Euro-notes would have been guaranteed by the managing partner of Texas TGV, Morrison Knudsen Corp., an Idaho-based engineering and construction company, and would eventually have been converted to stock. But about a week ago, when the notes were scheduled to go to market, Morrison Knudsen backed out of the transaction because it did not want to assume the "exposure and liability," Biggs said. He did not release other details on the matter.
As a result, he said the corporation will not request another financing deadline, as it did last year, when it was granted until Dec. 31 to get more equity for the project. It means a large loss for the project's partners - including Morrison Knudsen; Bombardier Corp., a Canadian train maker; GEC Alsthom in Paris; and Mannai Investments in London - that have put in about $40 million so far.
Hershel Payne, a Fort Worth, Tex., attorney who chairs the high-speed rail authority, said the board was not authorized to take away the franchise until the Dec. 31 deadline elapsed. "No one on this board wants to terminate the project," he said. "It terminated because of Morrison Knudsen ... I have lost faith in Morrison Knudsen, Bombardier, and Alsthom."
However, Biggs said much of the problem stemmed from lack of commitments of federal and local funds for the transportation program, which required an unusual amount of private capital early in the development.
He said other projects from roads to airports get more public funding during development stages and it is unreasonable to ask for this amount of private funding before an environmental impact statement is completed.
Lawrence Catuzzi, a senior vice president at the Houston office of Rauscher Pierce Refsnes, said, "It's too big a project to be shouldered by one group. I don't think a project of this magnitude can be funded without local, state, and federal government support."
Catuzzi, who was a financial adviser to the authority when he worked for Underwood Neuhaus, said bonds were considered to help finance part of the project.
Many in the nation have been watching the Texas project, which is considered one of the largest and furthest along of the proposed supertrains. It has become more visible in recent months, when an emphasis on high-speed trains increased at the federal level. This year the Clinton Administration proposed a $1.5 billion plan to get high-speed train projects moving.
But while Texas has lobbied for federal funding, the state Legislature has not authorized state funds to pay for the project.
On Friday, several state representatives and senators said there would be little support for state funding in the Legislature, where some think the train would not be profitable.
"We don't need to pour any more coffee into this tax-exempt scheme," said state Rep. Ed Kuempel, R-Seguin. "We need to kill this thing now."
However, some others suggested that a blue-ribbon committee be set up to discuss whether a high-speed train project in Texas was feasible and whether the project might be able to be revived under some other group.
Plans call for holding a meeting of the High-speed Rail Authority in January when some of the questions could be discussed.
Although Texas TGV Corp. is headed for default of its franchise, Biggs said he hoped that Texas would not allow the project to die because it is important to the state's economic development and transportation system.
However, many have been skeptical that a high-speed train could work in Texas, where inexpensive air transportation is available and state residents are accustomed to using cars. Texas cities lack the local rail systems that usually feed into a high-speed train network, considered a key to the success of European supertrains.
In September, Texas TGV released a study saying that the system would carry more than 14.4 million riders by 2010. Some have called those figures inflated and say the train system would require subsidy.