DALLAS -- Harris County commissioners have approved a plan to create a nonprofit corporation to buy the troubled Houston Ship Channel Bridge from the Texas Turnpike Authority -- but with several key conditions.
The five-member commission unanimously approved on Friday a proposal by Dillon, Read & Co. to use $320 million of revenue bonds to buy the bridge and avert a default in 1996 on the bridge's junior lien debt.
But the plan is facing opposition both from the turnpike authority and from a major investor in the troubled subordinate debt.
Last week, Massachusetts Financial Services Inc. wrote to the Texas Bond Review Board, arguing for the authority's own stalled plan for a $210 million refunding of bridge debt.
"My purpose was to encourage the board to approve the plan that's on the table rather than investigate alternatives that are going to ultimately be infeasible," said Davis S. Crane, senior vice president at the Boston-based mutual fund company and author of the letter. "The longer they wait, the less likely the market is to be favorable, as it is now."
Industry sources have said junior lien bondholders back the refunding and have agreed to reinvest millions of dollars of their windfall from the defeasance back into thee turnpike's proposed refunding.
Mr. Crane is not alone in arguing that Dillon Read's plan may not work.
Harris County official have attached four major conditions to their approval of the controversial plan to buy the bridge and build up to nine miles of new tollways approaching the project.
First, the commission said, the deal cannot move forward unless the Texas attorney general's office issues an opinion saying state law permits the bridge's sale to the newly created Beltway 8 Transportation Corp.
Observers say a favorable opinion, expected in the next two weeks, is the key to the plan.
Three bond lawyers interviewed, however, warn the existing state law requires all toll-financed projects to become property of the state highway department when the debt is defeased.
Harris County Judge Jon Lindsay, the country's chief executive, also included three conditions: that mutually agreeable sales terms be negotiated, that a supporting traffic and revenue study be delivered, and that Dillon Read close the deal by Nov. 1.
John Crew, managing director at Dillon Read in Dallas, said yesterday he delivered the deal can be done under those terms. He added, "I think it's really going to come down to the marketplace and the rates. We don't know what it's going to be, but it looks real favorable."
Under the plan, the corporation would issue $250 million of senior debt and $70 million of unrated securities. The proceeds would be used to defease outstanding debt on the bridge and to build new toll-generating roads approaching the bridge.
Mr. Crew and others have said the new toll roads would increase traffic on the bridge and revenues needed to support the debt. The project would be managed by the Harris County Toll Road Authority, but the local agency would have no liability for the debt.
But the plan drew negative comments in the Sept. 1 letter from Massachusetts Financial Services, which predicted that the junior debt will not be marketable.
"I have no ax to grind with Dillon Read," said Mr. Crane, whose firm holds $34 million, or about half the outstanding junior bonds. "It would be more profitable for us to just do the Dillon Read proposal if it were feasible."
Mr. Crew said his firm has not yet met with any junior bondholders, but he said he would like to explain the proposal to Massachusetts Financial Services and other bondholders.
Still, the proposed buyout must first be approved by the Texas Turnpike Authority board, a process that will likely involve participation by the bond review board.
The authority is scheduled to consider the plan at a special meeting at 10 a.m. next Tuesday in Houston. The proposal is the only item on the agenda.
"There is a possibility of a decision then," said Jerry Shelton, spokesman for the authority, who confirmed that the Dillon Read proposal was received yesterday morning.
Most recently, however, the authority board has reaffirmed its support for the refinancing plan that its advisers and staff first proposed this spring.
"They still believe the refinancing approved by the board is the most viable plan," Mr. Shelton said. "That could change at this meeting."