DALLAS - Harris County commissioners expected to vote tomorrow to create a nonprofit corporation to buy the troubled Houston Ship Channel Bridge from the Texas Turnpike Authority in what would be a first-of-its-kind deal.
However, Harris County Judge Jon Lindsay said that whether the $320 million bond-financed deal becomes a reality will depend on everything from a favorable opinion by the state attorney general to concessions from the institutions that now hold junior lien bonds expected to default in 1996 unless action is taken.
"I expect the board to adopt the plan to move forward," said Mr. Lindsay, the county's chief executive. "I'm sure we will send the Texas Turnpike Authority a proposal."
The county commissioners are scheduled to meet in special session tomorrow to consider a Dillon, Read & Co. plan to avert a default by selling the troubled Houston project to a newly created public corporation.
The turnpike authority is scheduled to meet Tuesday in Dallas to consider any proposal the county approves.
The proposed buyout is the only plan currently being considered as an alternative to a controversial authority proposal for using $21 million of new senior and unrated junior bonds to restructure the bridge debt and avert a default.
That plan has been stalled before the Texas Bond Review Board since spring as state officials have pressed for an approach that would not require as much leveraging to solve what they view as a short-term revenue shortfall beginning in 1996.
John Crew, managing director of Dillon Read in Dallas, did the new plan would use 230 million of refunding bonds issued by the new Beltway 8 Transportation Corp. to defease the turnpike authority's outstanding debt. New-money revenue bonds totaling $90 million would be sold to build nine miles of tollway approaching the bridge. The debt would have a 20-year final maturity.
Mr. Crew said the deal is not a debt restructuring, adding, "It's viewed as a real sale from entity to entity."
Under the plan, an estimated $250 million of senior bonds would be sold with an average coupon of 6.5%, while up to $70 million of junior debt would carry an average coupon of 8% under existing market conditions. Current projections show the bonds would have coverage of 1.55 and 1.03 times debt service, respectively.
The county-created corporation would issue the debt, but the project would be managed under an agreement with the Harris County Toll Road Authority.
Mr. Crew and others. familiar with the plan believe it may work because it includes construction of toll-producing roads that would direct more traffic across the ship channel bridge.
"If you believe the bridge won't succeed without new traffic, then you probably support this plan," said one state official who backs the Dillon Read concept. "I'm not worried about increasing the debt if the traffic projections show the revenue is strong enough.
A spokesman for the turnpike authority said that expanding the ship channel project has always been part of the long-term goal.
Bob Peterson, senior vice president at First Southwest Co. of Dallas, the authority's financial adviser, said his client began looking a decade ago at developing part of Beltway 8 as a toll road.
The authority has not yet indicated how it regards the plan. "The turnpike authority has agreed to explore with Harris County whatever they have to propose," Mr. Peterson said. "That's the official position."
But whether the plan advances is dependent first on whether the Texas attorney general's office rules that the bridge can be sold to the new nonprofit corporation after the debt is defeased. Under existing statute, the project becomes property of the state highway department when the debt is paid off.
"There is no specific authority to sell the project," said a Texas bond lawyer, who does not believe the sale can be done. "I think it would be a wild stretch for the attorney general to say this is legal. "
Mr. Lindsay says another key to Harris County playing a role in the bailout will be the cooperation of junior lien bondholders, who have been criticized as getting a windfall at the state's expense under the debt restructuring plan.
"If we're going to bail them out totally, there has to be some concessions." he said, declining to be specific on what the county expects. "We're interested in doing the project, but it is somewhat contingent on being able to work with the 1985 bondholders."
One trader who represents some of the bondholders said his clients are not likely to have anything to gain by negotiating, adding, "I don't see that they would get anything out of a deal like this."
Further, it is not yet clear whether the Texas Bond Review Board would approve the deal.
"I don't know that there's a consensus yet," said Paul Williams, chief of staff to Gov. Ann Richards, who chairs the oversight board. "The real concern everybody seems to have now are that rates are going to go up after the election and that time is running out."
The proposed bailout has also highlighted some of the resentment within the Texas bond community over what some perceive as Dillon Read's eleventh-hour attempt to take a deal away from a PaineWebber-Lehman Brothers team that has worked for nearly two years on the proposed debt restructuring.
"There are a lot of hard feelings," one investment banker said. "Is it a matter of getting mugged or just having the best idea win out? It depends on who your friends are."
Privately, some competitors have criticized Dillon Read, saying the firm is trying to profit from a potential default it helped create in 1985.
Mr. Crew said the firm was involved in the 1985 financing to sell junior lien bonds to solve a cash flow problem on the bridge, even though he says the firm advised against the deal.
"When you work for a client, you give them your best advice," he said. "If they choose not to accept it, you have to decide if you still work for the client. We decided that we worked for the client, so we implemented what they wanted to do against our better advice."
