HOUSTON - The Texas Turnpike Authority yesterday approved a plan to sell its financially troubled Houston Ship Channel Bridge to a newly created county agency - a proposal that the authority's own lawyers have said is not legally possible.
The 10-member authority board unanimously approved a plan developed by Dillon Read & Co., the authority's underwriter, to sell the bridge only if terms can be reached and a $320 million deal can be closed by Harris County's new Beltway 8 Transportation Corp. by Dec. 1.
If that target is not met, the authority would likely revive its own stalled plan to restructure the bridge's existing debt to avert a default on junior lien bonds expected in 1996.
"I hope this would be a starting point for negotiations," said Harris County Judge Jon Lindsay, who proposed the financing.
"As recently as a year ago, if this proposal had come across my desk, I probably would have ushered them out of my office and told them to go up to Brooklyn or someplace, " thejudge said. He said he has since changed his mind for a variety of reasons, including an improved interest rate climate for the proposed bond sale and the role he believes the sale will play in improving transportation in the Harris County area.
After the authority's board authorized its staff to negotiate terms of the sale, board members then voted to withdraw two briefing memorandums, filed with the Texas attorney general, that argued that the deal was not legally possible. The memos were authorized by the authority's executive director, John Ramming, but did not have the backing of the turnpike's board.
The briefs, submitted by the Dallas law firm of Locke, Purnell, Rain & Harrell, the authority's legal counsel, argued that the proposed sale of the bridge cannot be accomplished because of existing legal and state constitutional questions.
Some board members were angered that they had not been consulted on the matter; complaining that the position was contrary to the board's action today.
The vote to withdraw the opinions was 9-to-1, with turnpike board Chairman Luther Jones casting the lone dissent. "There's some anger involved here," said Mr. Jones, a former mayor of Corpus Christi. "There was wording in there which said this [deal] could not be done, and some people on the board didn't like that."
Sources familiar with the brief said that it argued there was no specific legal authority for the turnpike to sell one of its own projects. Under existing law, all turnpike projects become state property after their revenue debt is defeased.
For the sale of the bridge to be completed, the attorney general's office must issue an opinion saying the transaction is legal. An official with Dillon Read said its lawyers have submitted arguments that say the transaction can be done.
For the proposal to move forward, the authority yesterday set other conditions. These include reimbursement of expenses to the authority, its advisers, and underwriters for their work on the stalled refunding during the last two years.
According to preliminary estimates, the costs could top $6 million in addition to other costs of issuance that would be paid.
Wayne Placid of First Southwest Co. of Dallas, the authority's financial adviser, said that cost figure includes $3.3 million that would be paid to Lehman Brothers and PaineWebber Inc. if they underwrite the $2 1 0 million debt restructuring.
Judge Lindsay would not comment on any specific costs numbers, but said the county and turnpike would negotiate fairly.
"We'll not argue over the peanuts, but we may argue over the peanut field," he said.
Other conditions for the transaction include relieving the authority of financial ties to the project and resolving the fate of the turnpike employees, who now work on the bridge.
If the deal is completed, officials have said it would likely be the largest sale ever of a publicly financed project and certainly one of the few that involves averting a default on outstanding debt.
Under the county plan, the new agency 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 nine miles of toll-generated roads approaching the bridge.
Officials have said the proposed 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 neither it nor taxpayers would be liable for the debt.
The plan has drawn opposition from bondholders of the bridge's outstanding junior lien debt. Massachusetts Financial Services, a mutual fund company that holds about $34 million, or half of the junior lien bonds, has predicted the proposed bond deal would not be marketable. The fund argued there would be too much risk involved in the structure of the proposed deal and that junior lien bondholders would not support it.
John Crew, managing director for Dillon Read in Dallas, said the transaction works in the current market, but he would not say how the deal would price in a post-election market, if interest rates spike.
"We have talked about that, but we don't have any numbers yet," he said.
At the start of yesterday's 70-minute meeting, Mr. Jones rejected the way some have characterized the proposal, saying "that bridge is not bankrupt and the Texas Turnpike Authority is not trying to unload it."
However, if the sale is completed, officials conceded the bridge could be the last major project the turnpike authority undertakes in the Houston area.
When the ship channel bridge was Proposed in 1976, the Harris County Toll Road Authority had n6t yet been created. Officials say the local authority diminishes the need for the turnpike authority.
Asked if the future role of the state turnpike authority in Harris County will be diminished, Mr. Ramming said, "It may well be."