Pressure grows as second Spanish road goes bust

Following in the footsteps of the AP41 Madrid-Toledo toll road, Madrid’s R-4 Madrid-Ocana ring road has now filed for bankruptcy protection with a regional Madrid court.

The story will be familiar to anyone following the Spanish toll road sector, in particular the history of Madrid’s troubled ring roads. Put simply, the R-4 has been felled by a combination of lower-than-expected traffic and higher-than-predicted land expropriation costs, to the point where it will be unable to refinance some €575 million of bank debt come September 28, according to local sources.

The road concession – managed by Ferrovial subsidiary Cintra (55 percent), Sacyr (35 percent) and the former Caja Castilla-La Mancha (10 percent), a regional savings bank – had signed several standstill agreements with its creditors – the latest being a three-month agreement signed in June – in the hope that the government would come up with a solution to the troubled roads. 

In a statement, Ferrovial said that “the R-4 project has been directly affected by external factors (substantial reduction in forecasted traffic, additional expropriation costs, economic recession, etc.) which prevent it, under the current conditions, from honouring several payment obligations with expropriated parties and financial entities”.

It added that “a significant factor in this decision [to file for bankruptcy protection] was that the potential measures foreseen under [the] law to aid the concession were not effectively implemented by the contractor’s governing body”.

In April, Spain’s Ministry of Infrastructure (Fomento) announced that it was extending a loan programme designed to help re-balance these road concessions until 2021.

The 98-kilometre R-4 opened in 2004. During the first three months of this year, traffic fell by some 11 percent compared to the same period in 2011. Land expropriation costs for the road have also ballooned from an original €50 million to close to €400 million. According to sources, the R-4 concessionaire has already invested over €100 million of its own equity to try and keep the concession afloat.

Local sources also pointed out that two other Madrid ring roads – the R-3 and the R-5 – have initiated negotiations with their creditors to put in place standstill agreements similar to the ones granted to the R-4 and AP41 concessionaires.

The AP41 concessionaire – including Spanish firms Azvi, Comsa, Isolux Corsan, Sando and the investment arm of Portuguese bank Banco Espirito Santo – was the first to shatter the uneasy truce between the government and road operators when it filed for bankruptcy protection in May, after finding itself unable to pay debts of €380 million and some €150 million in right-of-way costs (up from an original €55 million).

It too suffered from falling traffic, with current traffic flows standing at a mere 6 percent of original estimates.  

Fomento has set aside €600 million, or 19 percent of its budget, to tackle increased right-of-way costs. In comparison, the ministry intends to spend €873 million in 2012 to maintain its roads network.