Investigations

Former SH 130 executives accused of hiding road defects from lenders

SH 130 executives accused of hiding road defects from lenders

AUSTIN (KXAN) – The new owners of the private company that owns and operates the southern sections of SH 130 has accused the company’s former owners of concealing construction defects from lenders during the building of the private portion of the tollway. 

The original SH 130 Concession Company filed for Chapter 11 Bankruptcy in 2016, less than four years after the tollway opened to traffic. Court filings in that ongoing bankruptcy case accuse the original owner/operator of the tollway, Ferrovial (a Spanish company) and Zachry (a San Antonio-based construction firm) of paying $329 million in “fraudulent” payments to a construction company Ferrovial and Zachry created to design and build SH 130. 

That designer and builder was known as Central Texas Highway Constructors. Court filings show Zachry and Ferrovial each held a 50 percent ownership stake in CTHC at the time.

During the bankruptcy case, the court awarded the SH 130 Concession Company to the “senior creditors:” the original lenders who funded the $1.1 billion price tag to build the tollway. Nearly half of that total came from a $550 million U.S. Department of Transportation loan. 

The new SH 130 Concession Company is now trying to save the privately-owned section of SH 130 by making sure the toll company is making more money than it’s spending. 

Broke from the start

In the takeover of the private tolling company, the lenders the original SH 130 Concession Company owed money to got access to emails, documents, meeting records and financial records no one outside the company had access to before. What those records show, the new owners allege, was a private company trying to hide critical information about large-scale construction problems with a billion-dollar public highway. 

The trouble started with the traffic forecasting, which initially showed there would be enough traffic to allow the private toll company to pay the $1.1 billion in loans it used to build the highway, the bankruptcy filing contends. The forecasting was done by an Australian company, Maunsell Australia Proprietary Limited. 

SH 130 Traffic Forecasting
  • 2013: $69.9 million in projected toll revenues. $18.355 million was the actual toll revenue for 2013, the first full year Sections 5 and 6 were open. 
  • 2013: original traffic counts were 40,000 toll trips per month. Actual toll trips for 2013 "barely exceeded" 5,000 toll trips each month. 
  • Source: Sept. 28, 2018 amended complaint in the SH 130 Concession Company bankruptcy case

"The original estimates for this job were terribly overstated," SH 130 Concession Company's current CEO, Andy Bailey, told KXAN. “The original traffic projections were wildly overstated. The company did a couple of additional traffic projections and still missed."

Messages seeking comment for this report sent to Maunsell Australia Proprietary Limited’s media relations department were not answered. 

In a September 2018 federal court filing, the new SH 130 Concession Company owners included quotes from internal emails between Ferrovial, Zachry and SH 130’s then-chairman. The emails showed, according to the filing that the executives knew the project was going broke. 

“Avoid the firms that normally work for TXDOT,” one executive is quoted as writing. “SH 130’s insolvency was not merely known to its affiliates; it was a central focus for them,” the lawsuit stated. 

“SH 130’s Chairman (a Cintra executive) expressed ‘shock’ at the ‘poor income prospects of SH 130,’” another email included in the lawsuit stated. 

“SH 130’s Ferrovial- and Zachry-controlled managers knew in 2012 that the Facility, even if properly designed and constructed, would never generate revenue sufficient to repay the more than $1.1 billion SH 130 owed its lenders,” the September 2018 bankruptcy filing stated. 

"I believe that the fundamental reasons that the company went into bankruptcy was the flawed traffic projections,” Bailey told KXAN. 

Known cracking and heaving problems not fixed

One of the main elements of the September 2018 bankruptcy filing is accusations that “Ferrovial and Zachry-controlled managers caused the SH 130 Concession Company to pay Central Texas Highway Constructors, known as CTHC, more than $329 million in payments the lawsuit characterizes as 'fraudulent.'” 

The original design and construction contract included a fixed price of $924 million for CTHC to design and build Sections 5 and 6 of SH 130. This is also known as the southern portion and carries the 85 mile per hour speed limit. 

The new tolling company found records inside SH 130’s files that showed the company, its owners, and CTHC knew there were problems with the highway’s construction before the paving was finished. The problems were “facility-wide” and causing defects in the pavement that included “pavement cracking” and “heaving,” the lawsuit shows. 

The bankruptcy filing accused SH 130’s management of knowingly paying CTHC for work the company “had not properly completed” and work that “would cause systematic problems” to the highway in the future. 

The $924 million contract prohibited payments for “improperly completed” work, the suit contends, but says the companies continued to use the funds.

The lawsuit alleges SH 130’s owners and CTHC, the construction company the owners created, hid the problems with the highway’s construction from its creditors — including the U.S. Department of Transportation. 

Emails quoted in the latest bankruptcy filing indicate the tolling company tried to hide the problems and knew early on the repair work CTHC performed on the highway wouldn’t fix the underlying issues.

“I don’t think [CTHC’s repair efforts] will solve the problem, it just delays the cracking but doesn’t
avoid it. Now they are in a hurry so it seems that everything is valid for them,” and email between SH 130’s Technical Director and SH 130’s former CEO shows. 

A construction manager email quoted in the filing included the statement regarding CTHC, “My inside sources tell me that CTHC has no intention of repairing these cracks.”

The filing levels harsh allegations against Ferrovial and Zachry's highway builder, CTHC, writing ,"In both design and construction, CTHC cut corners, failed to follow industry practice, failed to implement its own designs and, in the end, designed and constructed a Facility with significant defects from one end to the other."

By February 2013, just four months after opening the highway to traffic, “cracks and heaving were evident throughout the project,” the court filing states.  

Fixing what should have been fixed

For the last several months, long stretches of the southern end of SH 130 have been slowed by miles of construction work. Workers are digging up sections of the six-year-old highway, replacing the subgrade. Stretches of the highway scheduled for repair show signs of what the new tolling company alleges in its lawsuit: cracking and heaving in the highway.

 "I've been in this business for 40 years. When I came out here the first time, I had never seen a road with this light truck traffic, with this age, in the condition it was in,” the new SH 130 Concession Company CEO Andy Bailey told KXAN. 

Bailey is overseeing the $175 million repair work on the southern sections and managing the new company as it’s working its way out of bankruptcy. Bailey did not leave any doubt about who’s responsible for the large-scale repair work when we interviewed him in October. 

“I believe had it been properly designed and properly constructed, the problems we've been addressing — the company started addressing them during construction — but those problems would have never; we'd have never encountered them with a properly designed and constructed roadway," Bailey said. 

In the concession agreement between TxDOT and the private tolling company, the state of Texas will assume full ownership of the tollway in 40 years.  

"At the end of this concession, Texas will have the road it should have had in an almost new condition," Bailey said. “This is going to fix the underlying problem and if we see another problem, we're not going to wait. We're going to get all over it as soon as it happens. Because that's what we owe to the people that want to use this road. That's certainly what we owe to our owners and that's what we owe to TxDOT."

Allegations denied

We asked both Ferrovial, Cintra and Zachry for interviews for this report. Neither agreed to an interview, but issued statements through their media relations departments. 

“The Company believes the allegations against it and its affiliated companies have no merit and intends to defend itself vigorously. We stand by our more than fifty-year history of successfully delivering transportation solutions around the world,” Ferrovial spokesman Jose Luis Cobas wrote to KXAN in an Oct. 17 email. 

A Zachry Group spokeswoman Tara Snowden issued this statement, “We deny all the allegations raised by the plaintiff in the ongoing lawsuit. However, our policy is to not comment on open litigation so I am not at liberty to say anything further.”

Both Farrovial and Zachry-connected defendants have asked to have the lawsuit dismissed. The SH 130 Concession Company has until Nov. 17 to file a written response to the request for a dismissal. The latest order in the case does not indicate when the court might rule on whether to dismiss SH 130's lawsuit. 

As of this report, the company that performed the initial traffic forecasting for SH 130, Maunsell Australia Proprietary Limited, has not responded to messages from KXAN. 


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