Bailed-Out Citi Bank Goes on Toll Road Buying Binge

On November 23, the U.S. Treasury announced it had “invested” $20b in Citigroup in addition to “protection against the possibility of unusually large losses” on $306b in bad debt. Just one week after receiving support from U.S. taxpayers, Citigroup announced it will spend $10b to acquire a debt-laden Spanish toll road group. Citi Infrastructure Partners will hand over $3.6b in cash and assume $6.3b in debt from Sacyr Vallehermoso, the parent company of the Intinere Infraestructuras toll road group. Itinere operates 32 toll roads in Brazil, Chile, Costa Rica, Portugal, Spain and Ireland. Another twelve concessions are under construction. Sacyr today issued a statement to Spanish investors noting that the company succeeded in offloading 37 percent of its total debt to the U.S. firm. “With this transaction, the group reaps the value that Itinere accumulated for its mature concession assets and strengthens its financial situation by considerably reducing its indebtedness,” the statement explained.

In the immediate term, Citigroup will sell off Itinere’s stakes in five Spanish and Chilean toll roads to Spanish tolling giant Abertis, allowing that company to assume full ownership of its tolling assets. The deal is valued at $786m.

Other analysts, including Fitch Ratings, view tolling as a risky investment. Toll road volumes have plummeted in response to the recent spikes in gasoline prices and the global economic slowdown. In August, Fitch issued a warning that its outlook on tolling had changed to “negative,” reflecting a dim view of the creditworthiness of the long-term transactions.

In October, Citigroup and Abertis gave up on their joint bid to collect tolls on the Pennsylvania Turnpike. The consortium spent millions bankrolling a slick public relations campaign that ultimately failed to sway public opinion on the wisdom of the 75-year proposal.