The original owners of the Texas 130 tollway south of Mustang Ridge knew before the road opened that both its pavement and its finances were doomed, a lawsuit filed Thursday by the new owners alleges, yet concealed that information from investors and fraudulently paid almost $330 million to a company they created to build the road.
The 41-mile road’s current owners — made up primarily of those who lent Ferrovial S.A. of Spain and Zachry Industrial Inc. of San Antonio about $1.22 billion to design and build Texas 130 and then took over the bankrupt road in 2017 — are asking a federal bankruptcy court in Austin to award them all money paid for construction between February 2011 and December 2012.
Representatives of Cintra, a Ferrovial subsidiary, and Zachry say the accusations in the suit have no merit.
The current ownership group took over the road after SH 130 Concession Co., Ferrovial and Zachry’s operating subsidiary for the project, emerged from bankruptcy still owing much of what it had borrowed. That group, and thus the plaintiffs in the lawsuit, includes the U.S. Department of Transportation, which had lent the project almost $500 million. The current owners estimate that repairing cracks, heaving pavement and other flaws at multiple locations will cost $130 million. Some of that work has already been done.
The 14 defendants, all of them affiliates of either Ferrovial or Zachry, or both, include Central Texas Highway Constructors, which was owned half and half by the two parent companies, the lawsuit says. That company, known as CTHC in the lawsuit, had a contract for about $924 million to build the four-lane tollway between Mustang Ridge and Seguin.
“From the outset of construction in 2009,” the lawsuit alleges, “CTHC performed abysmally under the (design and construction) contract. In both design and construction, it cut corners, failed to follow industry practice, failed to implement its own designs and, in the end, designed and constructed a (road) with significant defects from one end to the other.”
Beyond that, the plaintiffs allege, the consortium knew early on during construction that the pavement was likely to fail soon after opening, and that traffic and revenue estimates made in 2007 during the project’s gestation were wildly optimistic. The lenders, the suit says, were purposely not told about those fundamental problems in violation of lending agreements.
“I hope that nobody starts asking questions,” the lawsuit says one representative of Cintra, a Ferrovial subsidiary, wrote in 2011 to the then-chairman of SH 130 Concession Co., the lawsuit said.
Traffic on the road, meanwhile, was “hopelessly overstated” by the original study, the lawsuit says. Ferrovial and Zachry, in fact, had commissioned an updated analysis in 2011, the suit says, and SH 130’s then-chairman expressed “shock” at “poor income prospects” of that section of Texas 130. But the company did not share the updated, discouraging study with its investors, according to the lawsuit.
In 2013, the first full year of operations, the road had $18.4 million of toll revenue, the lawsuit says, just over a quarter of the $69.9 million predicted in the original traffic and revenue study.
The lawsuit’s claim for damages is limited to $330 million, officials said, because of a statute of limitations that allows them to reach back only to February 2011.
“Cintra believes the allegations against it and its affiliated companies have no merit and intends to defend itself vigorously,” said Patrick Rhode, the Austin-based vice president for corporate affairs for Cintra’s United States arm. “We stand by our more than 50-year history of successfully delivering transportation solutions around the world.”
Tara Snowden, director of public and government affairs for Zachry Construction Corp., said that “of course we deny the allegations, and to the best of our knowledge there was no impropriety by Zachry Construction or its employees.”
Ferrovial and Zachry built the road under a 50-year lease with the Texas Department of Transportation. The new owners are operating under the same lease, and pay TxDOT 4.65 percent of all toll revenue. The state agency, which owns the ground beneath the tollway, has no financial exposure on the project.