Joe Mysak is a columnist for Bloomberg News. The opinions expressed are his own.

Indiana Sells Road for Billions; Prepare for Deluge: Joe Mysak

Jan. 25 (Bloomberg) -- Now that Indiana has sold its toll road, get ready for everyone else to do the same.

On Monday, Governor Mitch Daniels said a Spanish-Australian consortium had bid $3.85 billion to run the Indiana Toll Road, a 157-mile highway across northern Indiana that runs from the Illinois to Ohio, for 75 years.

The legislature still has to approve the proposal, of course, but they're not going it alone with this concept. Indiana lawmakers have only to look north, to Illinois, for another example of how this kind of thing works. Last year, Chicago got $1.8 billion for its Skyway, a 7.8-mile long elevated highway that connects the Dan Ryan Expressway with the Indiana Toll Road. Lots of public officials took notice.

A Merrill Lynch & Co. report published last July on the subject of U.S. toll road privatization asked whether sales like the Skyway were one-offs, ``or do they represent the beginning of a sweeping trend that will spread to other tolled bridges, tunnels, expressways and long-distance toll roads?''

Let's bet on the sweeping trend. The money is just too big to resist, and the business of running toll roads just too marginal to what state governments are all about.

Now that Illinois and Indiana have done it, look for other states to dive right in.

Red State

Merrill Lynch estimates that at least 18 states from California to Massachusetts have state-, county-, or city-owned toll roads that might lend themselves to privatization. In fact, there are probably candidates in almost all 50 states. What you need is an established road, and the flexibility to increase tolls.

Don't underestimate the importance of Indiana, rather than, say, New Jersey, doing this, either. Indiana is one of the Republican-dominated red states, and one with a reputation for fiscal rectitude.

Standard & Poor's, in upgrading the state to AA+ from AA on Jan. 23, observed that ``debt levels remain among the lowest in the nation at less than $379 on a per capita basis and just above 1 percent of personal income.''

We are going to see more of these transactions, and the numbers are going to get bigger and bigger. It was estimated last year that New Jersey might get $30 billion for the state's Turnpike and Parkway, for example. That would cure a lot of Governor Jon Corzine's headaches.

Merrill Lynch estimated that the New York State Thruway Authority might be worth something like $20 billion.

Sell the Roads

So now the cry will go up: Sell the roads!

Owners don't actually sell, of course; they sign a long- term lease with a company to operate and maintain the roads in exchange for an up-front payment. The lease agreements include details of things like toll increases and maintenance standards.

Governor Daniels of Indiana plans to use the $3.85 billion that he expects to receive from Australia's Macquarie Infrastructure Group and Cintra Concesiones de Infraestructuras de Transporte SA of Madrid, to improve and expand the state's highways. In theory, the state could do anything with the money.

The state is also going to use about $200 million of the upfront payment to redeem outstanding toll road bonds. Merrill Lynch noted last year that ``the emergence of this trend offers municipal bond investors dynamic opportunities -- likely resulting in defeasances of outstanding bonds.''

This means there are guys out there combing through the billions of dollars in bonds that have been sold for toll road financing from coast to coast, coming up with likely candidates. In a toll road that is ``underperforming,'' -- meaning, not enough people are using it -- the sale of the road could mean that bonds now trading for 70 cents or 80 cents on the dollar will rise to 100 or more.

Show Them the Money

The sticky matter for Governor Daniels is selling the state's lawmakers, and everyone else in Indiana, for that matter, on the idea. But we've come a long way from the days where people felt bad about selling assets like landmark buildings and other property to foreign investors.

Remember all the hysteria back in the 1980s about Japan Inc. buying up skyscrapers? People evidently thought that the new owners would disassemble the things and move them back to Tokyo. There might be some resistance to the idea, at first, but expect that to fade. The money is just too big.