Additionally, Fitch expects to assign a 'BBB-' rating to the approximate
The Plenary Roads managed lanes project funding sources will also include an approximately
The Rating Outlook is Stable.
Final ratings are contingent upon the receipt by Fitch of both executed documents and legal opinions conforming to information already received and reviewed as well as the final pricing of the bonds. The PABs are expected to price in
KEY RATING DRIVERS
Developing Corridor with Moderate Congestion: The asset serves as an important route connecting the currently tolled and operational I25 express lanes in downtown
Fixed Rate Debt with Structural Protections: All senior and subordinate project debt will be in fixed-rate mode with no refinance risk. The proposed PABs will have a fixed payment schedule while the two TIFIA loans are structured to have flexible amortization profiles through mandatory and scheduled payments as well as interest deferrals for the first five years of operations. Equity distribution triggers, additional bonds tests, and other covenants are viewed as adequate for the Investment Grade rating level. Leverage on the senior and subordinate liens is favorably reduced by the presence of the junior subordinate loan from
Adequate Financial Flexibility: Cashflow analysis indicates a good capacity for the project to withstand sensitivities of both lower than projected traffic growth in the corridor and higher expenses over the life of the concession. Under such a Fitch rating case scenario, debt service coverage ratios (DSCRs) can maintain a minimum of 1.3x on TIFIA mandatory payments and PABs principal and interest. Liquidity in the form of a
Limited Construction Complexity and Experienced Contractors: Construction elements are relatively straight-forward, consisting of expansion of a facility within an existing right of way, with moderate risks associated with maintenance of operations in the GPLs during construction. The Design Build Joint Venture (DBJV) is comprised of
Infrastructure Risk is Well Contained: Upon completion, the project will consist of one express lane and two general purpose lanes in each direction, essentially increasing the one-way road capacity by a third. PRD will be contracting with Transfield Services, Limited, for operating and maintenance (O&M) and renewal and replacement (R&R) services in addition to funding maintenance reserve on a five-year forward looking basis. The financings provide a 22-year tail period following the PABs debt maturity, and 15 and 16-year cushions remain following maturity of the Phase 1 and 2 loans, respectively, further mitigating asset reinvestment risk. Infrastructure Renewal and Replacement - Midrange
Significant Construction Problems: Inability to complete either phase of the US 36 managed lanes on time and within budget may lead to a downgrade.
Higher Leverage: Additional project borrowings resulting in negative pressure on projected debt service coverage ratios could erode credit quality.
Weaker Performance: Inadequate level of managed lane transactions due to lower overall corridor demand, toll sensitivities, changes in economic conditions, or other operational constraints that result in compounded adverse financial impacts below Fitch's rating case projections could result in a downgrade.
The PABs and Phase 1 TIFIA Loan will be secured by a first priority lien on Plenary Roads net revenues. The Phase 2 TIFIA Loan will be secured on a second lien basis with a springing lien to senior upon standard bankruptcy related events as defined in the TIFIA loan agreements. A junior loan obligation from
PRD was selected by HPTE to finance, design and construct the US36 Phase 2 Corridor (
The Phase 1 Works were procured separately as a Design-Build project which involves the reconstruction of the general (GP) lanes and introduction of an additional express lane in each direction on US36 from
Upon completion PRD will operate and provide routine maintenance and life cycle maintenance on the Phase 1, Phase 2 and the
The design-build contract is done on a 'back to back' principle passing the construction risks of the Project Agreement to the DBJV contractor. Fitch views favorably the continuity inherent in having the same construction contractors building both Phase 1 (completion expected in late 2014-early 2015) and Phase 2.
The contractor has extensive experience with designing and constructing similar projects. The lenders' technical advisor opined on the design builders' ability and qualifications to complete the project. Fitch does not view the credit quality of the construction companies as a constraint to the rating. The construction security package consists of joint and several parent guarantees from Granite and Ames capped at 100% of the contract amount as well as payment and performance bonds equal to 100% of the contract amount. In addition, the security package includes an 11-month look-forward retainage mechanism which stipulates that, if an independent certifier determines there will be a delay in achieving service commencement, the Concessionaire withholds payment to the contractor in an amount equal to the liquidated damages associated with the length of the anticipated delay.
Fitch notes that there is an ongoing inquiry by a group of
PRD's base case financial model assumes overall corridor traffic grows at 1.7% based on historical employment growth in the
Fitch also ran an alternative sensitivity case which significantly haircut PRD's revenue growth assumptions upon conversion of the managed lanes to an HOV3 tolling policy -- all cars in the managed lanes with at most two passengers pay a toll. This policy is currently scheduled to take effect no later than
Additional information is available at 'www.fitchratings.com'.
--'Rating Criteria for Infrastructure and Project Finance,' (
--'Rating Criteria for Toll Roads, Bridges and Tunnels' (
Rating Criteria for Infrastructure and Project Finance
Rating Criteria for Toll Roads, Bridges and Tunnels
Source: Fitch Ratings
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