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Fitch Expects to Rate Colorado High Performance Transportation Enterprise Proposed PABs 'BBB-'

February 18, 2014

Fitch Ratings expects to assign a 'BBB-' rating to approximately $20 million series 2014 tax-exempt private activity bonds (PABs) to be issued by the Colorado High Performance Transportation Enterprise on behalf of Plenary Roads Denver, LLC, (PRD) for the US 36 and I- 25 Managed Lanes Project (the project).

Additionally, Fitch expects to assign a 'BBB-' rating to the approximate $60 millionTransportation Infrastructure Finance and Innovation Authority (TIFIA) subordinate project loan to Plenary Roads for Phase 2 of the US 36 (the Phase 2 Loan). As part of the Plenary Roads financing plan, the outstanding $54 million senior TIFIA loan to HPTE, issued in conjunction with Phase 1 of the US 36 managed lanes (the Phase 1 Loan) and also rated 'BBB-,' will be assumed by Plenary Roads. Fitch therefore expects to affirm its existing 'BBB-' rating on the Phase 1 Loan upon its assumption by Plenary Roads.

The Plenary Roads managed lanes project funding sources will also include an approximately $20.8 million junior subordinate loan from North Leaf Capital which Fitch will not rate.

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 February 2014 and the proceeds will be loaned to Plenary Roads to pay a portion of costs of the project. The TIFIA loan is expected to be executed in February 2014.

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 Denver to western suburbs and Boulder. As with other managed lane assets, forecast risk does exist, particularly as the tolling policy and pricing structure could change and there is some dependence on suburban development. The project includes development of a single, toll-paying managed lane in each direction on US 36. High occupancy vehicles (HOV) and Bus Rapid Transit (BRT) use could limit the desirability. Revenue Risk - Volume: Midrange

Toll Rates Provide Moderate Pricing Power: Maximum toll rates at project opening are somewhat high relative to rates on comparable assets and could limit PRD's ability to impose real toll increases over the life of the concession in periods of economic stress. In addition, the requirement that toll rates during some periods of the day are no less than the Regional Transportation District's (RTD) express bus fare may limit PRD's ability to maximize revenue if toll elasticity is greater than projected. Revenue Risk - Price: Weaker

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 NorthLeaf Capital. Debt structure: Mid-range

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 $6 million ramp-up reserve and a separate cash reserve provide additional flexibility, particularly for underperformance in the early years following project completion.

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 Granite Construction Co. and Ames Construction Co., both experienced contractors currently building Phase 1 of the project. The security package is viewed as adequate with sufficient resources to cover expected debt service payments through the defined Full Service Commencement Long Stop Date in the event of delays. Completion Risk: Midrange

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

RATING SENSITIVITIES

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.

SECURITY

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 North Leaf Capital will be subordinate to the TIFIA 2 loan.

TRANSACTION SUMMARY

PRD was selected by HPTE to finance, design and construct the US36 Phase 2 Corridor (88th Street to Table Mesa Drive) and provide the systems, operations and services related to the Managed Lanes on the Phase 2 Corridor, the Phase 1 Corridor (US36 Pecos Boulevard to 88th Street) and the I-25 Managed Lanes under a 50-year agreement. Toll Revenue that is generated will be collected from those Managed Lanes.

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 Federal Boulevard to 88th Street. The Phase 1 Corridor was financed by CDOT using the proceeds of a TIFIA Loan (the 'Phase 1 TIFIA Loan'), which Fitch currently rates BBB-, and governmental grants. PRD will assume the Phase 1 TIFIA Loan upon completion of the Phase 1 project. The Phase 2 works, procured through a Public- Private Partnership (P3), is an extension of Phase 1, which is currently under construction. The same contractor Granite/Ames DBJV will construct both Phase 1 and Phase 2.

Upon completion PRD will operate and provide routine maintenance and life cycle maintenance on the Phase 1, Phase 2 and the Existing I-25 Express Lanes, and provide snow and ice control services on the Managed Lanes and the US36 General Purpose Lanes. In addition, Plenary Roads will provide both routine maintenance on the US 36 GP Lanes (to be reimbursed by HPTE) and design and construction of the McCaslin Pedestrian Underpass.

The concessionaire, Plenary Roads Denver, LLC, is wholly equity- owned by Plenary Group (Canada) Ltd. and was established specifically for the project. Plenary Roads will receive an equity contribution from Plenary Group estimated at $20.8 million at financial close and also execute the subordinated loan agreement with North Leaf Capital of an equal amount.

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 percent of the contract amount as well as payment and performance bonds equal to 100 percent 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 Colorado state senators into the procurement of the project. While the outcome of the inquiry is uncertain, it is Fitch's opinion that the rated project debt would be adequately covered from HPTE payments under an unlikely scenario that the Concession Agreement be terminated by the State after financial close or be subject to material adverse changes. HPTE payments are not subject to appropriation; however, to the extent such payments rely on supporting payments from CDOT, they could be subject to appropriation by the legislature.

PRD's base case financial model assumes overall corridor traffic grows at 1.7 percent based on historical employment growth in the Denver area. Fitch's Rating Case haircuts this assumption by a full percent in all years and also stresses PRD's expense assumptions annually by 10 percent. Under this scenario, debt service coverage on the senior PABs and parity Phase 1 TIFIA loan averages 2.6x, reaching a minimum of 1.7x. Including the TIFIA phase 2 loan scheduled principal and interest payments, the minimum falls near 1.0x. The minimum coverage when including PABs debt service and only mandatory TIFIA payments is higher at 1.3x. Minimal use of the ramp- up reserve fund is required.

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 January 1, 2017. Minimum total coverage after accounting for all scheduled major maintenance expenses on the road and including PABs debt service and TIFIA mandatory interest on the Phase 1 and 2 loans is maintained at 1.0x.

Additional information is available at 'fitchratings.com'.

Applicable Criteria and Related Research:

--'Rating Criteria for Infrastructure and Project Finance,' (July 12, 2012);

--'Rating Criteria for Toll Roads, Bridges and Tunnels' (Oct. 16, 2013).

Applicable Criteria and Related Research:

Rating Criteria for Infrastructure and Project Finance

http://fitchratings.com/creditdesk/reports/ report_frame.cfm?rpt_id=682867

Rating Criteria for Toll Roads, Bridges and Tunnels

http://fitchratings.com/creditdesk/reports/ report_frame.cfm?rpt_id=720736

Additional Disclosure

Solicitation Status

http://fitchratings.com/gws/en/disclosure/ solicitation?pr_id=820544

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