Fitch Ratings has assigned an expected rating of 'BBB(EXP)' to the following private activity bonds (PABs) to be issued by
The Rating Outlook is Stable.
The final ratings are contingent upon the receipt by Fitch of final 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 on
KEY RATING DRIVERS
Experienced Contractor, Supportive Security Package: Performance and financial obligations of the design-build (DB) contractor,
Strong Counterparty, Clear Payment Mechanism: Milestone and availability payments during the project are made by
Straightforward Operations: The project company will self-perform most operation and maintenance (O&M) activities, exposing it to O&M and lifecycle cost risk over the project life. O&M works are generally considered relatively straightforward given the limited scope of the project. Operation Risk: Mid-Range
Handback Risk Well Mitigated: Although lifecycle works are back-ended, bondholders are well-protected against handback risk by the five-year debt-free concession tail. The three-year look-forward major maintenance reserve account (MMRA) somewhat mitigates lifecycle risk earlier in the project life. Infrastructure & Renewal Risk - Mid-Range
Conservative Debt Structure: Structural features include fixed interest rate, full amortization, 1.15x dividend lock-up and six month debt service reserve account. Debt Structure - Mid-Range
Metrics Indicate Financial Resilience: Fitch base and rating cases reflect debt service coverage ratio (DSCR) profiles consistent with a 'BBB' rating, averaging around 1.50x and falling no lower than 1.19x. The prolonged period of low coverage during the middle of the concession term is mitigated by the fixed nature of principal amortization, which largely drives low coverage during that period, as supported by breakeven analysis.
--Default of the DB contractor resulting in substantial cost increases or delays being experienced by the project, or construction delays beyond scheduled substantial completion and anticipated final acceptance dates, could pressure the rating.
--Significant sustained payment deductions, or materially higher costs during the operating period than currently forecast, either of which reduce coverage levels below current projections, would place the rating under pressure.
The bonds will be secured by a first priority lien on I-69 DP net revenues.
IFA announced on
The project is being procured as a PPP by IFA based on an availability payment mechanism. Construction is expected to take 27 months from the start of construction, followed by a 35-year operating period.
The project consists of the development, design, construction, financing, operation, and maintenance of a roadway between
The design-build contract has been constructed using a 'back-to-back' principle, passing the construction risks of the public private agreement to the design-build contractor,
Fitch's base case reflects the sponsor's base case, adjusted to reflect the lender's technical adviser's assumption as to a reasonable level of deductions throughout the operating period, which Fitch has applied on a real basis. DSCR metrics in this scenario are robust, with the minimum being 1.23x and average being 1.54x. A sustained period of coverage close to the minimum level around the middle of the concession life reflects increased bond principal amortization at this time. Fitch views this prolonged low coverage as mitigated by the fixed nature of such debt repayment costs, with higher exposure to variable operating and lifecycle costs arising at times when there is greater financial flexibility.
Fitch's rating case scenario reflects the additional impact of 10% higher operating, SPV and lifecycle costs applied throughout the operating period on top of the other Fitch base case assumptions. DSCR remains resilient, averaging 1.50x, although - as with the Fitch base case - its profile features a sustained period close to its minimum level of 1.19x.
An important part of Fitch's analysis is forming an understanding of the project's sensitivity to above-inflationary cost increases. Fitch ran breakeven real cost increase scenarios to test each of operating and SPV costs (3.71%), lifecycle costs (4.98%) and the combination of both (2.64%), using the Fitch base case as the starting point. These metrics indicate the project's strong ability to withstand such risks.
Additional information is available at 'www.fitchratings.com'.
--'Rating Criteria for Infrastructure and Project Finance' (
--'Rating Criteria for Availability Based Projects' (
Rating Criteria for Infrastructure and Project Finance
Rating Criteria for Availability-Based Projects
Source: Fitch Ratings
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