DBRS Confirms Ratings on I-77 Mobility Partners LLC at BBB, Stable

DBRS Limited (DBRS) has today confirmed the BBB ratings and Stable trends of the $100.0 million Private Activity Bonds and the $189.0 million loan issued under the Transportation Infrastructure Finance and Innovation Act (TIFIA), which fund the design and construction of the I-77 managed lanes project (the Project). I-77 Mobility Partners LLC (ProjectCo) is responsible for the design, construction, financing, operation and maintenance (O&M) of the Project as per the terms of a 53.6-year Comprehensive Agreement (CA) with the North Carolina Department of Transportation.

The 43-month construction schedule began in late 2015 after a slower-than-expected ramp-up period, with the value of work behind the maximum draw curve by roughly 20%. The value of work completed to March 2016 is roughly $65.5 million or 14.5% of the total contract price. Construction activities have primarily involved site preparation and design development. Notwithstanding, DBRS understands that construction tasks are generally progressing as planned, and the Lenders’ Technical Advisor has opined that the substantial completion dates are achievable, while the remaining construction funds available are sufficient to carry out the remainder of work. Despite the slower-than-anticipated progress of construction activities, ProjectCo anticipates that the scheduled construction activities will be fully caught up by the end of the year given the design-build contractor’s ability to re-sequence or overlap construction tasks and the nature of the construction task, which permit much of the works to be undertaken in parallel.

The Project’s financial projections remain unchanged from those in place at financial close. The minimum historical debt service coverage ratio (DSCR) indicated by the base case financial model is 1.48 times (x), whereas the equity lock-up DSCR is 1.30x. ProjectCo’s financial projections feature resiliencies of 125.0% for the operations and maintenance budget and 582.0% for the rehabilitation budget, which remain supportive of the rating.

During the 50-year service phase, ProjectCo will be responsible for making the road safely available and for determining the level of tolling fees in order to keep traffic on the managed lanes flowing as prescribed by the CA and to serve the debt. ProjectCo will retain the O&M and lifecycle risks (not uncommon for road projects), although break-even resiliencies are more than adequate to support the rating. After the first six months of the service phase, ProjectCo will be responsible for determining the levels of tolls to be charged to vehicles using the high-occupancy toll lanes under a free-low tolling regime based upon a traffic forecast. Projected financial metrics consider the use of the $75 million Developer Ratio Adjustment Mechanism and deferral of scheduled TIFIA loan principal repayment as permissible per the terms of the TIFIA loan. DBRS views this as an adequate mitigant for the uncertainty related to the traffic risk on the managed lanes.

DBRS notes that construction is behind schedule and will continue to monitor progress. Further material schedule slippage or the prolonged inability to get back on schedule would be expected to give rise to negative rating action.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@ dbrs.com.

The applicable methodology is Rating Public-Private Partnerships, which can be found on our website under methodologies.

The full report providing additional analytical detail is available by clicking on the link under Related Research at the right of the screen or by contacting us at info@dbrs.com.