DBRS Assigns Provisional Ratings to I-77 Mobility Partners LLC

DBRS Limited (DBRS) has today assigned provisional ratings of BBB with Stable trends to the $[100.0] million Private Activity Bonds (PABs) and $[189.0] million loan to be issued under the Transportation Infrastructure Finance and Innovation Act (TIFIA) to fund the design and construction of the I-77 managed lanes project (the Project). I-77 Mobility Partners LLC (Developer or ProjectCo) will be responsible for the design, construction, financing, operation and maintenance of the Project as per the terms of a 53.6-year Comprehensive Agreement (CA) with the North Carolina Department of Transportation (NCDOT).

The Project involves the conversion of existing high occupancy vehicle lanes to high occupancy toll (HOT) lanes along a portion of the I-77 corridor between Charlotte and Mooresville, in the State of North Carolina. The construction task includes the design and build of roughly 71 lane-miles of new highway across the 26-mile alignment, adding between two and three HOT lanes in the middle of the alignment. After completion of construction, there will be seven contiguous HOT segments adjacent to general purpose (GP) lanes that motorists may use free of charge. DBRS notes that much later in the concession, the GP lanes in the northern section of the highway may be expanded from two lanes to three lanes, although NCDOT will offer compensation for lost revenues if such expansion occurs.

The responsibility for design and construction has been passed down to Sugar Creek Construction LLC (the DB Contractor), a limited liability company comprised of FA Southeast, LLC and W.C. English Incorporated. With the exception of the design, implementation and commissioning of the tolling infrastructure and a limited amount of right-of-way acquisitions, ProjectCo’s construction phase responsibilities will be performed by the DB Contractor. A security package, including a payment bond for 100% of the contract price, a performance bond of 50% of the contract price and parent company guarantees will support the DB Contractor’s obligations. The construction phase will span 43 months, with a target substantial completion date of October 31, 2018. The DB Contractor’s obligations under the DB Contract will be backed by joint and several parent company guarantees from Ferrovial Agroman, S.A., Ferrovial Internacional, SLU and W. C. English, Incorporated

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 service the debt. Not uncommon for road projects, ProjectCo will retain the operating and maintenance and lifecycle risks, although break-even resiliencies are more than adequate to support the rating.

An investment-grade traffic forecast has been developed by C&M Associates. The toll revenue forecast calls for $5.1 million in nominal revenues in 2018 (partial year), $24.6 million in revenues in 2019 and $34.5 million in revenues in 2020, once ramp up is complete. Thereafter, revenues are originally estimated to grow fairly briskly although growth will taper off gradually. While DBRS believes that these growth rates are fairly aggressive, it nonetheless takes comfort from the fact that nominal revenue growth is forecast to drop to 3.9%, or 1.4% on a real basis in the outer years.

Volume risk is a key differentiator of the Project from many other public-private partnerships and ProjectCo will be responsible for determining the level of toll to be charged to vehicles using the HOT lanes under a free-flow tolling regime. An analysis of the traffic forecast notes that the Project can withstand a 64% drop in traffic on the managed lanes throughout the life of the Project without breaching a 1.0x debt service coverage ratio (which includes PABs and TIFIA principal and interest), after the taking into account of the $75 million Developer Ratio Adjustment Mechanism and deferral of scheduled TIFIA principal repayment as is 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 and as supportive of the rating.

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.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

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 or by contacting us at info@dbrs.com.