DBRS Assigns Provisional Ratings to Purple Line Transit Partners LLC

DBRS Limited (DBRS) has today assigned provisional ratings of A (low) with a Stable trend to the proposed 6.1-year $100.0 million Series 2016A Revenue Service Availability (RSA) Private Activity Bonds (PABs; the RSA PABs) and to the 6.3-year $23.3 million Series 2016B Final Completion Payment (FCP) PABs (the FCP PABs). DBRS has also assigned a provisional rating of BBB (high) with a Stable trend to the proposed 10.3-year $27.5 million Series 2016C Special Lifecycle Payments (SLP) PABs (the SLP PABs) and a proposed 34.8-year $[171.7] million Series 2016D Availability Payments (AP) PABs (the AP PABs) as well as a provisional rating of BBB (high) with a Stable trend to the proposed 34.8-year $[873.0] million TIFIA loan. The PABs will be issued by the Maryland Economic Development Corporation and bond proceeds and TIFIA draws will be used by Purple Line Transit Partners LLC (ProjectCo), the special-purpose vehicle created to design, build, finance and maintain the Maryland Purple Line Project (the Project) under a 35.8-year project agreement (PA) with the Maryland Department of Transportation and the Maryland Transit Administration (collectively, the Authority).

The Project involves the design, construction, financing, maintenance and rehabilitation of a new 16.2-mile light-rail transit system extending from Bethesda in Montgomery County to New Carrolton in Prince George’s county, Maryland. Once completed, the Project will interface with other transportation networks, including the existing red, orange and green lines of the Washington Metropolitan Area Transit Authority Metrorail as well as all three of the Maryland Area Regional Commuter rail lines, Amtrak and local bus services. Included in the construction task are two subterranean stations and two maintenance facilities (one main and one alternate). The construction phase has begun under a Limited Notice to Proceed and financial close is scheduled to occur on [June 17, 2016], and design and construction will continue for 69 months to the RSA Date of March 11, 2022. Once RSA has been achieved, the Authority will make performance-based availability payments to ProjectCo for 30 years until the PA expiry date.

The rating is underpinned by the low complexity of the Project, the creditworthiness of the construction contractor and a suitable construction security package. On a back-to-back basis, ProjectCo will drop down all design, construction and commissioning obligations under the PA to the DB Contractor, comprising Fluor Enterprises, Inc. (Fluor Enterprises), The Lane Construction Corporation and Traylor Bros. Inc. (Traylor; collectively, the DBC), through a fixed-price date-certain Construction Contract. The DBC’s obligations are fully backed by joint and several parent company guarantees from Fluor Corporation (Fluor), Salini Impregilo S.p.A. and Traylor, subject to a liability cap of 35% of the Construction Contract value. The construction security package also features a non-recourse letter of credit (LOC) of 1.35% of the Construction Contract value as well as a payment and performance bond of 55% of the Construction Contract value less the cost associated with the light-rail vehicles (LRVs). Similarly, the service risks and responsibilities are passed down on a back-to-back basis to the O&M Contractor consisting of Fluor Enterprises, Alternate Concepts, Inc. (Alternate Concepts) and CAF USA, Inc. (collectively, the Service Provider) over the entire service phase through a fixed-price contract. The service contract security package features a parent company guarantee from Fluor, Alternate Concepts and Construcciones y Auxiliar de Ferrocarriles, S.A. up to a liability cap of 200% of average annual operations, maintenance and rehabilitation (OMR) costs (indexed) and a LOC equal to six months of annual average OMR costs (indexed). The Service Contract also features a dynamic lifecycle inspection and reserving mechanism for any deficiencies identified by the Technical Advisor during the service phase.

The Authority shall make a lump-sum payment of $100 million at RSA, all of which will be used to fully redeem the RSA PABs, and a $30 million payment after Final Completion is achieved, which will largely be used to fully repay the FCP PABs. The balance of funding for the Project will come from the SLP PABs, the AP PABs, the TIFIA loan (collectively, the long-term debt) and equity contributions of $[139.9] million, representing [10.1]% of the total capital at financial close. The long-term debt will be repaid semi-annually during the service phase. As is typical for projects involving funding from TIFIA, the TIFIA loan will be subordinated to the PABs prior to a bankruptcy-related event and will spring to pari passu thereafter. The Project also features a minimum debt service coverage ratio of [1.26] times (x), in line with a typical investment-grade availability-based public-private partnership projects rated by DBRS, while the equity lockup is at 1.20x, which is higher than is typically seen. The operating and maintenance resilience of [22.2%] and lifecycle resilience of [67.7]%, as calculated by DBRS per its methodology, are also supportive of the BBB (high), Stable ratings of the long-term debt.

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.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.