DBRS Limited Confirms Debt of I-77 Mobility Partners LLC at BBB with Stable Trends

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 of the Project as per the terms of a 53.6-year Comprehensive Agreement with the North Carolina Department of Transportation (NCDOT).

The 43-month construction schedule began in late 2015. The construction progress has been slower than expected, primarily due to delays in receiving and executing change order directives, revisions in design because of change orders and a slow ramp-up period. The value of work remains around 30% behind the maximum payment curve. As of the April 2017 Lenders’ Technical Advisor (LTA) report, the value of work completed was $147.7 million, i.e., 33.2% of the design-build (DB) contract price. However, DBRS understands that construction is currently underway for all the segments of the Project and significant progress has been made with regard to right-of-way acquisitions. The LTA is not able to formally opine on the need for any revision to the Project schedule or key milestone dates, as these are pending review from NCDOT and a revised schedule has not been approved. Notwithstanding, ProjectCo does not anticipate the change orders will have a material impact on the Project schedule due to the DB Contractor’s ability to carry out construction in parallel and to re-sequence construction activities and, hence, plans to target the scheduled substantial completion date. The LTA has indicated to DBRS that at this stage it essentially concurs with ProjectCo’s assessment, since the critical path work continues to be completed, but is reserving final judgement until after it has reviewed an approved revised schedule.

The new governor of North Carolina has hired a consultant to review options regarding the Project, including financial implications of changing or terminating the contract. Such circumstances are specifically covered under the terms and conditions of the Comprehensive Agreement executed by NCDOT and ProjectCo and result in compensation for lenders.

DBRS notes that construction is behind the original schedule and will continue to closely monitor construction progress, along with any changes in the Project schedule and the LTA’s view on the achievability of the revised schedule, when available. Further material slippage in the schedule or the continued inability of ProjectCo to get back on schedule may result in DBRS taking a negative rating action. DBRS does not expect that a positive rating action would be considered unless traffic levels and financial metrics materially outperform expectations for a prolonged period.

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 principal methodology is Rating Public-Private Partnerships, which can be found on dbrs.com under Methodologies.

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