DBRS Assigns Provisional Ratings of A (low) with Stable Trends to the Private Activity Bonds and TIFIA Loan of Kiewit Meridiam Partners LLC

DBRS Limited (DBRS) assigned provisional ratings of A (low) with Stable trends to the $120.8 million Private Activity Bonds (par and premium) and the $416.0 million TIFIA (Transportation Infrastructure Finance and Innovation Act) Loan in support of the Kiewit Meridiam Partners Central 70 Project (the Project). Kiewit Meridiam Partners LLC (ProjectCo) is the special-purpose vehicle that is responsible for the design, construction, financing, operation, maintenance and rehabilitation of the Project, spanning a ten-mile section including the redesign of a portion of the I-70 East highway in Denver, Colorado that stretches from I-25 on the west end of the corridor to Tower Road on the east end of the corridor. The public-sector counterparty is the Colorado Bridge Enterprise and the Colorado High-Performance Transportation Enterprise (collectively, the Enterprises), both divisions of the Colorado Department of Transportation.

The Project involves work on approximately ten miles of the I-70 corridor that includes restriping from I-25 to Brighton Boulevard, lowering the highway below grade from Brighton Boulevard to Colorado Boulevard, full reconstruction from Colorado Boulevard to Sand Creek and widening from Sand Creek to Chambers Road and operating and maintenance (O&M) responsibilities beyond construction from Chambers Road to Tower Road. The Project entails typical O&M activities relating to the roadway and covered portions below the top cover including cleaning, sweeping and landscaping as well as snow and ice removal. The Enterprises will make construction milestone payments, a substantial completion payment and availability-based payments during the service phase.

The Project’s contractual framework is similar to other availability-based PPP projects rated by DBRS, consisting of a construction phase and a service phase. ProjectCo plans to complete construction of the Project by March 25, 2022 (the scheduled Substantial Completion date). A 30-year service phase will follow.

DBRS assesses the construction phase to be of low complexity. The majority of the corridor will be at-grade but includes the removal of an existing viaduct and construction of a section below grade with a cover over the highway between Columbine Street and Clayton Street. This scope of work will be completed using the cut and cover method and there are several preceding North American projects that have used this technique for sub-grade construction work. Kiewit Infrastructure Company (the Construction Contractor) will assume ProjectCo’s design and construction responsibilities under a traditional fixed-price date-certain contract priced at $811.4 million. The Construction Contractor’s obligations are guaranteed by Kiewit Infrastructure Group, Inc., and further supported with a 4.36% letter of credit (LC) and a 50% payment and performance bond throughout the entire construction phase. The 30% liability cap of the Construction Contractor is lower than would be typically accepted on precedent PPP projects in this rating category, although DBRS considers this to be compensated by the balance of the security package. The LC is sized to 12 months of liquidated damages.

During the service phase, ProjectCo will subcontract its O&M responsibilities to Roy Jorgensen Associates, Inc. (the Maintenance Contractor) for the first ten years of the service phase (until March 25, 2032) under a fixed-price contract. Thereafter, ProjectCo can choose to either self-perform or renegotiate terms with the Maintenance Contractor for continued O&M of the project infrastructure. ProjectCo’s life cycle budget is approximately $67.0 million (in real terms). A performance bond of 100% of annual O&M is also provided as part of the performance security package in the operations phase. ProjectCo is providing a 50% O&M Reserve Account as required by TIFIA.

A Major Maintenance Reserve Account (MMRA) (100%/75%/50%/25% of forecasted rehabilitation expenditures) will be provided with an annual Lenders’ Technical Advisor (LTA) review and certification. The lifecycle tasks will not be subject to a dynamic look-forward lifecycle reserving mechanism requiring inspections in specified years over the operations period; however, the MMRA provides annual inspections certified by the LTA with reserving based on each updated annual review and is therefore viewed as equal from a credit perspective. The O&M Contract features a limit of liability with an annual cap of 50% of annual O&M payments and a post-termination cap of 150% of annual O&M payments (index-linked) with the full amount of 150% of annual O&M payments (index-linked) available in the year of termination.

The O&M resiliency of 120.7% and lifecycle resiliency of 37.9% are nonetheless supportive of the ratings. The minimum debt service coverage ratio during the operations phase is 1.25 times (x) and a distribution cut-off of 1.20x.

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

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

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