Morningstar DBRS Confirms Credit Ratings on I-77 Mobility Partners LLC at BBB With Stable Trends

DBRS Limited (Morningstar DBRS) confirmed the Issuer Rating of I-77 Mobility Partners LLC (I-77 MP or ProjectCo) at BBB with a Stable trend. Morningstar DBRS also confirmed the credit ratings on ProjectCo's $100.0 million Private Activity Bonds (PABs) and $371 million Senior Secured Bonds (the Notes) issued in April 2024 at BBB with Stable trends. The credit rating confirmations stem from strong revenue growth and revenues having outperformed the Morningstar DBRS rating case in 2024.

ProjectCo is the special-purpose vehicle (SPV) created to design, build, finance, maintain, and operate the I-77 managed lanes project (the Project) in North Carolina under a 55-year Comprehensive Agreement (CA) with the North Carolina Department of Transportation.

KEY CREDIT RATING CONSIDERATIONS
On April 25, 2024, I-77 MP issued the Notes in the amount of $371 million, and the proceeds were used to repay the Transportation, Infrastructure, Finance, and Innovation Act loan and for recapitalization purposes. The Notes mirror covenants in the financing of the PABs, which remains unchanged. There is no refinancing risk or recontracting risk as all the debt will fully amortize before the expiry of the concession in June 2069. Morningstar DBRS notes the Project has a long tail, which provides flexibility in the case of unexpected events.

2024 was the fifth year since substantial completion of the Project and, as established in the CA, the moment from which ProjectCo could start to distribute dividends. As of December 2024, I-77 MP had distributed $307 million in dividends.

During 2024, the Project recorded 42.9 million transactions, 17% more than the previous year and 8% more than the rating case. Revenues in 2024 reached $106 million, 17% more than those in 2023 and 9% more than the rating case. At the end of September 2024, Hurricane Helene hit western North Carolina, destroying two main interstate highways in the region, I-26 and I-40. Traffic, mainly heavy traffic coming from east coast ports, was diverted through interstate highway I-77.

The total annual debt service coverage ratio (DSCR), as calculated by Morningstar DBRS and adjusted to omit the one-off effect of released reserves in 2024 as part of the refinancing and new debt structure, was 2.8 times (x), in line with Morningstar DBRS' expectations.

CREDIT RATING DRIVERS
A negative credit rating action may result in the case of a more significantly pronounced and extended decline in revenues than predicted in the Morningstar DBRS rating case, leading to financial metrics that no longer correspond to the current credit ratings. A positive credit rating action is not expected at this time.

FINANCIAL OUTLOOK
The Morningstar DBRS rating case expects the revenue growth in 2025-28 to be 9.6%, and 2.5% in the long term for the rest of the concession period. The minimum DSCR, when Morningstar DBRS assumptions are applied, will be 1.9x in December 2050. DSCRs during the amortization period are lower because of the overlapping amortizations of the Notes and PABs. The expected DSCR for 2025 is 2.3x, which is commensurate with a BBB rating. Morningstar DBRS used the real revenue growth breakeven point in its sensitivity analysis. The Project requires annual real revenue growth of 2.3% in order not to default in later years when amortization starts.

CREDIT RATING RATIONALE
The credit ratings reflect the Project's financial outlook, underpinned by strengths that include (1) an affluent and growing service area and (2) fee-setting autonomy. The challenges include (1) the inherent volatility of managed lanes and (2) traffic forecasting error.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024), https://dbrs.morningstar.com/research/437781.

CREDIT RATING DRIVERS AND FINANCIAL RISK ASSESSMENT (FRA)
(A) Weighting of Rating Driver Factors
In the analysis of I-77 MP, the Rating Driver factors listed in the volume-based section of the methodology are considered in the order of importance.

(B) Weighting of FRA Factors
In the analysis of I-77 MP, the following FRA factor listed in the volume-based section of the methodology was considered more important: minimum DSCR.

(C) Weighting of the Rating Driver and the FRA
In the analysis of I-77 MP, the FRA carries greater weight than the Rating Driver.

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

Morningstar DBRS applied the following principal methodology: Global Methodology for Rating Public-Private Partnerships (August 13, 2024), https://dbrs.morningstar.com/research/437820

Morningstar DBRS credit ratings may use one or more sections of the Morningstar DBRS Global Corporate Criteria (February 3, 2025; https://dbrs.morningstar.com/research/447186), which covers, for example, topics such as holding companies and parent/subsidiary relationships, guarantees, recovery, and common adjustments to financial ratios.

The following methodology has also been applied:

Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024),
https://dbrs.morningstar.com/research/437781

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

A description of how Morningstar DBRS analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/431153.

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 under Related Documents or by contacting us at info-DBRS@morningstar.com.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS trends and credit ratings are under regular surveillance.

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.

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