DBRS Confirms High-Performance Transportation Enterprise – C-470 Project at BBB, Stable Trend

DBRS Limited (DBRS) confirmed the ratings of BBB with Stable trends on the 40-year $161.8 million Senior Revenue Bonds and the 35-year $107.0 million TIFIA Loan issued un¬der the Transportation Infrastructure Finance and Innovation Act program (TIFIA) to partially fund the C-470 express lanes project (the Project or the Road) of the Colorado Department of Transportation (CDOT). The borrower is Colorado High- Performance Transportation Enterprise (HPTE), a government-owned business within, and a division of, CDOT, created by the Funding Advancements for Surface Transportation and Economic Recovery Act of 2009 (FASTER) and structured as an “enterprise,” pursuant to FASTER, to be exempt from the Colorado Taxpayer Bill of Rights (TABOR) laws limiting public indebtedness. The rating is supported by CDOT’s direct involvement in the Project and its responsibility for cost overruns in the event of schedule delays, but bounded by the uncertainty related to traffic volume levels on the managed lanes and the risk that traffic materially underperforms projections.

The Project is now in its 20th month of the construction phase. Design activities for Segments 1, 2 and 3 are complete, with Segment 4 design having been approved and Segment 5 underway. Segment 5 design work continues for Intelligent Transportation Systems (ITS), roadway and drainage, with bridge design completed. Construction activities continue on all segments of the corridor and include grade levelling, paving, median work, drainage, bridge deck work and ITS integration. Maintenance activities for completed areas are ongoing, includ¬ing striping, sweeping, site clean-up and guardrail maintenance.

DBRS notes that while construction activities continue, the DB Contractor has requested from CDOT an extension of time to complete construction as a result of project design changes re¬lating to the I-25/C-470 interchange initiated by CDOT. The DB Contractor is seeking compensation and a schedule extension to which the matter has been brought to a Dispute Resolution Board (DRB). The DRB has provided its recommendation to CDOT and DB Contractor, to which it has been rejected by CDOT. However, both par¬ties have agreed to maintain the May 1, 2019, toll commencement date. CDOT’s independent audit division is determining the cost to get to that date. Should either party dispute the outcome of the DRB decision, the matter will proceed to binding arbitration with a third-party arbitrator. While resolution of this matter is expected in Q3 2018, construction activities continue accord¬ing to the construction schedule, with toll integration expected in January 2019, toll commencement by May 1, 2019, and Final Completion anticipated for July 30, 2019. The managed lanes were originally expected to open to the public on August 1, 2019, although there is potential for delay, dependent upon the out¬come of the dispute resolution process and the DB Contractor’s ability to resequence or accelerate the portion of the works on the critical path. DBRS will closely monitor the progress of dis¬cussions and will consider negative rating action if there is mate¬rial deterioration in the dispute process which leads to a material impact on the scheduled toll commencement date. DBRS would consider positive rating action in the event that financial met¬rics materially outperformed projections over a sustained period once toll commencement has been achieved.

The total debt service coverage ratio (DSCR; gross toll revenues before operating and maintenance (O&M) and lifecycle expenses/senior debt service and TIFIA service) is projected to start at 1.73 times (x) and escalate to 4.89x in 2044, when sculpted principal repayments on the Senior Revenue Bonds begin putting down¬ward pressure on the DSCR to roughly 3.21x in 2045, assuming no future additional indebtedness. Thereafter, the ratio recovers over the remaining years of the term of the debt, supported by the expected growth and a growing share of total traffic captured by the Managed Lanes as congestion increases over time. DBRS’s standard break-even analysis indicates that the Project can absorb a 48% reduction in traffic revenue across the 2018–2058 forecast period before the DSCR reaches 1.0x, while O&M and lifecycle break-even are much stronger at 129% and 406%, respectively, and viewed as relatively strong for the rating. DBRS views the break-evens as providing an adequate cushion to mitigate the consider¬able uncertainty pertaining to the traffic forecasts.

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.

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