DBRS Confirms Kiewit Meridiam Partners LLC at A (low) with Stable Trends

DBRS Limited (DBRS) confirmed the Issuer Rating of Kiewit Meridiam Partners LLC (ProjectCo) at A (low) with a Stable trend. DBRS also confirmed the ratings assigned to ProjectCo’s $120.8 million Private Activity Bonds (par and premium) and $416.0 million TIFIA Loan at A (low) with Stable trends. ProjectCo is the special-purpose vehicle that is responsible for the design, construction, financing, operation, maintenance and rehabilitation of Kiewit Meridiam Partners Central 70 Project (the Project), spanning a ten-mile section, including the redesign of a portion of I-70 East highway in Denver that stretches from I-25 on the west end of the corridor to Tower Road on the east end of the corridor.

The Project is in the eighteenth month of the 4.8-year construction phase, with overall completion at 22.8 % (based on the revised schedule incorporating the revised schedule due to the amendments in the Project Agreement as noted below). Overall design is at 97% completion (with several elements of design having reached 100% completion). Construction works for MOT, utilities, drainage, civil, pavement, structures, railroad, ITS, signals, lighting, walls and temporary markings are progressing, and work is continuing on all segments of the project.

As noted by DBRS in June 2018, ProjectCo had submitted two supervening event notices (related to Supervening Events 1 and 2) to the Colorado Department of Transportation (CDOT), one for the delayed execution of the Union Pacific Railroad Company (UPRR) Railroad Agreement (RRA) (Supervening Event 1) and the other in relation to the delayed completion of UPRR’s preliminary works (Supervening Event 2). ProjectCo was of the opinion that the supervening events, postponed the completion of certain critical activities, resulting in schedule delays. A Settlement Agreement was executed on May 9, 2019, between the Enterprises, ProjectCo and Kiewit Infrastructure Co. (the Construction Contractor), to resolve Supervening Events 1 and 2, as well as Supervening Event 4 (which was related to tariffs on imports but had only a relatively minor impact). The Settlement Agreement involved amendments (Amendments) to the project documents, including a settlement payment by the Enterprises of $7.6 million and time extension to address these events.

As a result of these Amendments, the Substantial Completion Date has been changed to September 21, 2022, from the original date of March 25, 2022. In addition, the Amendments include a small change of scope for Milestones 3 and 4, while Milestones 5 and 6 (pertaining to EB I-70 Brighton Boulevard to Dahlia Street and SMA Pavement and the Cover) have been added. The milestone amounts have also been revised as per the updated project schedule, with the total amount of Milestone Payments remaining unchanged. The Lenders’ Technical Advisor has opined that the revised project schedule will mitigate the effects of the delay caused by the aforementioned Supervening Events. DBRS also notes that the availability payment start dates remain unchanged and the financial model remains largely in line with the original financial close model.

Other Supervening Events, mainly related to UPRR-related design processes, are not covered by the Settlement Agreement and ProjectCo is engaged in discussion with the Enterprises and UPRR to manage and mitigate any resulting impacts. ProjectCo has indicated that the 100% UPRR design is expected to be completed in Q3 2019. With the 100% UPRR design completion, most of these pending Supervening Events related to design processes are expected to close as well. Currently, there is a two-month delay in Milestone 5, with a corresponding two-month delay in the substantial completion. ProjectCo is considering mitigating measures including adding double shifts and additional nightly closures to address this delay.

During the 30-year service phase, ProjectCo will subcontract its operating and maintenance (O&M) responsibilities to Roy Jorgensen Associates, Inc. (Jorgensen or 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’s infrastructure. The Project entails typical O&M activities relating to the roadway and covered portions below the top cover, including cleaning, sweeping, landscaping and snow and ice removal. The minimum debt service coverage ratio during the operations phase is 1.25 times (x) with a distribution cut-off of 1.20x. The O&M resiliency of 121.9% and lifecycle resiliency of 38.3% are supportive of the current ratings.

DBRS will continue to monitor the construction progress of the Project. Any further material delays may result in a negative action. A positive rating action is not expected at this time.

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 & Criteria.

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.com.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

DBRS will publish a full report shortly that will provide additional analytical detail on this rating action. If you are interested in receiving this report, contact us at info@dbrs.com.

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

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada