DBRS Confirms I-77 Mobility Partners LLC Ratings of BBB, Stable

DBRS Limited (DBRS) confirmed the Issuer Rating of I-77 Mobility Partners LLC (ProjectCo) at BBB with a Stable Trend. DBRS also confirmed the BBB ratings and Stable trends of the $100.0 million Private Activity Bonds (PABs) and $189.0 million TIFIA Loan issued by ProjectCo under the Transportation Infrastructure Finance and Innovation Act (TIFIA), which fund the design and construction of the I-77 managed lanes (ML) project (the Project) in North Carolina under a 53.6-year Comprehensive Agreement (CA) with the North Carolina Department of Transportation (NCDOT). Despite construction delays, the ratings remain supported by the Design-Build (DB) security package, the substantial time left in the schedule before the Longstop Dates and the projected financial metrics that remain essentially unchanged.

Construction began in late 2015, although progress has been slower than expected mainly because of delays caused by change orders, a slow construction ramp-up and adverse weather conditions. While the scheduled Substantial Completion Date (November 30, 2018) was missed, DBRS remains comfortable with the Stable trend considering that Substantial Completion is expected to be achieved by September 2019, and there is ample time prior to the June 2021 Longstop Date, which is relatively generous compared with the one-year longstop date for most public-private partnership projects. Meanwhile, interest payments continue to be covered by the DB Contractor’s liquidated damages, insulating creditors from this risk.

Right-of-Way (ROW) acquisition has been completed at a cost lower than budgeted. As of March 31, 2019, the value of works completed (exclusive of change orders) was approximately 92% of the original DB Contract price, 8% behind the original maximum payment curve. The northern portion of the Project (14 miles, or approximately 54% of the total 26-mile alignment) has achieved Substantial Completion and started tolling on June 1, 2019. The Intelligent Transportation Systems and Electronic Toll Collection System installations on the southern portion are underway, with Substantial Completion currently targeted for September 2019 when the entirety of the ML are expected to be open to traffic. The Lenders’ Technical Advisor view this timeline as achievable.

As a result of the change orders and relief events confirmed by NCDOT, the Project’s Final Acceptance and Final Completion deadlines have been revised to October 31, 2019, and April 28, 2020 (180 days after Final Acceptance), respectively, with the Longstop Date, as it pertains to the Substantial Completion for all of the Project Sections, revised to June 21, 2021, or 2,100 days after Note to Proceed 2. DBRS notes that both the DB Work Longstop Date and the lender’s Longstop Date are the same as the CA’s Longstop Date. DBRS further notes that a failure to meet the Final Acceptance deadline or the Final Completion deadline would not result in the termination of the CA but would instead trigger liquidated damage payments to NCDOT, which would be passed down to the DB Contractor.

The state government previously explored revising or terminating the CA, and ProjectCo has indicated that NCDOT continues to review opportunities to improve the project as it periodically meets with the local advisory group. Notwithstanding, DBRS expects that any cancellation or modification of the CA would result in compensation for the lenders in accordance with its termination provisions. Any action taken by NCDOT to modify the CA that would be materially prejudicial to the Project’s revenue model would likely cause a negative rating action. If it becomes apparent that Substantial Completion will be further delayed and materially encroach on the Longstop Date, a negative rating action may also result. 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.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting 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.

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