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

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating of Kiewit Meridiam Partners LLC (ProjectCo) at A (low) with a Stable trend. DBRS Morningstar also confirmed the ratings on ProjectCo’s $120.8 million Private Activity Bonds (par and premium) and $416.0 million TIFIA Loan at A (low), both with Stable trends. ProjectCo is the special-purpose vehicle responsible for the design, construction, financing, operation, maintenance, and rehabilitation of Kiewit Meridiam Partners LLC’s Central 70 Project (the Project), spanning a 10-mile section, including the redesign of a portion of Interstate 70 (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 30th month of the 4.8-year construction phase, with overall completion at 48% and design at 99% completion. The construction has been progressing well with a variety of construction activities underway, including works on MOT, utilities, drainage, civils, pavement, permanent barriers, structures, the railroad, ITS/signals/lighting, signings and markings, and cover and walls. Milestone 1 was achieved on December 9, 2019, with some deferred works that are planned to be completed by the summer of 2020. DBRS Morningstar notes that several supervening event notices (SENs) have resulted, mainly due to design-related activities for Union Pacific Railroad Company (UPRR) works. ProjectCo, the Colorado Department of Transportation (CDOT), and UPRR have been closely coordinating the comment resolution process for these SENs and continue their discussions to resolve the outstanding SENs. RFC for the UPRR Bridge was approved on October 2019, and the ongoing discussions on SENs have not impeded UPRR-related bridge-girder fabrication work.

Currently, there is an approximately seven-month delay in Milestone 5, with a corresponding 10-month delay in the substantial completion. Against this, the Project Agreement (PA) Longstop Date is 585 days (approximately 19 months) after the Milestone 5 Completion Target Date, and the TIFIA Lender Longstop Date is defined as 150 days (approximately five months) prior to the PA Longstop Date. DBRS Morningstar notes that a typical lender longstop date is nine to 10 months after the target substantial completion date, whereas in this case, the substantial completion date is effectively the Milestone 5 Completion date, which leaves 14 months (currently around 7 months) until the TIFIA Lender Longstop Date.

ProjectCo and the Enterprises have been discussing and implementing strategies to mitigate this delay. A Revised Baseline Schedule 3 (RBS3) was submitted to CDOT in January 2020, which incorporates known and forecasted schedule impacts due to SENs related to the UPRR bridge design and construction and has been partially mitigated. RBS3 was conditionally approved by CDOT on May 29, 2020. With RBS3 conditionally approved, costs associated with RBS3 are currently being negotiated with CDOT. Per ProjectCo, CDOT has generally been supportive, and it expects the negotiation to conclude by Q3 2020.

The Coronavirus Disease (COVID-19) pandemic has not had any material impact on construction progress. DBRS Morningstar notes that most government organizations have restricted nonessential activities as a result of the coronavirus pandemic. However, work on the Project is classified as essential and has been allowed to continue with precautionary measures being implemented.

During the 30-year service phase, ProjectCo will subcontract its operating and maintenance (O&M) responsibilities to Roy Jorgensen Associates, Inc. (the Maintenance Contractor) for the first 10 years of the service phase (starting with substantial completion) 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 Morningstar will continue to monitor the construction progress of the Project. Any further material delays may result in a negative rating action. A positive rating action is not expected at this time.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

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

The principal methodology is Rating Public-Private Partnerships (August, 23, 2019), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

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 [email protected].

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

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

DBRS Morningstar 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 [email protected].

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577