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

DBRS Limited (DBRS Morningstar) confirmed the ratings of the Senior Revenue Bonds and the TIFIA Loan issued under the Transportation Infrastructure Finance and Innovation Act program (TIFIA) to partially fund the Colorado 470 (C-470) express lanes project (the Project or the Road) of the Colorado Department of Transportation (CDOT) at BBB. All trends remain Stable. 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 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 BBB rating is essentially informed by the rating of the operating phase.

The Project is 98% complete. Paving, structures, walls and tolling systems are complete with exception to a number of non-compliant items including paving and structure elements that are to be repaired or rebuilt. Since the time of the last rating report, the majority of the works has been completed with testing and commissioning of the tolling system to be performed. The express lanes opened to traffic in mid-June which begins a two month period of tolling equipment testing. During this testing period, tolls will be waived. Once testing is complete, the express lanes will begin toll collection. Tolling commencement is expected for mid-August.

The Coronavirus Disease (COVID-19) pandemic has affected overall toll road and express-lane traffic in the State of Colorado. For example, toll transaction volumes on the I-25 managed lanes were down roughly 75% in April compared with the same month in the prior year. Traffic volumes showed some recovery in May, however, down by roughly 55% compared with 2019. Cumulative traffic declines in 2020 to the end of May were roughly 28% compared with the same period in 2019.

As tolling commencement for the C-470 express lanes is expected in mid-August, HPTE’s coronavirus sensitivity case assumes overall declines in transaction volumes of 10% in 2020 and 5% in 2021 from the original traffic and revenue (T&R) forecast with a return to the original T&R forecast in 2022. This results in a debt service coverage ratio (DSCR) of 1.69 times (x) and 1.58x in 2020 and 2021, respectively. DBRS Morningstar expects a more conservative coronavirus sensitivity case with a decline of 30% and 10% in 2020 and 2021, respectively, which results in a DSCR of 1.53x and 1.51x for the respective periods. Available liquidity includes a ramp-up reserve of $6 million, liquidity provided by CDOT for construction delay costs of approximately $7 million as per the Inter-Agency Agreement, debt service reserve accounts and an O&M reserve, in the event traffic volumes are lower than expected once toll commencement begins. Traffic volumes significantly lower than expected could lead to a downgrade in the rating. An upgrade is currently viewed as unlikely due to the managed-lanes nature of the asset and the forecast financial metrics.

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 addi¬tional 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].

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