DBRS Morningstar Assigns Provisional Ratings to Kiewit Meridiam Partners LLC’s TIFIA Loan, Series 2021A Bonds, and Series 2021B Bonds

DBRS Limited (DBRS Morningstar) assigned provisional ratings of A (low) with Stable trends to the following:

• $465.7 million 2021 Transportation Infrastructure Finance and Innovation Act (TIFIA) Loan (the 2021 TIFIA Loan)
• $36.8 million Senior Revenue Bonds Series 2021A (the Series 2021A Bonds)
• $465.7 million Senior Project Infrastructure Bonds Series 2021B (the Series 2021B Bonds)

The 2021 TIFIA Loan would be disbursed to Kiewit Meridiam Partners LLC (ProjectCo), 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 the 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 Series 2021A Bonds and Series 2021B Bonds would be issued by Colorado Bridge Enterprise and loaned to ProjectCo. The 2021 TIFIA Loan would be drawn only between June and December 2023 and will be used to repay the Series 2021B Bonds.

DBRS Morningstar has also existing ratings of A (Low) with Stable trends on the $416.0 million TIFIA Loan (the 2017 TIFIA Loan) issued by ProjectCo and the $120.8 million Private Activity Bonds issued by Colorado Bridge Enterprise and loaned to ProjectCo. The Issuer Rating is also A (low) with Stable trends. The 2017 TIFIA Loan would be repaid from the issuance of the new debt.

The assignment of provisional ratings are a result of a Memorandum of Settlement to be executed between Kiewit Meridiam Partners LLC, Kiewit Infrastructure Co. (the Construction Contractor), Colorado High Performance Transportation Enterprise (HPTE), and the Colorado Bridge Enterprise (BE) (HPTE and BE being divisions within the Colorado Department of Transportation (CDOT), collectively referred to as the Enterprises), which would resolve 11 supervening events till date, provide for an increase in project costs, extend the construction completion timelines required under the Project Agreement , and increase ProjectCo's debt by $86.5 million, though at lower interest rate with no material change in operating phase financial metrics in DBRS Morningstar’s analysis. Along with extensions to certain construction milestone completion dates, the target substantial completion date would be extended by approximately five months to February 16, 2023, which is also the currently expected substantial completion date, addressing delays till date. In addition to the substantial completion payment, the Enterprises will pay a settlement payment of $12.5 million on substantial completion and an additional $2.5 million if substantial completion is achieved by an earlier date (approximately 1.5 months before), which will be passed on to the Construction Contractor.

The proceeds from the Series 2021A Bonds shall be used to finance additional Project Costs and pay capitalized interest on the Series 2021B Bonds. Proceeds from the Series 2021B Bonds shall be used to prepay the 2017 TIFIA Loan ($416.0 million principal along with $19.2 million accrued interest) and to finance a portion of the additional Project Costs. The Series 2021A Bonds mature on June 30, 2032, and are expected to be repaid through the project cash flows, while the Series 2021B Bonds mature in December 2023 and are expected to be paid by withdrawals from the 2021 TIFIA Loan. ProjectCo has already incurred the eligible costs required for disbursement of the 2021 TIFIA Loan, though the costs need approval from TIFIA, with disbursement permitted only as a single tranche between June 18, 2023, and December 26, 2023 (inclusive). The 2021 TIFIA Loan has a maturity date of December 31, 2049, the same as the 2017 TIFIA Loan.

The Project is in the 41st month of construction. With the extension of the substantial completion date as part of the Memorandum of Settlement, the construction period would span 5.2 years from financial close. Design is 100% complete. Milestones 1, 2A, and 3 have been completed and there have not been any closure deductions in the past year. Currently the Revised Baseline Schedule 4, which has been conditionally approved by CDOT, shows a delay of approximately seven months for Milestone 5 and five months for substantial completion. With the execution of the Memorandum of Settlement, the target completion dates would be extended, delays reduced to nil, and the Revised Baseline Schedule 5 is to be followed. The Lender’s Technical Adviser (LTA) notes that the additional milestones reflect only a reallocation of work without any significant change in scope and the project is approximately 75% complete as per the latest schedule as of April 7, 2021. The Coronavirus Disease (COVID-19) pandemic has not had any material impact on construction progress.

For the remaining construction works to be completed, Milestone 4, including the eastbound lowered section construction between Brighton Boulevard and Columbine Street and demolition of the existing viaduct, targeted between June and November 2021, is on the critical path. The LTA views the demolition of the viaduct over the Union Pacific Rail Road to be the most critical portion of the demolition, but views ProjectCo’s planning for the same to be adequate.

During the approximately 29-year service phase, starting on substantial completion, 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 (DSCR) during the operations phase remains 1.25 times (x) with a distribution cut off of 1.20x. The O&M resiliency of 120.1% and lifecycle resiliency of 37.5% are supportive of the 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 can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

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

ProjectCo will issue the 2021 TIFIA Loan. The Series 2021A Bonds and Series 2021B Bonds will be issued by Colorado Bridge Enterprise and the proceeds loaned to ProjectCo, with repayment made from project cash flows. Therefore DBRS Morningstar deems ProjectCo to be the ultimate Issuer of the Series 2021A and Series 2021B Bonds as well.

Currently, DBRS Morningstar also rates ProjectCo’s $416.0 million 2017 TIFIA Loan and the $120.8 million Private Activity Bonds (PABs) issued by Colorado Bridge Enterprise, both rated A (low) with Stable trends. The PABs proceeds were loaned to ProjectCo with repayment made from project cash flows, and DBRS Morningstar deems ProjectCo to be the ultimate Issuer of the PABS as well. The Issuer Rating is also A (low) with Stable trends. These ratings were confirmed on June 24, 2020.

The principal methodology is Rating Public-Private Partnerships (August 19, 2020, https://www.dbrsmorningstar.com/research/365975), which can be found on dbrsmorningstar.com under Methodologies & Criteria. Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (February 3, 2021, https://www.dbrsmorningstar.com/research/373262).

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.

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

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