Morningstar DBRS Finalizes Provisional Rating of BBB, Stable Trend on Senior Secured Notes Issued by I-77 Mobility Partners LLC; Discontinues Credit Rating on the TIFIA Loan

DBRS Limited (Morningstar DBRS) finalized its provisional credit rating on the Senior Secured Notes issued by I-77 Mobility Partners LLC (I-77 or the Issuer) on April 25, 2024, and discontinued its credit rating on the Issuer's TIFIA Loan to reflect the full repayment of the TIFIA loan on April 26, 2024.

I-77 Mobility Partners is the special-purpose vehicle (SPV) created to design, build, finance, maintain, and operate the managed lanes project (the Project) in North Carolina under a 55-year Comprehensive Agreement with the North Carolina Department of Transportation. Substantial completion was achieved on November 16, 2019, and the Project has been fully operational since then. Since the opening of the managed lanes in 2019, traffic increased until 2020, when it decreased because of travel restrictions associated with the COVID-19 pandemic. Since 2021, the traffic levels have again increased, reaching pre-pandemic levels. Ramp-up is already completed.

KEY CREDIT RATING CONSIDERATIONS
On April 25, 2024, I-77 issued Senior Secured Notes (the Notes) for $371 million. The proceeds were used to repay the TIFIA Loan and for recapitalization purposes. As a result of the new debt structure, Morningstar DBRS confirmed on April 24, 2024, the Issuer and the PABs ratings at BBB and changed the trend to Stable from Positive.

The Notes are interest only until 2046 and will start amortizing in December 2046 with maturity on June 30, 2051. The Notes mirror covenants from the private activity bond (PAB) financing, which remain unchanged. There is no refinancing risk or recontracting risk as all the debt will fully amortize before the expiry of the concession in June 2069. Morningstar DBRS notes the Project has a long tail, which provides flexibility in the case of unexpected events.

As part of the transaction and new debt structure, the Project is substituting the debt service reserve account and major maintenance reserve account with letters of credit issued by Bank of America N.A. (rated AA by Morningstar DBRS), which is stipulated and permitted in the original financing documentation.

During 2023, the Project recorded 41 million transactions, 18% higher than the previous year and 8% higher than the Morningstar DBRS rating case. Revenues for 2023 were 52% higher than those for 2022 and 9% higher than the rating case. The total annual debt service coverage ratio (DSCR) was 5.0 times (x) in 2023, better than the 4.2x expected.

CREDIT RATING DRIVERS
A negative credit rating action may result in the case of a more significantly pronounced and extended decline in revenues than predicted in the Morningstar DBRS rating case, leading to financial metrics that no longer correspond to the current credit ratings. A positive credit rating action is not expected at this time.

FINANCIAL OUTLOOK
The Morningstar DBRS rating case expects the revenue growth for 2025-28 to be 9.6%, and 2.5% in the long term for the rest of the concession period. The minimum DSCR when applying Morningstar DBRS assumptions is 1.9x, and it happens on December 2050. DSCRs during the amortization period are lower because of the overlapping of Notes and PABs amortizations. The DSCR expected for 2024 is 4.5x because of a release of reserves that are substituted by letters of credit. Adjusting the DSCR to exclude that effect on cash flow available for debt service, DSCR for 2024 is 3.2x, which is commensurate with a BBB rating. Real revenue growth breakeven is used as sensitivity. The Project needs an annual real revenue growth of 2.3% in order to not default in the later years when amortization starts.

CREDIT RATING RATIONALE
The credit ratings reflect the Project's financial outlook, underpinned by strengths that include (1) an affluent and growing service area and (2) fee-setting autonomy. The challenges include (1) the inherent volatility of managed lanes and (2) traffic forecasting error.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental, Social, and Governance factors that had a relevant or significant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (January 23, 2024) https://dbrs.morningstar.com/research/427030/morningstar-dbrs-criteria:-approach-to-environmental,-social,-and-governance-risk-factors-in-credit-ratings.

BUSINESS RISK ASSESSMENT (BRA) AND FINANCIAL RISK ASSESSMENT (FRA)

(A) Weighting of BRA Factors
In the analysis of I-77 Mobility Partners LLC, the Rating Driver factors listed in the volume-based section of the methodology are considered in the order of importance.

(B) Weighting of FRA Factors
In the analysis of I-77 Mobility Partners LLC, the following FRA factor listed in the volume-based section of the methodology was considered more important: minimum DSCR.

(C) Weighting of the BRA and the FRA
In the analysis of I-77 Mobility Partners LLC, the FRA carries greater weight than the BRA.

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

Morningstar DBRS applied the following principal methodology:

Global Methodology for Rating Public-Private Partnerships (April 15, 2024)
https://dbrs.morningstar.com/research/431193/global-methodology-for-rating-public-private-partnerships

Morningstar DBRS credit ratings may use one or more sections of the Morningstar DBRS Global Corporate Criteria (April 15, 2024), https://dbrs.morningstar.com/research/431186, which covers, for example, topics such as holding companies and parent/subsidiary relationships, guarantees, recovery, and common adjustments to financial ratios.

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

A description of how Morningstar DBRS analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/431153.

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@morningstar.com.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

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

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.

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