NEW YORK--(BUSINESS WIRE)--Fitch Ratings expects to assign a 'BBB-' rating with a Stable Outlook to the proposed $211.3 million 2013 series A and series 2013 B senior lien revenue bonds to be issued by the Riverside County Transportation Commission, CA (RCTC). In addition, Fitch expects to assign a 'BBB-' rating to RCTC's proposed $416.4 million TIFIA loan.
The final ratings are contingent upon receipt by Fitch of final documents and legal opinions conforming to information already received and reviewed as well as the final pricing of the bonds. The senior lien revenue bonds are expected to price in late-June 2013, and the proceeds will be loaned to RCTC to pay a portion of costs of the SR-91 managed lanes project (the project). The TIFIA loan is expected to be executed at closing.
Key Rating Drivers
Important Commuter Route with Demonstrated Traffic Volumes: The highly congested SR-91 corridor is the only major surface transportation facility connecting Orange County and Riverside County. While this is a new managed lane project, it is unique in that it represents an extension of existing express lanes in Orange County with 17 years of operating history and established traffic demand. Nevertheless, the expansion of free alternative competing general purpose lanes directly next to the express lanes, uncertainty regarding the future economic environment and further future corridor improvements, could all impact congestion levels in the corridor. Revenue Risk: Volume - Midrange
Reasonable Proposed Toll Rates with Some Price Certainty: RCTC's tolling policy will be similar to the SR-91 managed lanes policy in Orange County that permits relatively frequent toll adjustments to manage traffic throughput. Since most of the users are expected to be familiar with the adjoining Orange County managed lanes, Fitch believes there to be some knowledge of pricing power. In addition, RCTC's policy will feature enhanced flexibility during off-peak hours to improve revenue generation. Similar to other managed lanes, this project is vulnerable to compounded traffic and price declines during economic downturns. Revenue Risk: Price - Midrange
Fixed Senior Debt with Flexible TIFIA Loan: All debt is fixed rate and amortizing. The TIFIA structure allows for revenue ramp-up and includes flexibility to defer a portion of scheduled interest payments, with only periodic mandatory interest charges needing to be paid, in the event that traffic and revenue fall short of current projections and/or future economic conditions impact the managed lanes' assumed usage levels. The debt service schedule is back loaded, with maximum annual debt service (MADS) occurring in 2050, and such back loading will be exacerbated by any scheduled interest deferral. The additional bonds test (1.30x) and distribution test (1.30x) reference TIFIA scheduled debt service, which provides additional flexibility. All obligations must be met at 1.0x, including renewal and replacement (R&R) expenditures. Debt Structure - Midrange
Financial Flexibility is Limited and Leverage is High: The Fitch rating case yields average debt service coverage, including senior and TIFIA mandatory, of 1.53x; a minimum of 1.30x coverage is estimated in the years between 2022 and 2047. Given the inherent TIFIA flexibility, adequate financial cushion to deal with weaker conditions exists on both liens of debt. The financial metrics indicate a minimum loan life coverage ratio of 2.24x in the sponsor case and 1.34x in the Fitch rating case. Leverage (cash flow available for debt service [CFADS] to net debt) is initially very high at over 29x in the sponsor case and evolves down overtime, as would be expected immediately post-construction for such a facility. Debt Service and Counterparty Risk - Midrange
Moderate Completion Risk: The terms of the fixed priced design-build (DB) construction contract with Atkinson Contractors and Walsh Construction Company, in terms of cost and schedule contingencies, are consistent with other investment grade projects. An adequate security package including 100% parent guarantees and liquidated damages further mitigates completion risk. Construction of the project is viewed to be straightforward and consists mostly of lane widening, but continued road operation during construction adds some complexity. Completion Risk - Midrange
Infrastructure Risk is Well Managed: Upon completion, the project will have two express lanes, five general purpose lanes and an auxiliary lane in each direction, essentially increasing the one way road capacity from five to eight lanes. RCTC will be contracting with Cofiroute for shared operating and maintenance (O&M) services expected to create cost sharing synergies. R&R expenditures are validated by an independent engineer, Parsons Transportation Group, providing comfort, as does a forward-looking R&R reserve. A 14-year tail after debt maturity further mitigates asset reinvestment risk. Infrastructure Renewal and Replacement - Midrange
Rating Sensitivities
--Construction delays and cost overruns that cause a significant delay to opening, or other unforeseen issues, could result in negative rating action.
--Traffic and revenue performance at or below the Fitch rating case could lead to rating pressure.
--RCTC's demonstrated management of O&M costs as well R&R expenses combined with sustained higher traffic and revenues could materially improve financial flexibility, resulting in higher coverage levels and improved overall credit quality.
SECURITY
The senior lien revenue bonds and subordinated TIFIA loan will be secured by a pledge of project net toll revenues derived from the operation of the project and the related senior and TIFIA debt service reserve funds. The priority of the TIFIA Loan springs to parity with the senior secured obligations and any other permitted senior secured indebtedness upon the occurrence of a bankruptcy related event.
TRANSACTION SUMMARY
The project consists of the development, design, finance, construction, maintenance and operation of SR-91 Express Lanes in Riverside County. SR-91 originates in southern Los Angeles County at the Harbor Freeway (I-110), passes through northern Orange County, and terminates at the SR-60/91/215 interchange in Riverside County. Geographically constrained by the Santa Ana Mountains, the corridor is heavily congested and serves as an important commuter route linking a diverse employment base in Orange County with a relatively affordable housing base in Riverside County.
Expansion of the corridor includes extension of the two existing SR-91 Express Lanes from the Orange/Riverside county line approximately eight miles to the Interstate 15/SR-91 interchange in Riverside County. The project will also involve the construction of one new general purpose lane in each direction from SR-71 to I-15, ultimately providing two tolled Express Lanes, five general purpose lanes and an auxiliary lane in each direction. There will only be three points of ingress/egress: at the Riverside County/Orange County line; west of I-15; and, I-15, south of the SR 91. The project also includes future improvements (2035) including an additional general purpose lane and improvements to the SR91/SR71 interchange.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria & Related Research:
--'Rating Criteria for Infrastructure and Project Finance', July 12, 2012;
--'Rating Criteria for Toll Roads, Bridges, and Tunnel', Aug. 8, 2012.
Applicable Criteria and Related Research:
Rating Criteria for Infrastructure and Project Finance
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682867
Rating Criteria for Toll Roads, Bridges, and Tunnels
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684146
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=793693
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