NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the 'BBB+' rating on the Grand Parkway Transportation Corporation (GPTC), Texas' $200 million first-tier Grand Parkway System toll revenue bonds as well as its $841 million second-tier Grand Parkway System toll revenue Transportation Infrastructure Finance and Innovation Act (TIFIA) loan. The Outlook for both is Stable. The TIFIA loan is expected to be drawn upon by December 2016 to refund existing subordinate-tier toll revenue bonds used to pay for a portion of the Grand Parkway Project.
The ratings reflect Grand Parkway's anticipated traffic and revenue profile supported by the economically strong and growing Houston metropolitan statistical area (MSA). The anticipated moderate opening toll rate, which is comparable to similar systems in the area, mitigates price risk and elasticity to future toll increases. Nevertheless, with no operational history, traffic forecast risk is present.
Liquidity will be minimal at the start of operations, and the system will depend on transaction growth to meet its escalating debt service profile. The rating also reflects the ability of the second-tier TIFIA loan to spring to parity with the first-tier bonds. Completion risk is partially mitigated by relatively straightforward project scope and the experienced, investment-grade contractor. Post completion, maintenance needs on Grand Parkway are well planned for.
KEY RATING DRIVERS
--New Highway in the Strong Houston MSA: The project will serve Harris and Montgomery counties in Texas. There is no operational history; however, the Houston MSA has experienced strong demographic and economic growth in recent years, and this is expected to continue. Traffic is expected to comprise about 95% passenger vehicles. The road will be subject to competition.
Revenue Risk: Volume - Midrange
--Regionally Consistent Toll Policy: GPTC has adopted a toll policy consistent with that currently utilized in Harris and Fort Bend Counties that features automatic annual toll increases of the greater of 2% or regional CPI-W. Further, the opening toll rate will be pegged to Harris County's current rate, which Fitch views as moderate at $0.18 per mile (2012 dollars). GPTC maintains some economic rate-making flexibility at this opening rate.
Revenue Risk: Price - Midrange
--Escalating Debt Structure: Debt is fixed rate and fully amortizing, but heavily back-loaded. First-tier debt will benefit from a cash-funded debt service reserve fund (DSRF) and a $100 million rate stabilization fund. The debt is supported by a gross pledge of system revenues; however, first-tier debt is exposed to possible future additional debt as well as to the TIFIA loan springing lien, should this debt materialize.
Debt Structure - Midrange
--Manageable Capital Program: As a brand-new facility, the completed project will likely require only minimal maintenance. The project also benefits from the TELA backstop that makes funds available for O&M and major maintenance expenses. Predevelopment work is underway on additional segments and future issuances are possible.
Infrastructure Development/Renewal - Stronger
--Minimal Construction Risk: The project features fairly straightforward construction which will be completed by an experienced, investment-grade developer. Adequate construction security features are in place and Fitch considers TxDOT as well incentivized to ensure timely project completion, providing added lender protection.
Completion Risk - Stronger
--High Total Leverage and Minimal Liquidity: Total leverage is high, but Fitch projects in its base case that first-tier leverage will be low at 1.0x on a net basis (0.7x on a gross basis) by 2019 once all segments are open and traffic has fully ramped up. Fitch projects strong first-tier coverage of no less than 9.05x gross (or 6.53x net of operating expenses) in its base case. However, total coverage of 1.06x gross (0.77x net) results in limited liquidity build-up, if any, to offset an initially weak balance sheet position.
RATING SENSITIVITIES
--Highway Utilization: Traffic levels that fall significantly short of expectations, especially in the opening years of the project could negatively affect the rating.
--Capital Program: Additional leverage and/or senior O&M expenses related to future projects that materially dilute projected coverage ratios may weaken credit quality.
--Reduced Financial Flexibility: Increased operating expenses or delays in implementing needed toll adjustments that affect the financial profile could pressure the rating.
SECURITY
The first-tier toll revenue bonds will be secured by, and have a first priority lien on, senior net revenues derived from the ownership or operation of the toll road system and certain funds under the indenture. The second-tier toll revenue TIFIA loan will be secured by, and have a second priority lien on, senior net revenues.
CREDIT UPDATE
GPTC moved forward with its refunding plan of finance issuing approximately $924 million of subordinate series 2014ABC bonds, which collectively refunded the then outstanding subordinate series 2013CD bonds. GPTC also closed on a TIFIA loan of up to $840.6 million, which is expected to be drawn upon by December 2016 to partially refund outstanding subordinate-tier toll revenue bonds. Proceeds are being used to fund the construction of segments D (in part), E, F-1, F-2, and G.
GPTC presently has $200 million of Grand Parkway System first-tier toll revenue bonds and approximately $2.7 billion of subordinate-series toll revenue bonds outstanding. All of the subordinate bonds are TELA-backed except for the series 2014A bonds amounting to $733 million. These bonds are anticipated to be refinanced in 2016 with proceeds from the TIFIA loan or future TELA-supported subordinate-tier toll revenue refunding bonds. The current plan of finance is consistent with Fitch's previous expectations.
Approximately one mile of Grand Parkway segment D in Harris County and Segment E opened to traffic on Dec. 21, 2013 and began tolling on Feb. 1, 2014. Preliminary performance appears to be in-line with management's expectations. Construction of these segments was substantially completed on time and on budget. Construction on the remaining segments is proceeding according to plan and the general engineering consultant believes that funding is sufficient to ensure timely completion.
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 Tunnels' (Oct. 16, 2013).
Applicable Criteria and Related Research:
Rating Criteria for Toll Roads, Bridges and Tunnels
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=720736
Rating Criteria for Infrastructure and Project Finance
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682867
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=835255
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