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Fitch Affirms North Tarrant Express Mobility Partners, LLC Revs at 'BBB-'; Outlook Stable.

NEW YORK -- Fitch Ratings affirms the 'BBB-' rating on the North Tarrant Express Mobility Partners, LLC's (NTEMP) approximately $400 million senior lien revenue bonds issued by the Texas Private Activity Bond (PAB) Surface Transportation Corporation. Fitch also affirms the 'BBB-' rating on the NTEMP's approximately $650 million Transportation Infrastructure Finance and Innovation Act (TIFIA) loan. The Rating Outlook is Stable.

KEY RATING DRIVERS:

--Strategic Asset Location with Competing Alternatives: The North Tarrant Express project is a key route connecting the greater Fort Worth, TX area with the city of Dallas and the Dallas-Fort Worth Airport. This strategic location, in conjunction with the solid economics of the service area, has benefited from considerable population and employment growth over the last decade. However, the presence of free alternative competing general purpose lanes (GPLs) directly next to the managed lanes (MLs), along with uncertainty relating to the current economic recession, could materially affect the congestion on the GPLs.

--Strong Rate-Making Flexibility But Uncertain Price Sensitivity: Demonstrated traffic congestion in both directions during weekday a.m. and p.m. peak periods, weekday inter-peak, and weekend daytime provides strong ratemaking ability, although there is a limited amount of meaningful history for this type of asset class. The price sensitivity to toll rates is uncertain given the highly demand-driven nature of toll rates; however, the proposed tolls for the managed lane facility are competitively priced.

--Moderate Completion Risk: While the project is in a non-urban area, construction has to occur in an operating environment. This necessitates keeping the majority of the GPLs open during most daytime periods, the relocation of certain existing infrastructure, and the requirement that the project sponsor purchase all project right-of-way (ROW). The fixed price turn-key contract has adequate protections that mitigate completion risk at the current rating level.

--Moderate Financial Flexibility and High Leverage: The project has an estimated $20.75 million in total debt per lane mile (senior debt plus TIFIA loan), despite significant public contributions and sponsor equity. In addition, net debt to cash flow available for debt service is high in 2016 at 25 times (x) and declines to 18x in 2017. No future borrowing is expected. The financial results indicate a loan life coverage ratio of 1.6x in 2015 and a minimum project life coverage ratio of 2.2x that both grow over time.

--Fixed Senior Debt with a Flexible TIFIA Loan: The first lien and TIFIA structure is typical for this type of project. Debt is all fixed rate with no refinance risk. While the leverage and debt service coverage tests in the equity contribution agreement are weak, a rating trigger exists whereby equity contributions would be met through a letter of credit should Cintra's financial health deteriorate (Ferrovial, S.A. rated 'BBB-' by Fitch).

--Infrastructure Renewal and Replacement: Upon completion, the project will have six new MLs, effectively doubling the capacity of the existing road and one-way frontage roads will be added. A renewal funding mechanism that looks forward three years is present and viewed favorably.

WHAT COULD TRIGGER A RATING ACTION:

--Construction delays or significant project cost increases could weaken credit quality.

--Achievement of operating and capital expenditures commensurate with expectations during the operational period could improve credit quality.

--Actual toll rate levels that are higher than expectations and improvements to alternative free roads that materially impact demand for the GPLs and ultimately, the MLs, could pressure the rating.

SECURITY:

The bonds are secured by net toll revenues generated from the proposed North Tarrant Expressway (NTE) managed lanes project.

CREDIT UPDATE:

Segment 1 construction consists of two MLs and an additional GPL in each direction of Interstate Highway (IH) 820 (which runs east-west), and segment 2W construction consists of three MLs in each direction on State Highway (SH) 183 (which runs east-west). NTEMP is a single purpose entity comprised of the aforementioned equity partners and has been granted a winning a proposal by TxDOT to develop, operate, maintain, and toll the North Tarrant Managed Lanes project for a period of 52 years pursuant to a comprehensive development agreement.

The design-build contractor, Bluebonnet Contractors (BBC), initiated construction activity on Oct. 28, 2010, slightly ahead of the contract-specified date of Nov. 10, 2010. At Fitch's last review, NTEMP had obtained working possession of 100% of ROW parcels, and the formal ROW acquisition milestone was attained on the scheduled date of March 31, 2012. Final settlement has been reached on 344 of the 399 parcels to be acquired while final amounts are being negotiated on the balance. ROW acquisition costs are currently running $7.2 million below project estimates.

As of June 2012, project design was fully complete in compliance with the established schedule, though a small portion of the design package has yet to be invoiced. Additionally, as of October 2012, approximately 36% of the construction works and 41% of aggregate design and construction works have been completed. Actual construction drawdowns through June 2012 were $473.1 million, about 8% less than the $514.3 million projected at financial close as construction is progressing slower than initially estimated. Fitch notes that the lender's technical advisor indicated in its August 2012 quarterly update report that they were not aware of any significant issues that could affect completion of the project. At Fitch's last review, actual drawdowns were also less than projected amounts. While several change orders are being contemplated, each of which would be funded by TxDOT, NTEMP still expects completion to be achieved on schedule in June 2015.

The proceeds of the senior PABs and TIFIA loan combined with approximately $570 million in public funds (Texas Department of Transportation [TxDOT]) and equity of approximately $420 million from Cintra Infraestructuras, S.A (Cintra); Meridiam Infrastructure Finance S.A.R.L (societe a responsabilite limitee) (Meridiam) and the Dallas Fire and Police Pension System will be used to fund the construction of segment 1 and segment 2W the NTE managed lanes project in Texas.

The MLs will be constructed alongside GPLs and will therefore compete for market share with these lanes. MLs are lanes within a freeway set aside specifically aimed at moving traffic more efficiently in those lanes, thereby giving travelers an option of using the general purpose 'congested' lanes, or the free-flowing managed lanes. The free-flowing conditions are maintained by adjusting the toll rate to manage the travel demand. Detailed toll rate caps, and toll rate cap adjustments have been specified by TxDOT. TxDOT has also specified that a speed of 50 miles per hour must be maintained on the MLs. High-occupancy vehicles (HOV) are expected to receive a discounted toll rate during peak periods for using the MLs, until 2025. This discount will be subsidized by TxDOT. Trucks will pay a higher toll rate, based on the number of axles. While updated traffic projections were not completed for this review, traffic demand in the GPLs appears consistent with prior reviews.

For more information on project specifics, Fitch's initial traffic and revenue scenario and a discussion of the completion and financial covenant packages, please see Fitch's original pre-sale report titled 'North Tarrant Express Mobility Partners, LLC', dated Dec. 8, 2009 and available on Fitch's web site at 'www.fitchratings.com'.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Rating Criteria for Infrastructure and Project Finance' (July 12, 2012);

--'Rating Criteria for Toll Roads, Bridges, and Tunnels' (Aug. 2, 2012).

Applicable Criteria and Related Research:

Rating Criteria for Toll Roads, Bridges, and Tunnels

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684146

Rating Criteria for Infrastructure and Project Finance

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682867

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.
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Date:Dec 13, 2012
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