Fitch Affirms North Tarrant Express Mobility Partners, LLC Revs at 'BBB-';
NEW YORK -- December 13, 2012
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
--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.
The bonds are secured by net toll revenues generated from the proposed North
Tarrant Expressway (NTE) managed lanes project.
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
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
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
Rating Criteria for Infrastructure and Project Finance
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