Fitch Expects to Rate Indiana Finance Auth's Proposed PABs 'BBB
NEW YORK -- March 4, 2013
Fitch Ratings expects to assign a 'BBB' rating to the following private
activity bonds (PABs) to be issued by the Indiana Finance Authority on behalf
of WVB, East End Partners, LLC (WVB) for the Ohio River Bridges East End
Crossing Project (the project):
--Approximately $445.4 million series 2013A (long-term PABs);
--Approximately $196 million series 2013B (short-term PABs).
The Rating Outlook is Stable.
The final ratings are contingent upon the 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 PABs are expected to price in
mid-March 2013 and the proceeds will be loaned to WVB to pay a portion of
costs of the project.
KEY RATING DRIVERS:
Payments Supported by Strong Counterparty: Payments during construction and
operation of the project stem from milestone and availability payments from a
strong counterparty, the Indiana Finance Authority (IFA). WVB's transaction
structure includes 80% of the availability payment, which grows at a fixed
rate of 2.5% annually while the remaining 20% is linked to the consumer price
Relatively Low Risk Operations Supported by Experienced Provider: Project
operations are expected to be self-performed by WVB partly through local
contractors. VINCI Concessions (100% owned by Vinci SA; rated 'BBB+', Stable
Outlook) has extensive experience in performing O&M obligations in Public
Private Partnerships (PPPs) around the world and will support WVB during the
maintenance period through a Technical Assistance Agreement.
Back-ended Amortization with Standard Reserving Provisions: Debt service on
the series 2013A is interest-only through 2033 at which time debt service
requirements ramp-up and debt is fully amortized by 2050. All proposed short-
and long-term debt is fixed rate. The covenant package is considered adequate
with a debt service reserve account (DSRA) of six months and an equity
distribution trigger of 1.15x. Additional bonds can only be issued for
completion, up to 10% of original par of the series 2013A bonds, refunding for
cost savings or funding of Handback Requirements and Safety compliance. A
'BBB' rating confirmation is also required. A three-year Rehabilitation Work
Reserve Account (RWRA) and five-year Handback Reserve are required, both of
which are viewed as sufficient for this type of project.
Solid Coverage Ratios: The projected average coverage ratio in Fitch's rating
case of (1.32x) is within the 'BBB' range in Fitch's Availability Criteria of
1.2x-1.4x. Coverage does not drop below 1.2x in the Fitch rating case. The
loan life coverage ratio (LLCR) break-even indicates under Fitch's base case
the project can withstand a CPI stress of 2.% real for 35 years. Leverage is
moderately high at 14.4x Net Debt/CFADS after the first year of operations.
Adequate Life Cycle Plan: The lenders technical advisor (LTA) (Granherne
(KBR)) has opined on the adequacy of WVB's approach and budget for lifecycle
costs. WVB will perform regular condition and performance monitoring
inspections in a systematic manner to better understand the remaining life of
its assets. WVB will retain an LTA throughout the life of the transaction
whose scope of work will include approving both the annual life cycle plan and
the five-year look forward life cycle plan. Funding of the Handback Reserve
Account is incorporated into the financial model.
Experienced Contractor with Sufficient Security Package: The project will be
constructed via a Design-Build Joint Venture (DBJV) whose members (Walsh
Construction Company and VINCI Construction Grands Projects) are affiliates of
the equity sponsors of the project. DB requirements under the PPA are passed
down to the DBJV. VINCI Construction Grands Projects is ultimately 100% owned
by VINCI SA. The LTA's replacement analysis shows that in the unlikely event
that both contractors simultaneously default the security package is
sufficient to bring in a replacement contractor to complete the project.
--Construction delays beyond scheduled substantial completion and anticipated
final acceptance dates;
--Significant payment deductions during construction and operations that
reduce coverage levels well below current projections;
--Considerable deterioration of financial counter-parties leading to a
weakening in the financial performance of the project;
--Successful completion and sustained operating performance could result in a
The PABs will be secured by a first priority lien on WVB net revenues.
The Indiana Finance Authority (IFA) announced on Dec. 27 that it had reached
commercial close with WVB to design, build, finance maintain and operate the
East End Bridge across the Ohio River. WVB is a special purpose vehicle (SPV),
owned by equity members including VINCI Concessions S.A.S. at 33.3%, Bilfinger
Project Investments North America at 33.3%, and Walsh Investors, LLC at 33.3%.
VINCI Concessions and Bilfinger have experience on Public Private Partnership
(PPP) projects worldwide. Bilfinger Project Investments North America and
Walsh Investors will inject their share of the equity contribution, 66.7% of
the total, in cash at financial close via separate Equity Bridge Loans (EBL).
The EBL will be fully repaid and replaced with equity contributed by each of
the respective equity members prior to the repayment of the short-term PABs.
There will be no obligation for WVB to repay the EBL. The remaining 33.3% of
equity will be fully injected in cash prior to the repayment of the short-term
PABs, and supported by a letter of credit issued by a bank rated 'A-' or
The project is being procured as a PPP by IFA based on an availability payment
mechanism. Construction is expected to take 43 months from financial close
followed by a 35-year operating period. The project is part of the wider Ohio
River Bridges project which addresses the long-term cross-river transportation
needs in the Louisville-Southern Indiana region. The scope of the Ohio River
Bridges project has been divided into two separate procurements, each with
construction costs of approximately $1.3 billion.
The project consists of the development, design, construction, financing,
operation and maintenance of a tolled bridge facility and associated roadway
and facilities across the Ohio River, connecting Clark County, Indiana and
Jefferson County, Kentucky. The purpose of the project is to address the
long-term transportation needs of the Louisville-Southern Indiana region, to
enhance safety, reduce traffic congestion and improve transportation
connections throughout the growing metropolitan area.
The Design Build contract is done on a 'back to back' principle passing the
construction risks of the Public Private Agreement to the Design Build
Contractor. The DBJV is comprised of Walsh Construction Company (60%) and
VINCI Construction Grands Projects (40%). The DBJV will self-perform most of
the construction work including approximately 75% of the tunnel and the cable
stayed bridge) while subcontracting the remainder with local specialty
contractors that the DBJV has worked with previously. Walsh Construction
Company (WCC) and VINCI Construction Grands Projects (VCGP) have extensive
experience and an excellent record in roadway construction in the U.S. and
international locations with similar types of projects.
The LTA opined on both WCC and VCGP's qualifications to complete the project.
Walsh Construction has constructed a majority of Indiana's design-build
program including the Milton Madison Bridge. The construction security package
consists of a Parent Guarantee from Walsh Construction for WCC and from VINCI
Construction S.A.S. for VCGP, with a 40% liability cap; Performance Bond in
the amount of 25% of the contract price; labor and material payment bond in
the amount of 5% of the contract price; letter of credit amounting to 7.5% of
the contract price. Fitch considers these construction elements standard for
this type of project and partially mitigate construction completion risks.
Fitch's Rating Case assumes a 1% yearly escalation in operating expenses
(Opex), SPV, and lifecycle costs above CPI in the financial model. Fitch held
the escalation of availability payments constant at 2.5% annually.
Additionally, Fitch applied a -0.5% deduction of availability payments due to
issuance of Noncompliance Points and unplanned lane closures and an underlying
10% increase to base level lifecycle costs projections. The results of Fitch's
rating case indicate coverage is sufficient with average DS coverage of 1.32x
and minimum coverage of 1.20x. An LLCR break-even shows the project can
withstand a CPI stress of 2.08% real (2% over a 2.5% inflation base)for 35
years in Fitch's rating case. Additional break-even stresses for Opex
demonstrate the project can withstand a 147.93% increase in annual Opex.
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' - (August 2, 2012).
Applicable Criteria and Related Research
Rating Criteria for Infrastructure and Project Finance
Rating Criteria for Toll Roads, Bridges, and Tunnels
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
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.
Fitch Ratings, Inc.
Scott Zuchorski, +1-212-908-0659
33 Whitehall Street
New York, NY 10004
Chad Lewis, +1-212-908-0886
Mike McDermott, +1-212-908-0605
Elizabeth Fogerty, New York, +1-212-908-0526
Press spacebar to pause and continue. Press esc to stop.