Fitch Rates Indiana Finance Auth's Proposed PABs 'BBB'
NEW YORK -- March 27, 2013
Fitch Ratings assigns a 'BBB' rating to the following private activity bonds
(PABs) 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
-- $482.3 million series 2013A (long-term PABs);
-- $194.5 million series 2013B (short-term PABs).
The Rating Outlook is Stable.
Proceeds from both the short- and long-term PABs, which priced on March 12,
2013 and are expected to close on March 28, 2013, will be loaned to WVB to pay
a portion of the construction costs for the East End Bridge across the Ohio
Final pricing for the short- and long term PABs provided an all-in interest
cost of approximately 4.85%. The interest cost is slightly above the rate
assumed when Fitch announced its expected rating for the project; however, the
Maximum Availability Payment (MAP) has been adjusted to ensure minimum
financial targets are met.
Projected debt service coverage is consistent with Fitch's rating case at the
time of the expected rating, with average coverage of 1.30x and minimum
coverage never dropping below 1.20x. Fitch's Rating Case assumes a 1% yearly
escalation in operating expenses (Opex), SPV, and lifecycle costs above the
CPI assumption 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.
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 by Fitch) 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 2030 at which time debt service
ramps-up and debt is fully amortized by 2051. 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 1.30x 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 2.0% 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 life cycle
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 Projets) are affiliates of
the sponsors (Walsh Investors LLC and VINCI Concessions S.A.S. respectively)
of the project. DB requirements under the PPA are passed down to the DBJV.
VINCI Construction Grands Projets is ultimately 100% owned by VINCI SA. Walsh
Construction Company is part of the Walsh Group. 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 counterparties 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.
For a complete review of Fitch's analysis of the Project please refer to
Fitch's Rating Action Commentary 'Fitch Expects to Rate Indiana Finance Auth's
Proposed PABs BBB' dated March 4, 2013, and Fitch's pre-sale report for WVB
East End Partners LLC issued on March 8, 2013, both available at
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
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Scott Zuchorski, +1-212-908-0659
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
Chad Lewis, +1-212-908-0886
Ken Weinstein, +1-212-908-0571
Elizabeth Fogerty, New York, +1 212-908-0526
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