Fitch Affirms Indiana Finance Authority's Revs at 'BBB'; Outlook Stable

Fitch Ratings has affirmed the 'BBB' rating for approximately $482.3 million series 2013A (long-term private activity bonds [PABs]) and $194.5 million series 2013B (short-term PABs) issued by Indiana Finance Authority on behalf of WVB East End Partners LLC (WVB). The Rating Outlook remains Stable.

The affirmation reflects Fitch's expectation that construction will be completed on time and on budget, despite slight delays on the tunnel portion of the project, with substantial completion in October 2016. Even if delays that are estimated to be four months are not made up and the scheduled substantial completion date is not met, Fitch views the security package within the structure to sufficiently cover this scenario. In addition, there have been no material changes that would impact the revenue and expense projections used to support Fitch's base and rating case assumptions.

KEY RATING DRIVERS

Revenue Risk: Stronger

Availability and Milestone Payments Supported by Strong Counterparty: Payments during construction and operation of the project stem from milestone and availability payments from a highly rated counterparty, the Indiana Finance Authority (IFA; Fitch credit opinion of 'AA category'). WVB's model indicates 80% of the availability payment grows at a fixed rate of 2.5% annually while the remaining 20% is linked to the consumer price index (CPI).

Operational Risk: Midrange

Operations Supported by Experienced Provider: Project operations are expected to be self-performed by WVB through local contractors. VINCI Concessions has extensive experience in performing O&M obligations in public-private partnerships (PPPs) around the world and will support WVB during the operation period through a technical assistance agreement. VINCI Concessions led the O&M planning and budgeting phase of the bid submission process.

Debt Structure: Midrange

Back-ended Amortization with Standard Reserving Provisions: Debt service is interest-only through 2033 at which time debt service requirements ramp-up and debt is fully amortized in 2050. All proposed short- and long-term debt is fixed rate. The covenant package is considered adequate with a debt service reserve fund (DSRF) of six-months, equity distribution trigger of 1.15x, and additional bonds only for completion, up to 10% of original par, and refunding for cost savings. A three-year Rehabilitation Work Reserve Account (RWRA) and five-year Handback Reserve Account are required, both of which are considered standard for this type of project.

Infrastructure Development/Renewal: Midrange

Adequate Life Cycle Plan: The lenders technical advisor (LTA) 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 that allows it to better understand the remaining life of its assets. WVB expects to 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.

Completion Risk: Midrange

Experienced DBJV with Sufficient Security Package: The project will be constructed via a design-build joint venture (DBJV) whose members (Walsh Construction and VINCI) are affiliates of the equity sponsors of the project. DB requirements under the PPA are passed down to the DBJV. VINCI SA (the 100% parent of VINCI Construction) has a public Fitch rating of 'BBB+'. 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.

Solid Coverage Ratios: The projected average coverage ratio in Fitch's rating case (1.32x) is within the Indicative 'BBB' Average Coverage Ratios in Fitch's Availability Criteria of 1.2x-1.4x. Coverage does not drop below 1.2x in the Fitch rating case. LLCR break-even indicates under Fitch's base case the project can withstand a CPI stress of 4.58% for 35 years. Leverage is moderately high at 14.4x net febt/CFADS after the first year of operations.

RATING SENSITIVITIES

Negative:

--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.

Positive:

--Successful completion and sustained operating performance could result in a higher rating.

CREDIT UPDATE

Project construction is largely progressing but delays are developing with regards to underground tunnels under construction. A major rock fall event in September 2014 has resulted in a nearly four month delay in tunnel excavation. However, a contingency plan was implemented to re-gain time. Tunnel excavation has re-started in the 2nd week of February, 2015 with extra re-enforcement work. The damages were considered an insurable builders risk event for the DBJV. Project design and engineering is 86.9% complete compared to 36.3% last year, with no design related delays. Construction is estimated to be 55.5% complete, compared to 30% last year.

Concession receivables also increased from $231 million to $478 million in fiscal year (FY) 2014, with concession revenue increasing to $249 million in FY2014. These payments represent construction draws in accordance with the DB contract and certified by the LTA, thus confirming progress on the project.

Construction falls into three different sections, Section 4: Kentucky Approach, Section 5: Main Bridge East End Bridge, and Section 6: Indiana Approach. Progress in construction broken down by each section:

Kentucky Approach: Work on the tunnels in South Portal continues, with blasting and excavation well underway. The southbound tunnel is nearly complete, with traffic being switched so that the northbound tunnel could be started in the new year, as well as surface blasting to match the height of the southbound tunnel. Work on Harrods Creek Bridge continued, with Pier 2 construction going well, and steel placement continuing.

Main Bridge East End Bridge: Record low temperatures over winter caused tough conditions; however, solid progress on the cable string bridge is in progress. During the last year, the lower legs were successfully completed, and now work on the lower section of the bridge continues, with concrete and rebar being placed for the towers. In order to make up time, they are working two shifts a day, six days a week on the bridge.

Indiana Approach: After delays the year before, work on this section seems to be going smoothly, with design of this section totally complete. Concrete has been poured for columns of Bridge 12, and demolition of the Bridge 17 deck is underway.

Despite some excavation related delays there is only an estimated four month delay. Necessary steps are being taken in order to catch up to the schedule, and ensure the project is completed in time by October 2016. Fitch notes that the long stop construction date is June 2018, providing an ample period of 20 months after the scheduled substantial completion date.

Over the next year bridge work will be hastened with the double shifts being worked, which should really make up for the delay caused in the critical path. Also, remedial tunnel work continued when excavation was halted, which coupled with the effectiveness of the delay mitigation plan, should allow for the project to be completed on time. A majority of permits have already been obtained with some of those currently being modified, and there is no concern over design delay. Nine monetary change orders have been executed to date between the DBJV and IFA, with two of the approved changes awaiting agreement on cost savings. Production of steel has begun, and an audit was completed to ensure that the correct specifications were being manufactured.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

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

--'Rating Criteria for Availability-Based Projects', (June 18, 2013);

--'Rating Criteria for Subsidiary Rating Linkage', (Aug. 5, 2013).

Applicable Criteria and Related Research:

Rating Criteria for Infrastructure and Project Finance

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

Rating Criteria for Availability-Based Projects

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=710784

Parent and Subsidiary Rating Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685552

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=980539

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Contacts:

Fitch Ratings
Primary Analyst
Scott Zuchorski, +1-212-908-0659
Senior Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
Secondary Analyst
or
Chad Lewis, +1-212-908-0886
Senior Director
or
Tertiary Analyst
Markian Dziuk, +1-312-368-3187
Analyst
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Committee Chairperson
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Senior Director
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