Fitch Expects to Rate Indiana Finance Auth's Proposed PABs 'BBB

NEW YORK--()--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 index (CPI).

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.

RATING SENSITIVITIES

--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 higher rating.

SECURITY

The PABs will be secured by a first priority lien on WVB net revenues.

TRANSACTION SUMMARY

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 better.

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

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

Rating Criteria for Toll Roads, Bridges, and Tunnels

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

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Contacts

Fitch Ratings, Inc.
Primary Analyst
Scott Zuchorski, +1-212-908-0659
Director
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Chad Lewis, +1-212-908-0886
Senior Director
or
Committee Chairperson
Mike McDermott, +1-212-908-0605
Managing Director
or
Media Relations:
Elizabeth Fogerty, New York, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

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Contacts

Fitch Ratings, Inc.
Primary Analyst
Scott Zuchorski, +1-212-908-0659
Director
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Chad Lewis, +1-212-908-0886
Senior Director
or
Committee Chairperson
Mike McDermott, +1-212-908-0605
Managing Director
or
Media Relations:
Elizabeth Fogerty, New York, +1-212-908-0526
elizabeth.fogerty@fitchratings.com