NEW YORK--(BUSINESS WIRE)--Fitch Ratings expects to assign a 'BBB-' rating to the following private activity bonds (PABs) to be issued by the New Jersey Economic Development Authority on behalf of NYNJ Link Borrower LLC (NYNJ Link) for the Goethals Bridge Replacement Project (the project):
--Approximately $457 million series 2013 tax-exempt PABs.
Additionally, Fitch expects to assign a 'BBB-' rating to the approximate $480 million (excluding capitalized interest) Transportation Infrastructure Finance and Innovation Authority (TIFIA) loan to NYNJ Link.
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 November 2013 and the proceeds will be loaned to NYNJ Link to pay a portion of costs of the project. The TIFIA loan is expected to be executed in November 2013.
KEY RATING DRIVERS:
Availability Payments Supported by Strong Counterparty: Payments supporting construction and operations will be derived from The Port Authority of New York and New Jersey (senior lien bonds rated 'AA-'; VSOs rated 'A+' and special obligations rated 'A'; Outlook Stable for all). Developer Financing Arrangement (DFA) payments will escalate at 1.5% annually while operational maintenance (OM) and capital maintenance (CM) payments will be indexed to regional consumer price index (CPI) and subject to availability and performance deductions.
Low Operation Risk: Operational functions are expected to be self-performed by NYNJ Link Developer LLC which is ultimately a subsidiary of Macquarie Infrastructure and Real Assets (MIRA) (90% interest) and Kiewit Development Company (KDC) (10% interest). MIRA has extensive experience managing assets in the public private partnership space.
Fixed Rate, Fully Amortizing Debt with Standard Reserves: The debt service profile consists of fixed rate debt with no refinance risk. The covenant package is considered to be adequate, with debt service reserve funds equal to six months of debt service and a robust equity lock-up trigger of 1.20 times (x).
Sufficient Coverage Ratios although High Leverage: The projected average coverage in Fitch's ratings case is 1.28x and drops to a minimum of 1.15x, consistent with the assigned rating and peer group. Leverage is slightly elevated at 16x net debt to cash flow available for debt service in 2018.
Adequate Lifecycle Funding: A forward looking Major Maintenance Reserve and Handback Reserve are present to cover expected life cycle costs.
Experienced Contractor with Sufficient Security Package: Kiewit Infrastructure Co. (70%), Weeks Marine Inc. (15%), and Massman Construction Co. (15%), all of which have significant experience with similar projects, comprise the Design-Build Joint Venture (DBJV) contractor. Design-build requirements are passed down from the developer to the DBJV contractor. Security package includes parent guarantee from Kiewit Infrastructure Group Inc.
--Construction delays beyond scheduled substantial completion and anticipated final acceptance dates may lead to a downgrade;
--Significant payment deductions during construction and operations that reduce coverage levels well below current projections could erode credit quality;
--Considerable deterioration of financial counter-parties leading to a weakening in the financial performance of the project may lower the rating;
--Successful completion and sustained operating performance could result in a higher rating.
The PABs will be secured by a first priority lien on NYNJ Link net revenues. The TIFIA Loan will be secured on a subordinate basis. Senior lien bonds and the subordinated TIFIA loan will be paid from funds available in the Port Authority of New York and New Jersey's (PANYNJ) Consolidated Bond Resolution Fund (CBRF) - which are subordinate to the authority's consolidated revenue bonds and deposits to required reserves.
The project is being procured as a public-private partnership (PPP) by the PANYNJ based on an availability payment mechanism. Construction is expected to take 50 months from financial close followed by a 35-year operating period. The project involves the design, construction, financing, operation, maintenance and rehabilitation of a replacement Goethals Bridge connecting Staten Island in New York City with Elizabeth in New Jersey as well as the demolition of the existing Goethals Bridge. The project includes the construction of a new six-lane cable-stayed main span bridge, construction of new approach structures and realignments to link to the existing road network and the demolition and removal of the existing Goethals Bridge. While both the existing bridge and the replacement bridge will be tolled, the tolls are to be collected and retained by the PANYNJ and are not pledged as part of this financing.
NYNJ Link LLC (the indirect owner of the Borrower and the Developer) is the consortium created to design, construct, finance, operate and maintain the project. MIRAKDC will be contributing equity of $113 million or 9.2% of total project cost. MIRA will provide approximately 90% of the equity capital while KDC will provide approximately 10% of the equity capital for the project. Equity contribution will be supported by a letter of credit issued by a financial institution rated 'A-' or better.
The design-build contract is done on a 'back to back' principle passing the construction risks of the Project Agreement to the DBJV contractor. The presence of KDC as an equity investor, and Kiewit Infrastructure as the lead member of the DBJV, ensures stability and transparency within the Consortium, as well as aligning interests for the long-term success of the project through the design-build and operations phases of the project.
The contractor has extensive experience with designing and constructing bridges. The lenders technical advisor opined on the design builders ability and qualifications to complete the project. Fitch does not view the credit quality of Kiewit as a constraint to the rating. The construction security package consists of a parent guarantee from Kiewit Infrastructure Group Inc. with a 45% liability cap. Additionally, liquated damages are sized to 9.2% of the design build contract price (sized to cover approximately 15 months of debt service, interest expenses, operating and maintenance costs, insurance and any other costs) between the scheduled substantial completion date and the long stop date. A letter of credit amounting to 4% of the contract price is also part of the construction security package. Fitch considers these construction elements standard for this type of project and partially mitigate construction completion risks.
Fitch's rating case, which was based on the provided model, assumes an additional 1% yearly escalation in operating expenses (opex), special purpose vehicle, and lifecycle costs above the assumed CPI growth of 2.5%. Fitch assumed a 0.5% deduction to availability payments due to the issuance of noncompliance points and unavailability deductions. Debt service coverage ratios in Fitch's rating case average 1.28x with a minimum coverage level of 1.15x. A loan life coverage ratio (LLCR) that equals no less than 1x in all periods shows the project can withstand a CPI stress of greater than 3%, over the expected 2.5% growth already assumed annually in Fitch's rating case. Additionally, the model demonstrates the project can withstand a 107.5% increase in annual opex and SPV costs over Fitch's rating case while achieving an LLCR of no less than 1x in all periods.
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).
Applicable Criteria and Related Research:
Rating Criteria for Infrastructure and Project Finance
Rating Criteria for Availability-Based Projects