Fitch Rates Grand Parkway Transp Corp., TX's $841MM 2nd-Tier TIFIA Loan 'BBB+'; Outlook Stable

CHICAGO--()--Fitch Ratings has assigned a 'BBB+' rating with a Stable Outlook to the Grand Parkway Transportation Corporation (GPTC), Texas' approximately $841 million second-tier Grand Parkway System toll revenue Transportation Infrastructure Finance and Innovation Act (TIFIA) loan. The loan is expected to be drawn upon by December 2016 to refund existing subordinate tier toll revenue bonds used to pay for a portion of the Grand Parkway Project.

KEY RATING DRIVERS

--New Highway in the Strong Houston MSA: The project will serve Harris and Montgomery counties in Texas. There is no operational history; however, the Houston metropolitan statistical area (MSA) has historically experienced strong demographic and economic growth, which is expected to continue. Traffic is expected to be about 95% passenger vehicle and subject to competition.

Revenue Risk: Volume - Midrange

--Regionally Consistent Toll Policy: GPTC has adopted toll policy currently utilized in Harris and Fort Bend Counties that features automatic annual toll increases of the greater of 2% or regional CPI-W. Further, the opening toll rate will be pegged to Harris County's current rate, which Fitch believes is moderate at $0.177 per mile (2012 dollars). GPTC maintains some economic rate-making flexibility at this opening rate.

Revenue Risk: Price - Midrange

--Escalating Debt Structure: Debt is fixed rate and fully amortizing, but heavily back-loaded. First-tier debt will benefit from a cash-funded debt service reserve fund (DSRF) and a $100 million rate stabilization fund. The debt is supported by a gross pledge of system revenues; however, first-tier debt is exposed to possible future additional debt as well as to a springing lien as a result of a bankruptcy-related event for the potential TIFIA debt.

Debt Structure - Midrange

--High Total Leverage and Minimal Liquidity: Total leverage is high, but Fitch projects in its base case that first-tier leverage will be low at 1.0x on a net basis (0.7x on a gross basis) by 2019 once all segments are open and traffic has fully ramped up. Fitch projects strong first-tier coverage of no less than 9.05x gross (6.53x net) in its base case. However, total coverage of 1.05x gross (0.76x net) results in limited liquidity build up, if any, to offset an initially weak balance sheet position.

Debt Service Risk - Midrange

--Manageable Capital Program: As a brand-new facility, the completed project will likely require only minimal maintenance. Additionally, the project benefits from the TELA backstop that makes funds available for O&M and major maintenance expenses. Predevelopment work is underway on additional segments and future issuances are possible.

Infrastructure Development/Renewal - Stronger

--Minimal Construction Risk: The project features fairly straightforward construction which will be completed by an experienced, investment-grade developer. Adequate construction security features are in place and TxDOT's incentive to ensure timely project completion provides added lender protection.

Completion Risk - Stronger

RATING SENSITIVITIES

--Highway Utilization: Traffic levels that fall significantly short of expectations, especially in the opening years of the project could affect the rating.

--Capital Program: Additional leverage and/or senior O&M expenses related to future projects that materially dilute projected coverage ratios may weaken credit quality.

--Reduced Financial Flexibility: Increased operating expenses or delays in implementing needed toll adjustments that affect the financial profile could pressure the rating.

SECURITY

The second-tier toll revenue TIFIA loan will be secured by, and have a second priority lien on, senior net revenues derived from the ownership or operation of the toll road system and certain funds under the indenture.

TRANSACTION SUMMARY

GPTC has secured a TIFIA loan in an amount up to $840.6 million, which is expected to close in early 2014. Once closed, GPTC anticipates drawing upon the loan in December 2016 to partially refund outstanding subordinate tier toll revenue bonds, the proceeds of which are being used to fund the construction of segments D (in part), E, F-1, F-2, and G.

GPTC presently has $200 million of Grand Parkway System first-tier toll revenue bonds and approximately $2.7 billion of subordinate series TELA-backed toll revenue bonds outstanding. The current plan of finance is consistent with the financial profile from Fitch's last review in July.

It is Fitch's current expectation that GPTC will issue series 2014A bond anticipation notes (BANs) as a short-term debt instrument with a hard refinancing date secured by the proceeds from future TELA supported subordinate tier toll revenue refunding bonds and/or proceeds of other future refunding issues which may be available to GPTC, but not secured by the pledge of TELA. GPTC currently anticipates using the TIFIA loan to takeout the 2014 BANs. To the extent that the rated TIFIA loan cannot be drawn upon, in the event all the conditions precedent to disbursement are not met, and to the extent they are unable to access the capital markets with additional senior or subordinate toll revenue bonds, GPTC has indicated that future TELA supported subordinate tier toll revenue bonds would be issued to refinance the 2014 BANs. The series 2014A bonds will be used to partially refinance the series 2013C bonds.

The Grand Parkway system's approximately one mile of segment D in Harris County and segment E opened to traffic on Dec. 21, 2013. No traffic information was available to date and it remains toll free until Feb. 1, 2014. Construction was completed on time and budget. Construction on the remaining segments is proceeding according to plan and the general engineering consultant believes that funding is sufficient to ensure timely completion.

For a complete review of Fitch's analysis of the Project please refer to Fitch's Rating Action Commentaries 'Fitch Expects to Rate Grand Parkway Transp Corp., TX's $200M 1st-Tier Toll Revs, Ser 2013A 'BBB+' dated June 26, 2013 and 'Fitch Rates Grand Parkway Transp Corp., TX's $200M 1st-Tier Toll Revs, Ser 2013A 'BBB+' dated July 29, 2013 and Fitch's presale report for Grand Parkway Transportation Corporation issued on June 27, 2013. (For further information on the subordinate tier bonds and TELA, see also Fitch's press release, 'Fitch Assigns 'AA-' Rating to Grand Pkwy Trans Corp TELA Bonds, Outlook Stable', dated June 26, 2013, available at 'www.fitchratings.com'.)

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

Applicable Criteria & Related Research:

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

--'Rating Criteria for Toll Roads, Bridges, and Tunnels' (Oct. 16, 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 Toll Roads, Bridges and Tunnels

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=720736

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=815544

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Contacts

Fitch Ratings
Media Relations
Elizabeth Fogerty, New York, +1-212-908-0526
elizabeth.fogerty@fitchratings.com
or
Primary Analyst
Jeffrey Lack, +1-312-368-3171
Associate Director
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst
Chad Lewis, +1-212-908-0886
Senior Director
or
Committee Chairperson
Cherian George, +1-212-908-0519
Managing Director

Sharing

Contacts

Fitch Ratings
Media Relations
Elizabeth Fogerty, New York, +1-212-908-0526
elizabeth.fogerty@fitchratings.com
or
Primary Analyst
Jeffrey Lack, +1-312-368-3171
Associate Director
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst
Chad Lewis, +1-212-908-0886
Senior Director
or
Committee Chairperson
Cherian George, +1-212-908-0519
Managing Director