Fitch Affirms North Tarrant Express Mobility Partners, LLC Revs 'BBB-'; Outlook Stable

NEW YORK--()--Fitch Ratings has affirmed the 'BBB-' rating on the North Tarrant Express Mobility Partners, LLC's (NTEMP) approximately $400 million senior lien revenue bonds issued by the Texas Private Activity Bond (PAB) Surface Transportation Corporation. Fitch has also affirmed the 'BBB-' rating on the NTEMP's approximately $650 million Transportation Infrastructure Finance and Innovation Act (TIFIA) loan. The Rating Outlook is Stable.

The affirmations reflect Fitch's expectation that the project will be delivered ahead of schedule - possibly during 2014 - and broadly on budget, despite right of way (ROW) acquisition costs being higher than originally planned for. Regional macroeconomic demographics and development in the Dallas-Fort Worth metropolitan area is broadly in line with Fitch's expectations at closing. Corridor traffic and congestion levels continue to support Fitch's base and rating case traffic and revenue assumptions.

KEY RATING DRIVERS:

Moderate Completion Risk: Construction is occurring in an operating environment. This necessitates keeping the majority of general purpose lanes (GPLs) open during most daytime periods. Other project responsibilities, including the relocation of certain existing infrastructure and the acquisition of all project ROW, also add some complexity to the project. The fixed price turn-key contract has adequate protections that mitigate completion risk at the current rating level and completion risk is further mitigated by the relatively short remaining term to completion and the large proportion of costs already outlaid, as well as security package features such as performance bond. Completion Risk: Mid-Range

Strategic Asset Location With Competing Alternatives: The North Tarrant Express Segments 1 & 2 (NTE 1&2) project is a key route connecting Fort Worth, TX area with the city of Dallas and Dallas-Fort Worth Airport. This strategic location is further enhanced by the solid economic profile of the service area, which has benefited from considerable population and employment growth over the last decade. However, the presence of free alternative competing GPLs directly next to the managed lanes (MLs) could materially affect the congestion on the GPLs. Revenue - Volume: Mid-Range

Strong Rate-Making Flexibility But Uncertain Price Sensitivity: Demonstrated traffic congestion in both directions during weekday a.m. and p.m. peak periods, weekday inter-peak, and weekend daytime would normally provide strong ratemaking ability, although there is a limited amount of meaningful history for this type of asset class. Assumed operation close to the point of revenue maximization caps the assessment at midrange. Revenue - Price: Mid-Range

Infrastructure Renewal And Replacement: Upon completion, the project will have four new MLs, effectively doubling the capacity of the existing road and one-way frontage roads will be added. The project contains adequate mechanisms to assess and address infrastructure requirements on an ongoing basis through the life of the debt. Infra/Renewal: Mid-Range

Debt Structure: The senior PABs plus TIFIA loan structure is typical for this project type. Debt is all fixed rate with no refinance risk. While the leverage and debt service coverage tests in the equity contribution agreement are weak, a rating trigger exists whereby equity contributions would be met through a letter of credit should the credit quality of Cintra deteriorate. Debt Structure: Stronger

Moderate Financial Flexibility and High Leverage: The project has an estimated $20.75 million in total debt per lane mile (senior debt plus TIFIA loan), despite significant public contributions and sponsor equity. In addition, net debt to cash flow available for debt service is high in 2016 at 25x, No future borrowing is expected. The financial results indicate a loan life coverage ratio of 1.6x in 2015 and a minimum project life coverage ratio of 2.2x, with both growing over time.

RATING SENSITIVITIES:

--Material construction delays or cost over-runs that affect projected cover ratios and financial flexibility through the operational phase.

--Sustained material traffic underperformance, or inability to raise tolls close to forecast levels once operational that signifies more than ramp-up-related issues, or a significantly prolonged ramp-up period that stretches liquidity/flexibility support.

--Operating and capital expenditures during the operational period significantly above expectations that cause financial flexibility to be reduced and coverage profile lower.

--Sustained material traffic and/or toll rate over-performance once that results in a coverage profile significantly above Fitch expectations.

SECURITY:

The bonds are secured by net toll revenues generated from the North Tarrant Expressway (NTE) managed lanes project.

CREDIT UPDATE:

Segment 1 construction consists of two MLs in each direction of Interstate Highway (IH) 820 (which runs east-west), and segment 2W construction consists of two MLs in each direction on State Highway (SH) 183 (which runs east-west). NTEMP is a single purpose entity comprised of the aforementioned equity partners and has been granted a winning a proposal by TxDOT to develop, operate, maintain, and toll the North Tarrant Managed Lanes project for a period of 52 years pursuant to a comprehensive development agreement. Senior bond and TIFIA loan proceeds have been used, along with approximately $570 million in public funds from Texas Department of Transportation and equity of approximately $420 million from Cintra Infraestructuras, S.A, Meridiam Infrastructure Finance S.A.R.L and the Dallas Fire and Police Pension System to fund the construction of segment 1 and segment 2W of the project.

The design-build contractor, Bluebonnet Contractors (BBC), initiated construction activity on Oct. 28, 2010, slightly ahead of the contract-specified date of Nov. 10, 2010. At Fitch's last review, NTEMP had obtained working possession of 100% of ROW parcels, and the formal ROW acquisition milestone was attained on the scheduled date of March 31, 2012. Final settlement has been reached on 384 of the 399 parcels to be acquired while final amounts are being negotiated on the balance. Although ROW acquisition costs have run higher than forecast, Fitch expects the overall construction budget to be broadly met as a result of cost savings made elsewhere. Construction is anticipated to be completed by the end of 2014, several months ahead of schedule.

The MLs are being constructed alongside GPLs and will therefore directly compete with these lanes for market share. By design, MLs are priced specifically to move traffic efficiently, thereby giving travelers an alternative to the free, congested, GPLs, and free-flowing conditions at 50 miles per hour are maintained by adjusting the toll rate to manage travel demand. High-occupancy vehicles (HOV) are expected to receive a discounted toll rate during peak periods until 2025, to be subsidized by TxDOT, and trucks will pay a higher toll rate, based on shape. Updated traffic analysis was not completed for this review, and Fitch remains comfortable as to the expected traffic demand for the MLs once ramped-up.

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 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=823159

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Contacts

Fitch Ratings
Primary Analyst
Tanya Langman, +1-212-908-0716
Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Scott Zuchorski, +1-212-908-0659
Senior Director
or
Committee Chairperson
Chad Lewis, +1-212-908-0886
Senior Director
or
Media Relations
Elizabeth Fogerty, +1-212-908-0526 (New York)
elizabeth.fogerty@fitchratings.com

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Contacts

Fitch Ratings
Primary Analyst
Tanya Langman, +1-212-908-0716
Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Scott Zuchorski, +1-212-908-0659
Senior Director
or
Committee Chairperson
Chad Lewis, +1-212-908-0886
Senior Director
or
Media Relations
Elizabeth Fogerty, +1-212-908-0526 (New York)
elizabeth.fogerty@fitchratings.com