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

NEW YORK--()--Fitch Ratings affirms the Indiana Finance Authority's $482.3 million series 2013A (long-term private activity bonds [PABs]) and $194.5 million series 2013B (short-term PABs) at 'BBB'. The Rating Outlook remains Stable.

The affirmation reflects Fitch's expectation that construction will be completed on time and on budget, with substantial completion in October 2016. Development of the project is consistent with Fitch's expectations at financial close. In addition, there have been no material changes to date that would impact the revenue and expense projections used to support Fitch's base and rating case assumptions.

KEY RATING DRIVERS:

Experienced DBJV with Sufficient Security Package: The Project is under construction 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) rated by Fitch at 'BBB+'/Outlook Stable. The project design is currently 70% complete while construction is 20% complete. The lenders technical advisor (LTA) has opined that the project is currently on-time and on-budget with no significant problems reported to date. Completion Risk: Midrange

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'). Under the terms of the Concession Agreement 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). Revenue Risk: Stronger

Operations Supported by Experienced Provider: Project operations will 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. Operational Risk: Midrange

Adequate Life Cycle Plan: The 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. Infrastructure Development/Renewal: 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 are required, both of which are considered standard for this type of project. Debt Structure: Midrange

Solid Coverage Ratios: The projected average coverage ratio in Fitch's rating case (1.32x) is within the Indicative range for 'BBB' average coverage in Fitch's availability-based project 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 debt/CFADS after the first year of operations.

Rating Sensitivity:

--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 the financial condition of key project 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.

Credit Update:

The DBJV commenced construction in June 2013 and the project remains on schedule, facing no major delays in the current construction despite a difficult winter. Project design and engineering is 70% complete and construction is approximately 20% complete, with no delays because of design. Construction is broken down into three different sections, Section 4: Kentucky Approach, Section 5: Main Bridge East End Bridge, and Section 6: Indiana Approach. The progress of each section is described below:

Section 4: Despite some design delays, Harrods Creek construction is underway, on schedule, and on budget. Work on the tunnels in South Portal is progressing as well, with blasting and excavation started, reaching 100-125 feet on the SB tunnel, and 250-300 feet on the NB Tunnel, respectively. Preliminary actions have also been taken for construction of the Wolf Pen Branch Road Bridge to start on schedule.

Section 5: Due to freezing weather and flooding conditions throughout the winter, there was some difficulty pouring foundation concrete, which caused some minor delays. Foundation for the Pier Tower has had 1/3rd of its drilled shaft foundation completed however steps are being taken to maintain the project within the schedule.

Section 6: Construction was affected by flooding caused from melting snow and rain during the winter, however, design work is nearly complete and construction is underway.

Overall, the project is just slightly behind its critical path with construction on schedule. Fitch notes that there have been no material impacts due to procurement, environmental, or permits. The LTA provided by Granherne Inc. has opined that the project is currently on pace to achieve substantial completion as scheduled by Oct. 31, 2016.

Contact:

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);

--'Parent and 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 Fitch¬タルs Approach to Rating Entities within a Corporate Group Structure
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=714476

Additional Disclosure

Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=823890

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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
or
Secondary Analyst
Chad Lewis, +1-212-908-0886
Senior Director
or
Committee Chairperson
Saavan Gatfield, +1-212-908-0542
Senior Director
or
Media Relations, New York
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

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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
or
Secondary Analyst
Chad Lewis, +1-212-908-0886
Senior Director
or
Committee Chairperson
Saavan Gatfield, +1-212-908-0542
Senior Director
or
Media Relations, New York
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com