DBRS Morningstar Confirms I-77 Mobility Partners LLC at BBB with a Stable Trend

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating of I-77 Mobility Partners LLC (ProjectCo) at BBB with a Stable trend. DBRS Morningstar also confirmed the BBB ratings and Stable trends of the $100.0 million Private Activity Bonds and the $189.0 million TIFIA Loan borrowed under the Transportation Infrastructure Finance and Innovation Act (TIFIA), which ProjectCo used to fund the design and construction of the I-77 managed lanes project (the Project) in North Carolina under a 50-year Comprehensive Agreement (CA) with the North Carolina Department of Transportation (NCDOT).

ProjectCo achieved Final Acceptance on December 23, 2020, and has recently made the Final Completion submission to NCDOT. DBRS Morningstar notes that a failure by ProjectCo to meet the Final Completion deadline (180 days after Final Acceptance) would not result in the termination of the CA but would instead trigger liquidated damage payments to NCDOT, which will be passed down to the Design-Build Contractor.

During 2020, the first full year of operation, the Project was severely affected by the Coronavirus Disease (COVID-19) pandemic and stay-at-home orders, and reported 20.1 million transactions and $16.3 million toll revenue, 48% and 45% lower than the 2020 budget, respectively. Notwithstanding, helped by the one-time release of approximately $14 million from the Major Maintenance Reserve Account, the annual global debt service coverage ratio (DSCR) was 2.6 times (x) in 2020.

In Q1 2021, the Project generated $5.0 million in toll revenue, 12.9% lower than the budget that was produced in late 2020, which predicted toll revenues in 2021 to be approximately $26.5 million (the 2021 Budget). Since schools resumed in-person learning in mid-February and mobility restrictions were eased, traffic volume has rebounded materially, leading to the monthly revenue exceeding the 2021 Budget by 1.5% in March, 24.4% in April, and 23.4% in May, respectively.

DBRS Morningstar considers ProjectCo's 2021 Budget to be plausible considering that toll revenues in 2021 had accrued to around $10.2 million as of May 31 and the recovery seems gaining momentum. DBRS Morningstar currently assumes that toll revenues will be 40% lower than the initial pre-pandemic forecast in 2021 (same as the 2021 Budget), followed by 31% in 2022, 16% in 2023, and 8% in 2024 (DBRS Morningstar Base-Case Assumptions). Under these assumptions and assuming that ProjectCo will start its TIFIA payment in December 2022, the global DSCR is forecast to be 2.0x for 2021, dipping to 1.7x in 2022 (because of the commencement of TIFIA payment), increasing to 2.0x in 2023, and 3.1x in 2024.

As of May 31, 2021, the Project had adequate liquidity with $17 million in restricted cash and $22.2 million in the operating account. DBRS Morningstar notes that the North Carolina government historically explored the idea of revising or terminating the CA and NCDOT periodically met with local advisory groups to review potential opportunities to improve the corridor. Any action taken by NCDOT to modify the CA that is materially prejudicial to ProjectCo’s revenue model without sufficient compensation could lead to a negative rating action. A negative rating action could also result from a material and negative deviation from the DBRS Morningstar Base-Case Assumptions. A positive rating action is not expected at this time.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The principal methodology is Rating Public-Private Partnerships (August 19, 2020; https://www.dbrsmorningstar.com/research/365975), which can be found on dbrsmorningstar.com under Methodologies & Criteria. Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (February 3, 2021; https://www.dbrsmorningstar.com/research/373262).

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info@dbrsmorningstar.com.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.

DBRS Morningstar will publish a full report shortly that will provide additional analytical detail on this rating action. If you are interested in receiving this report, contact us at info@dbrsmorningstar.com.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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