DBRS Morningstar Confirms Rating of BBB (low) With a Stable Trend on San Bernardino County Transportation Authority I-10 Express Lanes Project

DBRS Limited (DBRS Morningstar) confirmed its rating of BBB (low) on the $225.0 million TIFIA Loan (the 2021 TIFIA Loan) issued by San Bernardino County Transportation Authority (SBCTA). The trend is Stable. The TIFIA Loan was raised under the Transportation Infrastructure Finance and Innovation Act (TIFIA) program to partially fund an expansion of approximately 10 miles of the Interstate 10 (I-10) highway in San Bernardino, California (the Project or Contract 1). When the agreement for the 2021 TIFIA Loan was entered into on June 17, 2021, the previous $225.0 million 2019 TIFIA Loan was cancelled.

SBCTA acts as the County Transportation Commission of San Bernardino County, providing transportation planning and programming. The Project introduces the first tolled lanes in San Bernardino County and will have two tolled lanes and four general-purpose lanes in each direction. The Project has a 4.4-year construction period, and the land for the express lanes is leased to SBCTA by the California Department of Transportation (California DoT) for a 50-year operating period. The Project is different from typical public-private partnership (PPP) projects as it does not feature risk transfer to a special-purpose vehicle generally found in PPP transactions. DBRS Morningstar considered the construction phase, which involves the expansion of existing highway to accommodate express lanes, along with eight bridge replacements and the widening of 12 other structures, to be of low complexity. The construction obligations are being completed by The Lane-Security Paving Joint Venture (the Construction Contractor), a joint venture including Lane Construction Corp. (60%) and Security Paving Company, Inc. (40%), each with joint and several liability. TransCore, LP is the Toll Services Provider (TSP) responsible for the design, construction, and maintenance of the toll systems for the initial period, which comprises only approximately 2% of Project Costs.

The Coronavirus Disease (COVID-19) pandemic has caused construction delays resulting from interruptions in the approval process. The current construction completion date, as per the monthly progress of May 31, 2022, is expected on August 21, 2023, a delay of 49 days from the original date of July 3, 2023. However, the Issuer has noticed a few additional months of potential delays, which are still to be ascertained. As against 84% of the Project Costs expected to have been expended by April 30, 2022, only 57% has been expended. Despite the construction delays, DBRS Morningstar notes that the Project is less exposed to delays in construction, as the TIFIA repayment starts only 4.4 years after the substantial completion deadline date and the construction phase security is considered strong.

Traffic on the corridor, which was affected by the pandemic, has recovered to near pre-pandemic levels, based on traffic volumes from sample sections, in March 2022. DBRS Morningstar has not received a revised traffic forecast by the T&R forecaster, though DBRS Morningstar's expectation remains that the pandemic will not have a material impact on the long-term traffic and toll revenue projections on this Project. DBRS Morningstar also notes that the express lanes are expected to be opened only in the second half of 2023 (H2 2023) as per the current schedule. Further, the lower interest rates under the 2021 TIFIA Loan also provide greater ability to withstand traffic shocks, with a minimum debt service coverage ratio (DSCR) of 1.76 times (x). Upon completion of construction, traffic volumes that are significantly lower than expected could put pressure on the rating. DBRS Morningstar currently views a rating upgrade as unlikely in the near term because of the managed-lanes nature of the asset and the forecast financial metrics.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) that had a significant or relevant effect on the credit analysis.

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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is Rating Public-Private Partnerships (August 19, 2021), 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 (May 17, 2022; https://www.dbrsmorningstar.com/research/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings).

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.

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

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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