DBRS Morningstar Confirms Ratings on I-77 Mobility Partners LLC

On June 29, 2022, 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 received the Certificate of Final Completion from NCDOT on August 3, 2021. During 2021, the Project recorded 29.1 million transactions and $35.1 million toll revenue, 8% and 32% higher than the 2021 Budget, respectively. The annual global debt service coverage ratio (DSCR) was 3.8 times (x) in 2021, better than expected.

In Q1 2022, the Project generated 7 million transactions and $10.4 million in toll revenue. Although the number of Q1 transactions was 12.4% lower than the 2022 Budget, the toll revenue was 2% higher as a result of base rates adjustments and dynamic pricing.

DBRS Morningstar considers ProjectCo's 2022 Budget, which predicts the full-year revenues in 2022 to be approximately $51 million, to be plausible, considering that the accrued revenues as of May 31 had reached approximately $20 million and the recovery seems to be gaining momentum. DBRS Morningstar currently assumes that toll revenues will be 10% lower than ProjectCo's pre-pandemic forecast in 2022 (or $48.6 million), 5% lower in 2023, and full ramp-up will be achieved 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 2.9x for 2022, 2.6x in 2023, and 3.5x in 2024, supportive of the ratings.

As of May 31, 2022, the Project had adequate liquidity with $17.9 million in restricted cash and $34.5 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.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance (ESG) factors 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.

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

The principal methodology is Rating Public-Private Partnerships (August 19, 2021; https://www.dbrsmorningstar.com/research/383244), 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).

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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