DBRS Morningstar Changes Trend on I-77 Mobility Partners LLC to Positive From Stable, Confirms Ratings at BBB

DBRS Limited (DBRS Morningstar) changed the trends on I-77 Mobility Partners LLC’s (ProjectCo) Issuer Rating, $100.0 million Private Activity Bonds, and $189.0 million TIFIA Loan to Positive from Stable and confirmed all the ratings at BBB. The TIFIA Loan was 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). Supporting this trend change is the strong revenue growth during 2022 and the fact that revenues have materially outperformed the financial close forecast, which DBRS Morningstar expects to continue in the future. Furthermore, the Project benefits from the full amount of the Developer Ratio Adjustment Mechanism, which has not been needed, even during the Coronavirus Disease (COVID-19) pandemic, and will provide the Project with substantial flexibility to weather a traffic downturn.

During 2022, the Project recorded 34.6 million transactions (-5% versus the 2022 budget) and $59.3 million in toll revenue (+14% versus the 2022 budget). Although the number of transactions was lower than the 2022 budget, revenue was higher as a result of base rate adjustments and dynamic pricing. Actual 2022 toll revenues were almost 30% higher than DBRS Morningstar's rating case. The annual global debt service coverage ratio (DSCR) was 3.5 times (x) in 2022, better than the 2.9x expected. The recovery seems to be gaining momentum, as it continued during Q1 2023 when the Project generated 8.8 million transactions and $17.9 million in toll revenue.

ProjectCo's 2023 budget, which predicts the full-year revenues in 2023, is approximately $81 million. DBRS Morningstar believes this to be plausible, considering that the accrued revenues as of May 31, 2023, had reached approximately $34 million. For its rating case, DBRS Morningstar currently assumes a 5% increase in traffic for 2024 and a 2% increase for 2025, which is considered the first year of normalized traffic. Under these assumptions, the global DSCR is forecast to be 4.2x in 2023, 5.4x in 2024, and 5.5x in 2025.

As of May 31, 2023, the Project had adequate liquidity of more than $15 million in restricted cash in the reserve accounts and more than $60 million in the operating account. DBRS Morningstar could take a positive rating action in the near term if the DBRS Morningstar base-case assumptions materialize as expected. DBRS Morningstar could take a negative rating action if there is a material and negative deviation from the rating case. DBRS Morningstar notes that the North Carolina government historically explored the idea of revising or terminating the CA, so any action taken by NCDOT to modify the CA that is materially prejudicial to ProjectCo’s revenue model without sufficient compensation could also lead to a negative rating action.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance 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/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (May 17, 2022).

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

DBRS Morningstar applied the following principal methodology:
-- Global Methodology for Rating Public-Private Partnerships (August 30, 2022) https://www.dbrsmorningstar.com/research/402155

The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

A description of how DBRS Morningstar analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/397223/interplay-of-global-corporate-finance-rating-methodologies-when-analyzing-corporate-finance-transactions.

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 rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the rating process for this rating action.

DBRS Morningstar had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

This is a solicited credit rating.

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.

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.

Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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