KBRA Affirms BBB Rating for Michigan Strategic Fund Limited Obligation Revenue Bonds (I-75 Improvement Project), Series 2018
15 Nov 2024 | New York
KBRA affirms the BBB rating for the Michigan Strategic Fund Limited Obligation Revenue Bonds (I-75 Improvement Project), Series 2018 (the bonds) issued by the Michigan Strategic Fund for the Michigan I-75 Modernization Project (the project). The Outlook is Stable.
Oakland Corridor Partners LLC (OCP) is a special-purpose limited liability company formed to develop and maintain the project (1.5 miles of rural freeway, four miles of urban depressed freeway with service drives, a storage and drainage tunnel, and pump station, all located within Oakland County, Michigan) pursuant to a public-private partnership (P3) design-build-finance-maintain agreement (the project agreement) with the Michigan Department of Transportation (MDOT). OCP is indirectly owned by four private sector sponsors: John Laing Investments Limited (70%), Ajax Paving Industries, Inc. (10%), Dan’s Excavating, Inc. (10%), and Jay Dee Contractors, Inc. (10%).
Key Credit Considerations
(+/-) Construction Progress
The project achieved substantial completion on August 31, 2023, as scheduled, except for the work relating to the differing site conditions event (Milestone 3A), which was completed in Q1 2024. The final acceptance certificate for the project was issued on June 20, 2024.
(+/-) Availability Payments Received
The developer submitted availability payment invoices for $38,845,647 through Q3 2024, which include no deductions for unavailability events and a minor deduction for noncompliance points. This deduction represents less than 0.01% of total availability payments. Availability payments through Q3 2024 are slightly above KBRA’s rating case expectation of $38,365,501, resulting in a debt service coverage ratio (DSCR) of 1.16x.
Rating Sensitivities
A rating upgrade is unlikely at this time due to the DSCRs required to achieve a higher rating. KBRA may downgrade the rating if DSCRs are consistently lower than KBRA’s projections during the maintenance term.
ESG Considerations
Environmental Factors
The project will add a crucial storage and drainage tunnel and pump station to prevent any future flooding; in the past, heavy rains have overwhelmed the freeway’s drainage system and flooded the low-lying I-696 Interchange.
Social Factors
This portion of the I-75 is a key commercial, commuter, and tourist route handling a daily traffic volume of 103,000 to 174,000 vehicles, which is projected to increase 10% by 2035. The corridor exhibits aging infrastructure that has not received comprehensive improvements since being built in the 1960s. The project will add much-needed capacity and critical infrastructure to the corridor that will help relieve traffic congestion and improve surface driving conditions and safety.
Governance Factors
The milestone payments and availability payments are subject to annual appropriation by the Michigan legislature. MDOT is expected to use funds in the State Trunk Line Fund to make the milestone and availability payments. KBRA views appropriations risk to be low, given that MDOT is a highly creditworthy governmental entity and milestone payments and availability payments account for a very small percentage of MDOT’s annual highway investment expenditure (less than 1% and 4%, respectively).
Rating Rationale
KBRA affirms the BBB rating, given the substantial completion of project as well as average DSCRs of 1.15x during the maintenance term under the KBRA rating case.
Outlook
The Stable Outlook reflects KBRA’s view that OCP is able to successfully operate and maintain the project with limited interruptions to availability; however, a rating upgrade is unlikely due to the DSCRs required to achieve a higher rating. KBRA may downgrade the rating if DSCRs are consistently lower than KBRA’s projections during the maintenance term.
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