KBRA Affirms Ratings for Virginia Small Business Financing Authority and Capital Beltway Express LLC’s $1.4 Billion Financing

1 Mar 2024   |   New York


KBRA affirms its BBB+ ratings for the Virginia Small Business Financing Authority’s (the issuer) $112.1 million and $186.7 million Tax-Exempt Senior Lien Private Activity Toll Revenue Bonds (I-495 HOT Lanes Project), Series 2022 (the bonds), which support the Route 495 HOT Lanes Project (495 HOT Lanes) in Fairfax County, Virginia. KBRA also affirms its BBB preliminary ratings for Capital Beltway Express LLC’s (the borrower and concessionaire) $212 million and $840.7 million Taxable Subordinate Lien TIFIA Revenue Notes, (I-495 HOT Lanes Project), Series 2022 (the Series 2022 Subordinate Notes), as well as to the borrower’s $49 million loan from the Virginia Transportation Infrastructure Bank (the VTIB Loan). The Outlook on all ratings is Stable.

The Transportation Infrastructure Finance and Innovation Act (TIFIA) loans constitute federal project credit assistance for both the 495 HOT Lanes, which was substantially completed in 2012, and Project NEXT, which should be substantially complete in 2025.

In December 2007, the borrower and the Virginia Department of Transportation (VDOT) entered into the amended and restated comprehensive agreement (ARCA) related to the design, build, finance, operations, and maintenance of 495 HOT Lanes, which created 14 miles of two new lanes in each direction along the Capital Beltway. Since construction completion in 2012, the concessionaire has been managing operations throughout the ARCA’s 80-year term. Now, the borrower and the issuer have financed Project NEXT, a 2.5-mile northern extension of the 495 HOT Lanes (also called the 495 Express Lanes). Together, Project NEXT and the 495 HOT Lanes are referred to herein as the project.

Proceeds refinanced existing debt and provided funding for Project NEXT, whose project area has long been recognized as a major traffic bottleneck. The extension will serve as an essential connector to the current Virginia managed lanes network, as well as the future Maryland managed lanes network, which is currently under development. Construction of Project NEXT is being led by Lane Construction Corporation, the design-builder (DB) under the design-build contract (DBC), which was executed at commercial close. The DB received a full notice to proceed at financial close on March 1, 2022. Final completion is targeted for May 2026.

Key Credit Considerations

(+/-) Improved Usage and Revenues

Usage increased in second-half 2023; the average of actual tolls through 2023 was $7.11, 32.9% higher than the average of $5.35 seen in 2022. Revenues in 2023 improved compared to 2022, surpassing the sponsor’s updated budget, though were still slightly lower than KBRA’s expectations from closing. Debt service coverage ratios (DSCR) have improved since 2022. The full-year senior DSCR was 5.66x, while the total DSCR was 1.86x.

(+) Construction on Schedule

As of December 31, 2023, the project is on schedule for service commencement (December 1, 2025) and final completion (May 30, 2026). The overall project is 36% complete for the baseline schedule. To date, total payable progress is $159 million (36%) of the base DB contract price of $441.7 million. There have been six change orders executed to date totaling $9 million.

(+) Transaction Liquidity

The transaction has strong liquidity in place during both the construction and operation periods. During construction, the transaction has payment and performance bonds for 100% of the contract price as well as liquid security equal to 3% of the contract price. There is a respective 12-month debt service reserve account (DSRA) each for the bonds, the TIFIA loans, and the VTIB loan. Subject to cash flows, there will also be operations and maintenance (O&M) and major maintenance reserves in place for the project.

Rating Sensitivities

An upgrade is unlikely during the construction period. Once Project NEXT is operational, an upgrade could occur if traffic ramp-up progresses faster than expected, or if toll revenues consistently outperform projections.

A downgrade could occur if construction does not progress according to the construction schedule, the substantial completion date is delayed, or if traffic volumes and toll revenues are substantially lower than projections, resulting in a faster drawdown of the ramp up reserve account than expected.

ESG Considerations

Environmental Factors

Washington, D.C., is targeting carbon neutrality by 2050. Given that vehicles are responsible for a meaningful portion of carbon emissions, there could be future regulation or policies that discourage single-occupancy vehicles typically used by commuters, which could impact traffic levels and tolling revenues.

Social Factors

The 495 HOT Lanes are an essential component of the interstate highway system connecting the greater Washington, D.C., region. Project revenues are reliant on traffic volumes from the surrounding neighborhoods, which can be influenced by a multitude of social factors including employment levels and household income. The project benefits from a diversified local economy with higher GDP per capita and median income than the national average.

Governance Factors

VDOT is the primary sponsor of the project and will have oversight of the project throughout the term of the debt. Coordination between VDOT and other project participants, including the DB and the operator, will be integral in developing and managing the project. Policy changes or a lack of transparency between the parties could negatively impact the project.

Rating Rationale

While the COVID-19 recovery has been slower than expected, and DSCRs have been lower than expected to date, traffic conditions have seen improvement, supporting the affirmation of the ratings. The Average KPRS score and an average senior DSCR of 13.41x through the term of the senior debt is sufficient for a rating of BBB+ for the bonds. The Average KPRS score and consolidated average DSCRs of 3.23x (through 2047) are sufficient for a BBB rating for the TIFIA loans (springing senior). Similar to the TIFIA loans, the VTIB loan is subordinated to the senior debt, as reflected by the rating of BBB.


The Stable Outlook reflects the substantial liquidity in place during the construction phase and experience of the contractors. An upgrade is unlikely to occur while the project is undergoing construction. However, delays to the substantial completion date, significant cost overruns, or prolonged poor utilization could lead to a downgrade.

To access ratings and relevant documents, click here and here.



A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the Information Disclosure Form(s) located here.

Information on the meaning of each rating category can be located here.

Further disclosures relating to this rating action are available in the Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.

About KBRA

Kroll Bond Rating Agency, LLC (KBRA) is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider.

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