KBRA Affirms BBB Rating to Colorado High Performance Transportation Enterprise’s $501 Million I-25 North Express Lanes Revenue Bonds (TIFIA)
7 Aug 2024 | New York
KBRA affirms its BBB rating for the Colorado High Performance Transportation Enterprise (HPTE) I-25 North Express Lanes Revenue Bonds. The Outlook is Stable. The financing plan consists of a loan of $501 million from the U.S. Department of Transportation (the lender) to HPTE. This loan, which is evidenced by a project bond (the TIFIA bond), constitutes federal project credit assistance under the Transportation Infrastructure Finance and Innovation Act (TIFIA) for the I-25 North Express Lanes Project (the project). The TIFIA bond achieved financial close as of August 3, 2023.
The TIFIA bond has a subordinate lien priority in toll revenues and other cash flows generated in connection with the project, which included only segment 2 and segment 3 of the project as of financial close, as these segments reached substantial close in 2016 and 2020, respectively. The TIFIA bond bears interest at an annual rate of 4.26% and has a maturity date of December 31, 2062. Interest and principal on the TIFIA bond will be paid semiannually. The TIFIA bond will fully amortize by the projected maturity date.
TIFIA bond proceeds will fund eligible project costs for segments 5-8 of the project, which did not form part of the trust estate as of financial close. These segments will only form a part of the trust estate upon reaching substantial completion. As a result, we do not include any potential revenues generated from these segments in our rating case.
HPTE is partnering with the Colorado Department of Transportation (CDOT) to operate the project in accordance with an intra-agency agreement and the E470 Public Highway Authority (E470 PHA)―a local governmental authority formed by the counties of Adams, Arapahoe, and Douglas―to collect toll revenues and provide other toll services.
Key Credit Considerations
(+) No Construction Risk
Revenues that will service the TIFIA bond are from segment 2 and segment 3, which reached their commercial operation dates in July 2016 and June 2020, respectively.
(+) Revenues in line with Projections
Gross transactions on segment 2 totaled 7.94 million in H2 2023 and H1 2024 (through April), which is in line with the KBRA forecast for these two semi-annual periods (8.1 million). Gross transactions on segment 3 totaled 3.86 million in H2 2023 and H1 2024 (through April) significantly trails KBRA’s forecast of 6.52 million for these two semi-annual periods. Revenue (after leakage), however, is in line at $17.54 million, compared to KBRA’s forecast ($17.9 million).
(+) Transaction Liquidity
The project benefits from several liquidity sources, including a debt service reserve account, operations and maintenance reserve account, and a renewal and replacement account, which are all funded at levels at or above market precedent.
(+) No Debt Service Due
There is no debt service due on the TIFIA bond until 2025.
Rating Sensitivities
A rating upgrade could occur if traffic ramp-up for segment 3 and toll revenues are significantly better than expected and consistently outperform KBRA’s projections.
KBRA may downgrade the rating if traffic volumes are significantly lower than KBRA’s projections, resulting in cash flows available for debt service consistently below KBRA’s projections.
ESG Considerations
Environmental Factors
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 I-25 Express Lanes are an essential component of the interstate highway system connecting the greater Denver metropolitan 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
HPTE will have oversight of the project throughout the term of the debt. HPTE is owned by the State of Colorado and governed by an independent board of directors. Coordination between HPTE and other governmental agencies, including CDOT and the toll services provider, will be integral in operating and collecting revenues from the project. Policy changes or a lack of transparency between the parties could negatively impact the project.
Surveillance Rating Rationale
Under KBRA’s rating case, we expect the project to have an average DSCR of 2.3x through the term of the bonds. The rating and Stable Outlook reflect the project’s contractual structure, historical performance, and robust coverages through the term. These attributes and the project’s KBRA Project Risk Score (KPRS) score of Strong, together with the strong performance over the surveillance period, support an affirmation of the BBB rating.
Outlook
The Stable Outlook reflects the substantial liquidity in place during the operations phase and experience of the operators. A rating upgrade may occur if ramp-up on segment 3 is stronger than expected and traffic significantly exceeds expectations. A downgrade may occur if traffic volumes are consistently lower than KBRA’s projections during the operations phase.
To access rating and relevant documents, click here.