California managed toll lane TIFIA loan gets a Fitch upgrade

The Riverside County Transportation Commission, California, won a Fitch Ratings upgrade for a $152.2 million Transportation Infrastructure Finance and Innovation Act senior loan.

Fitch lifted the rating on the TIFIA debt to BBB-plus from BBB-minus. The rating outlook is stable.

The funding supports a managed lane project on Interstate 15 in a 15-mile stretch through suburban tracts on the west end of the county.

Federal Highway Administration

"The upgrade reflects substantial revenue outperformance since the managed lanes opened in April 2021," Fitch analysts said.

The $461 million project was constructed using the design build method in a partnership between RCTC and the California Department of Transportation involving a 50-year lease that expires in 2071. Under the terms of the agreement, Caltrans will not be able to terminate the lease prior to 50 years as long as there are outstanding bonds.

In addition to the $152.2 million TIFIA loan, the project was also funded through the issuance of $114.2 million in Measure A sales tax bonds and Measure A sales tax revenue, according to the Federal Highway Administration.

Built in the existing median, the project added two tolled express lanes in each direction, widened 11 bridges and added additional exit and entrance points.

"The rating also incorporates the project's dependence on revenue generation from an important suburban corridor with only narrow segments of meaningful congestion," Fitch said.

The improved rating also takes into account the "limited demand history for managed lanes on the I-15 corridor as well as the inherent volatility and long-term forecast risk associated with managed lane projects, which may be further exacerbated by future expansion of free alternatives," Fitch analysts said.

Those concerns are counteracted by the very strong average debt service coverage ratio of 6.8 times from 2026 to 2055. RCTC's contingent backstop from Measure A sales tax funds also provide substantial cushion to accommodate potential fluctuations in revenue.

"The I-15 project corridor is an important component of the interstate network located in western Riverside County and provides a direct link to the Riverside County segment of the SR-91 managed lanes," Fitch analysts said.

RCTC's dynamic pricing policy varies toll rates in real time based on congestion levels. There are no toll caps or floors and the minimum toll rate increases annually by inflation. The formulaic nature of toll setting somewhat insulates rates from political considerations.

The fixed-rate senior TIFIA loan allows for revenue ramp-up with no debt service payments until 2026, Fitch analysts said.

Although not anticipated, debt issuances to fund non-system projects or refinance RCTC sales tax debt is limited to a maximum of $135 million, analysts said.

Structural reserves are sufficient and include a $16.5 million ramp-up reserve, which is not distributed to the surplus account until 2028. The TIFIA reserve will increase to $18 million in fiscal 2024 from an additional $2.5 million funded from project cash flows.

The project opened in April 2021, nine months from its original scheduled completion date of June 2020, according to Fitch.

A connector providing continuous access between SR-91 and I-15 to the north opened in November 2023; operation and maintenance of the connector will be paid by I-15 toll revenues.