Fitch affirms LAX people mover debt as project is delayed again

Private activity bonds issued for Los Angeles International Airport's multi-billion-dollar people mover project were affirmed at junk by Fitch Ratings last week as the public-private project's completion date was pushed out another six months.

Fitch affirmed the speculative-grade BB-plus rating on California Municipal Finance Authority's $1.2 billion senior lien revenue bonds issued on behalf of LAX Integrated Express Solutions, or LINXS, the private team developing the project.

Fitch also maintained the negative outlook it had placed on the bonds in October before downgrading them from investment-grade BBB-minus on Jan. 19.

Los Angeles World Airports

The 2.5-mile guided rail system is the centerpiece of Los Angeles World Airport's $5.5 billion Landside Access Modernization pProgram, which will provide a long-awaited connection to the regional transit rail system.

The rating agency had warned in January the bonds could go lower if airport officials did not reach an agreement with the development team on the project's schedule relief and compensation claims within the next few weeks.

The project is 96% complete, but requires a year of testing after it's finished.

Fitch analysts said in Thursday's report that "although negotiations between LINXS and LAWA for schedule relief and cost compensation claims have extended beyond the previously anticipated resolution date of Feb. 1, and the project is now reporting a passenger service availability date past the lenders' longstop date, Fitch does not foresee funding issues for the project."

In January, Fitch analysts said the project's opening had been delayed from June to April 2025. But that opening date has been further postponed to Oct. 30, 2025, according to Fitch.

Analysts had warned then that there was only a 16-day cushion between its current construction timeline and its lender's April 30 longstop date, which marks the deadline for construction to be completed.

If that deadline is passed, the bank could hold up release of construction funds, because part of the loan agreement is the lenders' technical report has to certify to the bank or lender the project will be completed by the longstop day, Fitch senior director Jeffrey Lack said during a February interview.

"The current PSA date set for Oct. 30, 2025, also exceeds both the lenders' and concession agreement longstop dates, thereby exposing LINXS to a risk of default under its financing documents and the concession agreement, once these longstop dates are breached in 2025," Fitch analysts wrote in Thursday's report. "However, ongoing negotiations are in progress between LINXS and LAWA over schedule relief claims. Approval of these claims would alleviate the risk of default due to breach of the longstop date."

Fitch added that the technical advisor has been "able to certify that the passenger service agreement date will occur before the lenders' longstop date, a condition precedent to draw on the design-build loan under the credit agreement."

The technical advisor's findings were based on LAWA's expressed intent to grant a schedule extension, according to the Fitch report. LINXS has also said it is willing to draw on the sponsor's equity contribution earlier than the September 2024 date to make payments to the design-build contractor in a timely manner, which will help avoid a default due to non-payment of the design-build contract and the credit agreement, Fitch said.

Although the coverage ratios are consistent with an investment grade rating, the rating is constrained by the delays, Fitch analysts said. Once the project is in operation, "the project's credit profile will be reflective of a strong revenue-paying grantor and well-defined operating standards," the rating agency said.

Fitch said it "will continue to monitor the completion delays and any adverse impact that further delays can have on project's ability to service debt during the construction period."