DALLAS – A struggling Indiana highway public-private partnership may have turned a corner, according to two rating agencies.
An agreement between the construction contractor on a section of Interstate 69 and the state government extends a project default deadline, a positive development for the $250 million of now-junk rated bonds issued for the project, according to reports from S&P Global Ratings and Fitch Ratings.
"A full review of an updated technical advisor report, financial model and project schedule will be necessary to ascertain the MOU's full effect, but over time the ripple effect of the MOU could provide a credit boost for I-69," said Fitch analyst Stacey Mawson.
S&P said that the agreement may support a higher rating and the contractor can complete the project under the revised schedule.
"The IFA and the developer are in process of editing the public-private documents to appropriately reflect the MOU," said IFA spokeswoman Stephanie McFarland. "The goal is to have that completed by the end of March."
Fitch continues to rate the bonds B.
S&P affirmed the bonds' BB-minus rating and removed the bonds from watch with negative implication last week while assigning a positive outlook. It placed the bonds on watch in September.
Fitch initially rated the bonds BBB. It downgraded them to BBB-minus last April and then junked them in August. S&P originally rated the bonds BBB-minus and in September lowered the rating to BB-minus.
Delays and unresolved disputes between I-69 Development Partners LLC, construction contractor Isolux-Corsan USA, and the Indiana Finance Authority have plagued the I-69 Section 5 project.
Delays left a limited margin remaining to complete the project by the then October 31, 2017 contractual default deadline. Under the new arrangement the longstop default date under the concession agreement will be revised to Nov. 30, 2018.
The IFA issued the project bonds, lending the proceeds to private contractor, I-69 DP, to finance the upgrades to a 21-mile stretch of highway between Bloomington and Martinsville that will become Interstate 69.
The bonds are secured by a first priority lien on I-69 DP net revenues. The IFA makes milestone payments during the construction period and then availability payments after the road opens.
The arrangement also requires I-69 DP and Isolux to contribute $23.3 million and $52.0 million to the project, respectively. Isolux has made $23.0 million of its $52 million obligation, contributed through funds drawn from its letter of credit.
"I directed the IFA to work thoroughly and decisively with the developer to resolve outstanding issues and set a firm completion date for I-69 Section 5, and this (memorandum of understanding) reflects their efforts," Indiana Gov. Eric Holcomb said in a statement. "We all want this project completed as quickly as possible."
Payment issues prompted I-69 Development Partners to issue six notices of default to the contractor in August, citing failure to promptly pay subcontractors and failure to present a remedial plan.
The notice of default followed what was already an eight-month delay in completion of the project because of utility coordination and permitting delays that led to some subcontractors demobilizing from the site.
The highway is a central thoroughfare for southwest Indiana, connecting Evansville to Indianapolis, and officials say it is important to the state's future economy. I-69 will eventually extend from Mexico to Canada, "making Indiana an essential part of the primary north-south artery that moves goods and services across the United States," according to Indiana transportation officials.
