A $250 million settlement forged between the state of Maryland and sponsors of the Purple Line light-rail transit project will allow completion of the delayed public-private partnership, but financing details have not been released, leaving unanswered the question of whether additional bonding will be needed.
The Maryland Department of Transportation (MDOT) agreed to pay $250 million to settle a
While the deal is a positive for bondholders who backed the P3, since it removes potential litigation that could have derailed the project, further clarity is needed about whether existing investors will be paid off and if new debt is necessary before determining long-term benefits, according to S&P credit analyst Dhaval R. Shah. PLTP issued $323 million of private activity bonds for the Purple Line Project through the Maryland Economic Development Corp. in 2016.
“We know that the construction will continue, but whether the construction will continue with existing lenders and whether there will be no debt we still don’t know,” Shah said. “There are a lot of questions to be answered, but it does take away a substantial portion of uncertainty assuming it is approved.”
S&P placed its BBB-minus rating for PLTP’s senior-lien revenue bonds on credit watch negative back in March citing possible construction delays that could result from the COVID-19 pandemic. Shah said S&P would revisit PLTP’s credit conditions once the settlement is approved and an upgrade might follow, depending on terms of the agreement, such as whether additional financing is needed and the updated construction schedule.
Fitch Ratings rates the bonds five notches lower at B and has them on negative watch following a three-notch downgrade from BB in August due to heightened risk of work stoppages and potential court action. Fitch did not immediately respond for comment.
In addition to floating bonds, the project also got financial backing from an $875 million low-interest Transportation Infrastructure Finance and Innovation Act loan. MDOT has previously said additional bonds could be issued by the agency or other entities to help finance the Purple Line’s completion, but did not provide an update on financing plans in the settlement announcement.
Paul Lewis, vice president of policy and finance at the Eno Center for Transportation, said while the settlement is a short-term benefit to bondholders by assuring the project is back on track, formulating a realistic financing strategy will be vital for the P3 to ultimately prove successful. PLTP and MDOT will need to find a way to redistribute some of the project costs to account for losses incurred from delays, he said.
“The next challenge will be whether the state and the private partners can learn their lessons from what went wrong in the first phase of this work and make sure it doesn’t happen again,” Lewis said. “There is still an awful lot to go in the construction phase and if the problems continue, then we’re going to be back in the same situation in not very long.”
The private partners, Meridiam, Start America and Fluor, had unsuccessfully negotiated with MDOT since June 2017 to resolve disputes over construction delays. MDOT said in its announcement last week that Fluor will no longer be part of the P3 agreement. Meridiam and Start America, will seek a new design-build contractor in coordination with MDOT.
MDOT and the Maryland Transit Administration (MTA) will continue to oversee Purple Line’s existing contracts and purchase orders until the agreement is approved by BPW.
“When you are trying to solve complex issues, collaboration is the key,” Maryland Transportation Secretary Gregory Slater said in a statement. “In big projects like this, there are challenges you will encounter, and it takes a good partnership to work together productively on solutions.”
