Indiana Highway P3 Falls Deeper into Junk

DALLAS – Construction delays and related payment risks on an Indiana public-private partnership highway project prompted Fitch Ratings to drop bonds issued for the project three notches, sinking it deeper in junk territory.

Fitch lowered the rating on the Indiana Finance Authority's $250 million 2014 private activity bond issue for the I-69 Section 5 project to B from BB due to delays and unresolved disputes between I-69 Development Partners LLC, construction contractor Isolux-Corsan USA and the IFA. Isolux did not respond to calls for comment.

The delay has resulted in a limited margin remaining to complete the project by the current October 2017 contractual deadline, according to Fitch.

The downgrade comes two months after Fitch took away the investment grade rating on the bonds by downgrading them to BB from BBB-minus. The ratings remain on rating watch negative after the newest downgrade.

The PABs were issued by the IFA on behalf of I-69 Development Partners and the developer is solely responsible for repayment.

Fitch's B rating indicates that material default risk is present, the rating agency said.

"Financial commitments are currently being met; however, capacity for continued payment is vulnerable to deterioration in the business and economic environment," the Fitch report said.

Negotiations are underway between all stakeholders in an effort to reach a global solution to "resolve outstanding disputes including liquidity, timing and scope," said Fitch.

"Discussions continue with the developer to ensure the road is built to a high-quality level, and within the committed time frame -- which is a standard part of any contractual relationship," said Indiana's public finance director, Dan Huge, who oversees the IFA. "Subcontractors continue to be paid current, construction remains in progress, concerns will be ironed out, and I-69 Section 5 will become a key addition to Indiana's highway network and logistical superiority across the Midwest."

Payment issues prompted I-69 Development Partners to issue two 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 delay pushed the completion of the project to June 28, 2017.

The IFA issued the bonds, lending the proceeds to private contractor, I-69 DP, to finance the renovation of a 21-mile stretch of highway between Bloomington and Martinsville that will become Interstate 69.

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.

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.

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